.DCIT., CIR.-4(2),MUMBAI vs. M.M. POONJIAJI SPICES LTD, MUMBAI

Assessee has raised an application under rule 27 of ITA T rules filed on 31/05/2018 against the order of the learned CIT – A wherein the rejection of books of accounts was confirmed.

Facts of the case show that the assessee is a private limited company engaged in the business of manufacturing pickles, spices, paste and chutney. It filed its return of income on 31/10/2001 declaring loss of ₹ 275,407/– the return of income was supported by the audited accounts of company, tax audit report. This return of income was processed under section 143 (1) of the act on 16/5/2002. The

As the assessee company is engaged in the business of garlic powder, ginger powder, madras curry powder including pickles and spices et cetera, it also claimed deduction under section 10 B of the act of rupees to .27 crores being hundred percent of the profits derived from the business of preparation and export of powder, seeds, pickles, spices, paste, chutney. On question, the learned AO found that.

Thus, for verification of the statutory condition assessee was requested to furnish details. Assessee was given 10 opportunities to prove its claim of deduction under section 10 B of the act of ₹ 227 lakhs which assessee failed. However, the assessee submitted that regarding deduction under section 10 B of the act assessee has already filed a detailed submission as per letter dated 10/8/2006 for assessment year 2004 – 05 which may be considered. The AO further issued a final show cause notice on 1 December 2006 stating why the deduction allowed under section 10 B should not be disallowed as the statutory condition laid down under that section are not fulfilled. Assessee did not file any information. Therefore, the learned assessing officer decided the issue of eligibility of deduction under section 10 B of the act on its merit.

The AO examining the first condition stated that the undertaking at Nasik and Ratlam Formed by the transfer of machinery in plant previously used in other business to a business already in existence. It was found that for Nasik undertaking Widem machines private limited was in the business of flavored syrup and mineral water. On 19 February 1991 that private limited company is an associate concern of the assessee of paint allotment of factory land at

With respect to the Ratlam unit it was found that on 1/9/1993 M M Poonjiaji and company which is a proprietary concern of M/S Arte Indiana has taken over on lease the factory premises for preparation of pickles and masalas. This proprietary concern obtained excise

As the plant and machinery of Nasik unit has been previously used by Widem industries private limited and taken on lease from that company by the assessee and further the plant and machinery of Ratlam unit were taken over from another company which was also used by previously M M Ponjiaji foods private limited. Therefore, the old plants and machinery have been transferred to new units. The learned AO rejected the explanation of the assessee that the plant and

Assessee further contested that AO has completed the assessment of Arte Indiana and passed order under section 143 (3) for assessment year 1996 – 1997 and 1997 – 1998 thereby verifying the acquisition of the assets and therefore now once again the assessing officer is investigating the same facts. The AO rejected the same holding that AO did not specifically mentioned anything in orders about the acquisition of the assets.

The learned assessing officer further found that various statements made by the assessee are incorrect. Therefore, he asked for information from central excise department Ratlam and Nasik, District industries Centre, sales tax department Mumbai and customs department New Mumbai. The information collected from these departments was shown to the assessee. Based on this information the learned AO reached at the conclusion that Nasik unit was started on 29/6/1992 by another company and not by the Assessee Company and plant and machinery of Ratlam unit was used by another

The second ground of disallowance of deduction was that that the beneficial interest in the undertaking at Nasik has been transferred by one company to the assessee and the beneficial interest of wrath alarm unit was transferred to assessee by another company. Thus, there is a violation of subsection 9 of section 10 B of the act. In absence of any explanation by the assessee, the learned AO held that the assessee case is covered by the above section and therefore the assessee is not entitled for deduction.

The learned AO further questioned that the sale proceeds of the articles exported out of India are not received or brought into India within the period of six months for the reason that in spite of giving sufficient opportunity the assessee has failed to prove that the entire receipt of ₹ 18.79 crores were brought into India in the form of convertible foreign exchange within the period of six months or further. As extended. Therefore, the assessee is also not eligible for a deduction under section 10 B of the act.

The learned AO further noted that assessee is in the business of preparing pickles, based, chutney which both on the facts and in law does not amount to manufacture or production. The preparation of pickles involves mixing of cut fruits, vegetables, masala, green chilis

Further the assessee has not produced the books of accounts, material receipts, packing list, applications to excise department for removal of goods, stock register is, and books of accounts, necessary details were called for from the JNPT for financial year 2003 – 04 and 2004 – 05. It was found that the assessee has not only exported pickles, paste, and chutney but also exported machinery parts, machinery, seeds powder and sweet mango slices. In fact, the assessee was shown to be an export house. The assessee has submitted a step-by-step stage of preparation of pickle to show that it is a manufacturing activity. Assessee also produced various decisions in support of claim to show that the activity of preparing pickle from fruits et cetera is a manufacturing activity. It was further stated that in assessment year 97 – 98 the assessing officer accepted the assessee’s activities as manufacturer and granted a deduction. The learned assessing officer rejected all of them and stated that process of activity carried on by the assessee company of preparing sweet mango slices, pickles and also exporting various seeds et cetera does not constrain you to manufacture or production within the meaning of section 10 B.

The learned AO further questioned the report under section 10 B in form number 56G of the act of the respective unit and held that the assessee has not fulfilled and complied with the provisions of section 10 B and rule 16 E and prescribed form number 56G are not proper. Accordingly, he held that assessee does not fulfill the criteria for the

As the assessee did not produce the books of accounts and did not submit the supporting bills and vouchers during the year, he found that the expenses debited to the profit and loss account were not explained after giving sufficient opportunity to the assessee. Therefore, he rejected the book results and completed the assessment on the basis of material facts available on record under section 144 of the act.

The AO further examined the claim of the assessee of deduction under section 80 HHC of the act. As the assessee has not submitted the prescribed certificate in form number 10 CCAC and further the goods were produced by an exported by the assessee, the deduction under section 80 HH C was also disallowed as an alternative claim.

The AO further found that there is a difference in account with respect to both the entities and therefore an addition of ₹ 2,381,763/– was also added to the total income of the assessee. Assessee or obtained unsecured loan of ₹ 15,158,958 confirmation of which were not provided, addition was also made to that extent. Depreciation was also disallowed based on the previous year’s assessment orders.

During the course of assessment proceedings, the assessee company was asked to furnish the stock statement submitted to the bank on 31/12/2001. On examination of the details, it was found that the stock as given to the Bank was ₹ 14.04 crore and stock as per balance sheet was ₹ 11.85 crore and thus there is a difference of

Accordingly, assessment order was passed under section 144 read with section 147 of the income tax act on 20/12/2006 assessing the total income of the assessee at ₹ 49,734,160 against the returned a loss of ₹ 275,407/–.

Assessee preferred appeal before the learned CIT – A. The appellate order was passed on 28/2/2008 wherein assessee challenged that the order is passed in the breach of principles of natural justice bad in law and reopening is also not valid. On merits also the additions were also challenged.

Learned CIT – A confirmed the reopening of the assessment as invalid. With respect to the challenge of assessment under section 144, the action of the AO was confirmed. With respect to the rejection of the books of accounts under section 145 of the act the learned CIT – A held that the addition has not been made on the basis of any rejection in the books of accounts and therefore same was allowed. With respect to ground number 6 against the disallowance of deduction under section 10 B of the act, the learned CIT – A the first assessment for assessment year 2003 – 2000 for was passed under section 143 (3) wherein for the first time the claim of exemption under section 10 B of the assessee was disallowed holding that the assessee has not fulfill the necessary condition prescribed under section 10 B. As a consequence, assessment year 2000 – 2001, 2001 – 2002 and 2002 – 2003 were reopened. Further assessment year 2004 – 2005 was also taken under scrutiny. The first appeal for the assessment year 2003 – 04 is decided by the CIT – A

The learned CIT – A forwarded the written submission made by the assessee to the assessing officer for his comments and the AO has made his remand report on 24/9/2007. Such a remand report is also reproduced at page number 43 – 48 of the appellate order. A copy of the remand report was provided to the assessee for its comment which was replied to on 10/10/2007 in the form of rejoinder which is reproduced by the learned CIT – A at page number 48 – 62. Further a paper book was also filed by the assessee on 11/1/2008 providing copies of the permission 400% export oriented unit, a chart showing the main issues raised by the assessing officer, copies of the certificates in form number 56G certifying the deduction under section 10 B and also a chart giving details of hearing before the learned assessing officer. The various assessment orders, annual

Thus learned AO is aggrieved with the same and is in appeal before us.

Ground number 1 – 8 is with respect to the claim of deduction under section 10 B of the act with respect to Nasik and Ratlam units. The learned departmental representative Shri C M Kacha, SR DR vehemently supported the order of the learned assessing officer. He submitted that the learned assessing officer has given several reasons for the purpose of denial of deduction under section 10 B of the act. He submits that.

In view of the above arguments, it was submitted that the order of the learned CIT – A granting the deduction to the assessee under section 10 B of the act is not sustainable in law.

The learned authorized representative Dr K Shivram submitted that:-

Accordingly, he submitted that there is no infirmity in the order of the learned CIT – A in allowing the claim of the deduction under section 10 B of the act.

We have Carefully Considered the Rival Contention and Perused the Order of the Lower Authorities. The Claim of the Deduction under

The only dispute is with respect to the fact that whether the assessee is entitled to deduction under section 10 B of the income tax act with respect to the eligible profits of eligible units at the Nasik and Ratlam. The first issue that arises whether the assessee manufacturing pickles by purchasing raw fruits and vegetables, using masala and different process can be said to engaged in manufacturing activity or not which is entitled for deduction under section 10 B of the act. Identical issue arose in case of Sterling Agro Products Processing (P.) Ltd. [2011] 13 taxmann.com 174 (Chennai)/[2011] 48 SOT 80 wherein the coordinate bench has held as under:-

With respect to the conversion of the firm into a company and use of plant and machinery, it is a fact that both the units of the assessee became hundred percent export-oriented units in 2001 – 01. The first year of claim of deduction under section 10 B was assessment year 2001 – 02. With respect to the use of plants and machinery the learned CIT – A gave a categorical finding about acquisition of the machinery in different years. This is held after the obtaining of the remand report. Thus, the finding of the learned assessing officer was in consequence of nonproduction of detail by the assessee. When the assessee has produced the details before the learned CIT – A, the remand report is obtained; there is no reason to sustain the disallowance.

Accordingly, we felt the order of the learned CIT – A allowing the claim of the assessee of deduction under section 10 B of the act.

The learned authorized representative during the pendency of this appeal has raised several applications, revising existing grounds of appeal, filing additional ground of appeal, revised concise grounds of appeal etc. those are not pressed before us but merely the issue with respect to deduction under section 10 B are raised. It was also raised that the learned CIT – A has admitted the additional evidence,

The second issue is with respect to the difference of stock submitted to the banker and book stock. The learned assessing officer has noted that there was a difference of stock shown in the books of account in the statement shown to the banks and that the difference to the total income of the assessee of ₹ 21,909,800. CIT – A held that a similar issue arose in the case of the assessee for assessment year 2003 – 04 and on the basis of reconciliation the addition was deleted as difference to explained. This was after obtaining the remand report of the learned assessing officer. We do not find any infirmity in the order of the learned CIT – A because addition could not be made on the basis of difference between the closing stock declared in the statement submitted by the banker is less than the book stock. Accordingly, we dismiss this ground of appeal of the AO also.

As, the issue raised by the learned authorized representative under rule 27 of ITA T rules has merely become academic issue, same is also dismissed.

In the result ITA number 2943/M/2008 for assessment year 2001 – 02 filed by the learned assessing officer is dismissed.

ITA number 4987/M/2008 is filed by the learned assessing officer for assessment year 2002 – 03 against the appellate order passed by the Commissioner of income tax (appeals) –Iv, Mumbai dated

The second ground of appeal is with respect to the difference in closing stock. Assessee has submitted stock to the bank the stock provided to the bankers ₹ 158,428,700 whereas the book stock is ₹ 135,830,497/– this resulted into difference in closing stock of ₹ 22,598,203/–. Same was added to the total income of the assessee. The assessee submitted before the learned assessing officer that this issue is covered by the decision of the learned CIT – A in assessee's own case for the earlier year. The learned AO dismissed this ground and stated that the order of the learned CIT – A has not been accepted and further the learned assessing officer with respect to the addition held that that part of the addition has already been made in assessment year 2001 – 02 and therefore only the differential addition of ₹ 688,403/– was made during the year. The learned CIT – A followed his own decision for assessment year 2001 – 02 unrelated the addition. Further, as in the case of the assessee for assessment year 2001 – 02 we have confirmed the order of the learned CIT – A, for similar reasons, we confirm the order of the learned CIT – A for this year also and dismiss this ground of appeal.

For assessment year 2003 – 04 the learned assessing officer in ITA number 537/M/2006 has challenged the order of the learned CIT – A and deduction under section 10 B of the act to the assessee. The facts and circumstances relating to the disallowance of deduction under section 10 B are similar. As we have categorically held in assessment year 2001 – 02 in ITA number 2943/M/2000 date that assessee is eligible for deduction under section 10 B of the act, giving similar reasons for this year also, we dismiss the appeal of the learned assessing officer and confirmed the order of learned CIT – A grant deduction to the assessee under section 10 B of the income tax act amounting to ₹ 25,050,587/–.

The argument of the learned authorized representative by invoking the provisions of rule 27 of the ITAT rules is also on the similar line as raised for assessment year 2001 – 02. In view of dismissing the appeal of the learned assessing officer it becomes merely academic in nature and hence dismissed.

Another issue is with respect to the disallowance of trading loss of ₹ 8,005,983 incurred by the assessee held to be by the learned assessing officer is a speculation loss. The learned CIT – A deleted the same.

On careful consideration of the rival arguments, we find that the assessee has purchased so have been from Cargill global trading private limited and exported to Cargill International Limited and

In the result ITA number 6537/M/2006 for assessment year 2003 – 2004 filed by the learned assessing officer is dismissed.

ITA number 4988/M/2008 is filed by the learned assessing officer for assessment year 2004 – 05 challenging the deletion of the disallowance of deduction claimed by the assessee under section 10 B of the income tax act and further addition on account of difference in book stock and stock given to the bank by the learned CIT – A as per order dated 19/05/2008. This year assessee has claimed deduction under section 10 B of ₹ 28,120,497/– which was disallowed by the learned assessing officer however allowed by the learned CIT – A following its decision for the earlier year. The identical issue arose in the case of the assessee for assessment year 2001 – 02 wherein dismissing the appeal of the learned AO we have directed the learned assessing officer to allow the claim under section 10 B of the act confirming the order of the learned CIT – A. For similar reasons, this year also we uphold the order of the learned CIT – A and dismiss those grounds of appeal raised by the learned assessing officer.

Second issue in the appeal raised as per ground number 8 of the appeal is with respect to the addition on account of the difference in closing stock as per statement submitted bank and as per the balance sheet this ground is identical to the ground raised in the appeal for

Ground number 9 of the appeal is with respect to the order of the learned CIT – A in allowing the laws in trading and spices. During the year under consideration the assessee has undertaken some trading sales and has incurred loss to the extent of ₹ 419,635/–. The assessee explained that it was on account of trading operations however the learned assessing officer without verifying the details filed is held that the trading activities nothing but a speculation loss which the appellant is not entitled to get set of against the normal business income. Therefore, such loss was disallowed. The learned CIT – A holding it to be a regular trading loss.

On careful consideration of the argument of the parties it was found that that it is a loss arising from the sale of goods and high seas. Therefore, it cannot be said to be a speculation loss. Accordingly, the order of the learned CIT – A holding it to be a regular trading loss is upheld. Ground number 9 of the appeal is dismissed.

Accordingly, ITA number 4988/M/2008 for assessment year 2004 – 05 filed by the learned assessing officer is dismissed.

ITA number 6523/M/2008 is filed by the learned assessing officer against the order of the CIT appeals dated 1/8/2008 for assessment year 2005 – 06.

Ground number 1 – 6 is with respect to the deduction under section 10 B of the act. This is identical to the appeals of learned AO for

Ground number 7 is with respect to the addition made on account of difference in closing stock as per statement submission submitted to the bank and as per the balance sheet deleted by the learned CIT – A. This is also identical to the appeal of the learned assessing officer for assessment year 2001 – 02, while deciding that appeal, we have confirmed the order of the learned CIT – A deleting the above addition, for similar reasons we also confirm the order of the learned CIT – A and dismiss ground number 7 of the appeal.

Ground number 8 is with respect to the loss incurred by the assessee held by the learned assessing officer is speculation loss whereas the learned CIT – A following the order for assessment year 2003 – 04 and 2004 – 05 held that it is a regular trading loss incurred by the assessee. As this ground of appeal is identical to appeal of the learned assessing officer for assessment year 2003 – 04 and 2004 – 05, while deciding that appeal, we have confirmed the order of the learned CIT – A for similar reasons, we uphold the order of the learned CIT – A for this year also holding that the loss incurred by the assessee is not a speculation loss. Ground number 8 of the appeal is dismissed.

ITA number 5539/M/2009 filed by the learned assessing officer for assessment year 2006 – 07 against the appellate order passed by the learned CIT – A on 7/7/2009.

Ground number 1 of the appeal is against the deletion of disallowance of deduction under section 10 B of ₹ 31,009,477/–. This issue is identical to the appeal of learned AO for earlier years starting from assessment year 2001 – 02. As the arguments of the parties remains the same and there is no change in the facts and circumstances of the case, following our own decision for assessment year 2001 – 02 wherein we have confirmed the order of the learned CIT – A and that the learned assessing officer to allow the deduction under section 10 B of the act, we also dismiss ground number 1 of this appeal.

Ground number 2 is with respect to the addition of ₹ 26,539,393/– deleted by the learned CIT – A. The learned assessing officer has made the addition on account of difference in closing stock which could not be reconciled by the assessee and therefore rejecting the books of accounts estimated the profit at the rate of 26%. The learned CIT – A deleted the addition partly considering the gross profit rate of 1% as fair and reasonable against the gross profit declared by the assessee of 0.34%. Thus, the learned CIT – A confirmed the addition of ₹ 1,584,547/–. This is also ground number 1 – 3 of the appeal of the assessee in ITA number 5047/M/2009.

Ground number 4 of the appeal of the assessee is with respect to the order of the learned CIT – A in confirming the disallowance of ₹ 146,418/– in respect of provident fund and ESIC payment. During the course of the assessment proceedings the assessee was asked to furnish details on the employee’s contribution to the above fund and the date of payment. It was found that a sum of ₹ 146,418/– was collected from the employees but the date of payments has not been filed. Therefore, the learned assessing officer made the addition. When the matter reached before the learned CIT – A the assessee submitted that there is a double disallowance of the same amount.

In the result ITA number 5539/M/2009 filed by the learned assessing officer is dismissed and ITA number 5047/M/2009 filed by the assessee for assessment year 2006 – 07 is partly allowed.

For assessment year 2007 – 08, ITA number 3409/M/2011 is filed by the learned assessing officer against the order of the learned CIT – A – 11 Mumbai dated 10/2/2011 raising 2 grounds of appeal. The first ground of appeal is with respect to the disallowance of deduction under section 10 B of ₹ 3,44,04,950/– under section 10 B of the act is squarely covered in favour of the assessee by the decision of the coordinate bench in ITA number 2943/M/2008 wherein the order of the learned CIT – A is in appeal for assessment year 2001 – 02. As the issue is the same, we follow our own decision for assessment year 2001 – 02 in above ITA, dismiss ground number 1 of the appeal.

Ground number 2 of the appeal is with respect to the deletion of the addition of ₹ 15,639,254 on account of suppression of profit by rejecting the books of accounts. Briefly stated the facts shows that on the basis of the stock details filed by the assessee, the learned

ITA number 755/M/2012 is filed by the learned assessing officer for assessment year 2008 – 09 against the order of the Commissioner of income tax – – 8, Mumbai dated 21/11/2011 wherein 2 grounds of appeal are raised which are dealt with as under.

The first ground of appeal is with respect to the deletion of the disallowance of deduction under section 10 B of ₹ 3,515,120/– with respect to the eligible profit of Nasik unit. This issue was first decided by this order for assessment year 2001 – 02 wherein we have confirmed the order of the learned CIT – A deleting the above disallowance. One of the eligible units considered therein is Nasik unit. The facts and circumstances, arguments of the parties and the orders of the lower authorities remains the same, therefore, following the order for assessment year 2001 – 02 in assessee's own case, we dismiss ground number 1 and confirmed the order of the learned CIT – A.

Ground number 2 is with respect to the deleting the disallowance amount in two ₹ 12,870,429 on account of suppression of profit. during the course of assessment proceedings, it was found that as on 31/3/2008 the assessee company has submitted to the Bank the stock statement having value of ₹ 23.01 crores however the closing stock as per the books of accounts was 24.89 crores and therefore there was a difference of ₹ 1.88 crores. The learned assessing officer rejected the books of accounts and applying the provisions of section 145 (3) of the act estimated the profits at 50.03% and made an addition of ₹ 12,870,429/–. On appeal before the learned CIT – A,

On careful consideration of the rival arguments, we find that when the assessee has disclosed higher book stock in its books of account then stock shown to the banker, there cannot be any reason to reject the books of accounts of the assessee and make addition of applying the higher gross profit. We do not find any reason to sustain the order of the learned AO. Therefore, we confirm the order of the learned CIT – A, as confirmed by us for earlier assessment year where identical additions are made, we dismiss ground number 2 of the appeal of the AO.

Accordingly, ITA number 755/M/2012 for assessment year 2008 – 09 filed by the learned AO is dismissed.

Accordingly, all the appeals involved in this bunch of appeals as well as application u/r 27 of ITAT Rules 1963 are disposed of by this common order.