MR. VENKATESHAPPA VENKATARAMANA ,KOLAR vs. INCOME TAX OFFICER, WARD-1, , KOLAR

The brief facts of the case show that assessee is an individual carrying on business of poultry farming and solar power generation, filed his return of income on 26.10.2018 at a total income of Rs.30,24,100. The return was selected for scrutiny for the reason of verification of genuineness of expenses and deduction u/s. 80IA of the Act. Notice u/s. 143(2) of the Act was issued on 28.9.2019. Assessment order was passed u/s. 143(3) r.w.s. 144B of the Act on 27.9.2021 wherein total income of assessee was assessed at Rs.67,54,831 wherein 3 additions were made:-

Ground Nos.1 & 2 of the appeal are general in nature and ground no.6 of the appeal is consequential, therefore, ground Nos.1, 2 & 6 are dismissed.

Ground No.3 is with respect to addition of Rs.25 lakhs for difference in closing stock of eggs. The facts related to this addition show that the ld. AO found that in the month of March, 2018, cash transactions are usually high, therefore, on examination he found that purchase figure is higher in the month of March. He also compared the same with monthly sales figures. He found that in the month of March the sales figures are also down. He also noted that compared to the purchase and sales figure, the closing stock shown by the assessee is low. Therefore, he analysed the details of month-wise purchases in the month of March and found that hatching eggs were purchased from 2 vendors for Rs.25 lakhs. The AO noted that to whom these goods are sold is not appearing so it is to be shown in closing stock. He noted that there is no evidence of slae after 23.3.2018 and these purchases were booked in earlier period, but paid on 28.3.2018. Therefore he proposed to make addition of Rs.25 lakhs to the closing stock.

The assessee submitted that the above purchases have been made from Smt. Shruthi of Rs.16 lakhs and Smt. Bhagyamma of Rs.9 lakhs. These persons are located in rural and remote areas doing small family business activities. These two persons deliver eggs to the firm of assessee as soon as the eggs are laid and delivered in small lots to the assessee. At the time of delivery they send it through delivery challans. Soon after delivery is offered, invoices are issued and those invoices are paid by cheque to those entities. The eggs hatched in the farm being

On appeal before the ld. CIT(A), the same argument was reiterated and further complete details of delivery challans and invoices by the suppliers and consequent invoices for sale raised on the buyer were produced. Assessee also produced the confirmation of parties from whom eggs were purchased and bank statements of the assessee to whom the payments were made for the purchases. The quantitative details of total delivery of 89,587 eggs for purchases and the invoices raised by assessee of the hatching eggs were also tabulated by the ld. CIT(A). However, as the delivery of goods is earlier and invoices of purchases are received by assessee later on, the ld. CIT(A) confirmed the addition.

The ld. AR submitted a paperbook and reiterated the same submissions as raised before the lower authorities.

The ld. DR supported the orders of lower authorities.

We have carefully considered the rival contentions and perused the orders of ld. lower authorities. We find that assessee has purchased hatching eggs from Shruthi Farms and Bhagyamma Farms for the whole year which were delivered on the basis of delivery challan showing the quantity and challan no. along with date of delivery. Subsequently invoices were raised by both the suppliers to the assessee. The assessee has demonstrated that when the goods were delivered, same were sold to the buyers of the goods. The purchase consideration is paid by the assessee through account payee cheque and sale consideration is also received which is recorded as income. The number of hatched eggs and hatching eggs purchased by the assessee and sold are also tabulated. Merely because the assessee has received the goods on delivery challan basis earlier and invoices of such purchases are received later and meanwhile such goods have been sold, this addition is made as suppressed closing stock of assessee. The only contention of the lower authorities is that as per purchases, invoices are later on and subsequently no sales have been account for, these goods should have been in the closing stock of assessee. Assessee has demonstrated with adequate evidence that as soon as goods are delivered to him, those goods are sold, as these are perishable items. Neither the purchase is doubted, nor the sales are held to be not accounted for as income. This whole exercise is carried out by the lower authorities on the basis of comparison of monthly sales and purchase figures of assessee. Moreover, when this amount is stated to be suppressed closing stock of assessee, naturally in subsequent year, the ld. lower authorities should have considered that as the opening stock. No such credit is given to assessee in the subsequent year. Even otherwise, as the goods purchased are duly accounted for and those goods are sold also which is demonstrated by producing enough evidence, could not have been in the closing stock of the assessee. Accordingly, we reverse the findings of the ld. lower authorities and delete the addition of Rs.25 lakhs towards closing stock difference. Accordingly ground No.3 and its sub-grounds are allowed.

Ground No.4 is with respect to disallowance of Rs.2,73,300 u/s. 37 of the Act. We find that though the AO has made this addition in the assessment proceedings, but same was also not challenged before the ld. CIT(A), but now before us this addition is challenged. It is found that only addition of Rs.25 lakhs and Rs.9,56,980 were under challenge before the ld. CIT(A). Therefore, now assessee could have challenged the same before us. When the ld. AR was asked about this, he agreed to withdraw the grounds. Accordingly, ground No.4 of the appeal is dismissed.

Ground No.5 is with respect to addition of Rs.9,56,980 being suppression in the closing stock. The fact shows that as assessee is engaged in the business of poultry farming, maize is feed for the poultry business. The ld. AO found that assessee has booked purchases of Rs.2,39,25,501 out of which purchase of Rs.43,77,410 being 18.3% of the total purchases is booked in the month of March and found that as the sales is low in the month of March, maize consumption for feeding in the month of March should also be low and therefore there is suppression of closing stock. The assessee was issued show cause notices and asked to explain that 4% of total purchases being the percentage of purchases in the month of March reduced by average monthly purchase percentage of 8.33%, resulting into 4% in excess of Rs.2,39,24,591 and added as closing stock of maize. Accordingly addition was made of Rs.9,56,980 as the assessee did not supply any reason.

When the matter reached before the ld. CIT(A), assessee submitted all the details. However, the ld. CIT(A) rejected the contention of the assessee for the reason that according to him, assessee has failed to prove that majority of the birds are in young stage and abnormal consumption of feed was found without corresponding sales. He rejected the contention of assessee that sales are low in the month of March because of the birds not reaching the right weight gain. The ld. CIT(A) was of the view that assessee has to show health conditions of the bird and consumption of the feed. Thus, he rejected the explanation and confirmed the addition.

The ld. AR referred to pages 30 to 66 of the paperbook (PB) to show that there is closing stock of maize is disclosed by the assessee sowing quantity and rate. As assessee is running poultry farm birds have been fed with the maize. There is no direct corelation between the sale and consumption of the feed. He further referred to reply filed by assessee, placed at pages 85 to 95 of PB. He submits that assessee is running a small poultry farm and the details for consumption of feed asked by the ld. lower authorities are not possible in such a small level of business. He submits that the assessee has explained this issue before the ld. AO and the ld. CIT(A) which is at page 20 of the order of the ld. CIT(A). He submits that the closing stock of maize available with assessee is only of Rs.16,200 which is 900 kgs and the addition made by the ld. AO is on incorrect assumption. He submits that there cannot be a direct corelation between the feed to the hen of maize and sale of eggs.

The ld. DR supported the orders of ld. lower authorities.

We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The maize for poultry feed of 900 kgs. has been shown by the assessee in the closing stock. Addition is made by ld. AO on comparison of consumption of feed of hen and corresponding figure of sales of eggs. He found that in the month of March itself, the purchase is 18.3% of the whole year, whereas it is only 8.33% on average basis in other months. Therefore, he made addition of Rs.9,56,980 considering the excess 4% of the total purchases. When the matter reached before the ld. CIT(A), he accepted the genuineness of the purchases, but has confirmed the addition rejecting the explanation of assessee about the consumption of feed to the birds. He asked the assessee to show the number of birds in his farm and how they have consumed Maize according to their weight and resultant sale of eggs. We find that none of the lower authorities have doubted the purchases of maize. Though addition is made in the closing stock of maize, no corresponding credit for opening stock for the subsequent year is allowed to assessee. Even the assessee has given the details of closing stock in quantity as well as value. The onerous burden placed on the assessee to show the age of birds, weight of birds and to prove the consumption of birds is not practicable. It is not the case of revenue authorities that consumption of maize compared to earlier years is on the higher side. The addition is made merely on the basis of statistical

In the result, the appeal filed by the assessee is partly allowed.