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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI CHANDRA POOJARI & Shri Duvvuru RL Reddy
आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER
This appeal of the Revenue and the Cross objections by the assessee are directed against the order of the Commissioner of Income-tax (Appeals)-3, Coimbatore dated 30.08.2016 pertaining to assessment year 2013-14. ./2016 :- 2 -: CO No.175/Mds./2016
2. The Revenue has raised the following grounds for our adjudication.
1. On the facts and in the circumstances of the case the learned CIT(A) erred in deleting the addition of Rs.506,56,1971- made under section 68 of the Income-tax Act, 1961 without appreciating the fact that the facts of the decision delivered in the case of CIT Vs. S. Khader Khan Son are different from that of the assessee.
2. On the facts and in the circumstances of the case the learned CIT(A), while deleting the addition made under section 68, failed to appreciate the fact that assessee has not clarified as to how the replies given in the statement were incorrect, and also ignored the findings mentioned in the assessment order with regard to the non-genuine sundry creditors.
3. On the facts and in the circumstances of the case the learned CIT(A) erred in deleting the addition made on account of unexplained investment in Chilling Plants without appreciating the fact that the Partner of the Firm had admitted the amount of unaccounted investment in the Plants and no reasons for the retraction was either given post the survey proceedings or during the assessment proceedings.
4. On the facts and in the circumstances of the case the learned CIT(A) erred in deleting the addition made on account of treating the expenses incurred on crates and cans as capital expense without appreciating the fact that Income tax Rules prescribes the rate of depreciation at 50% for these articles, implying that these are capital assets.
5. On the facts and in the circumstances of the case the learned CIT(A) erred in deleting the addition of Rs.5,00,000I- made on account of ./2016 :- 3 -: CO No.175/Mds./2016
disallowance out of firewood expense ignoring the fact that assessee had agreed for the addition due to lack of proper documents/evidences. 6. The Hon’ble ITAT is requested to cancel the order of the learned CIT(A) and uphold the order of the Assessing officer on the above points.
2.1 In Cross Objection, the assessee has raised the following grounds.
The order passed by the Learned Commissioner of income tax (Appeals) is very much appreciable in as much as in holding that the addition made by the assessing officer of Rs.5,06,56,197/- u/s.68 is against the legality of the decision of Madras High court in the case of CIT Vs. Khadar than and son and affirmed by the Supreme court. The appellant has not explained hew the case is different to that of the Respondent’s case and hence not applicable. Moreover, the same judgments have been applied in the similar matter which has been held in favour of the Respondent in their own case held by the very own Chennai Tribunal for the previous Assessment year. Hence, the ground raised by the Department in its appeal is in error.
The learned Commissioner of income tax (Appeals) has correctly observed In his order by stating that the Investments in the chilling plants added by the department under section 68 is not applicable, even though admitted by the respondent during the time of survey, based on the judgment of the Madras High court which has been affirmed by the Supreme court, also how the case relied on the department cannot eclipse the judgment of the jurisdictional high court Hence, the ground raised by the Department in its appeal is in error.
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The Learned Commissioner of income tax (Appeals) has correctly observed that the appellant is in the business of Milk Dairy and for the same, the expenses incurred towards the purchase of Milk canes were of Revenue nature and no Enduring benefit is arrived out of it and mostly its shelf life comes around 4 to 6 months. It is also submitted that the Expenses relating to Purchase of Milk canes were of Revenue nature and is to be allowable in full, as held by Visakhapatnam Bench, of the Income tax Appellate Tribunal in the case of ACIT, Cir-2(1) Guntur Vs. M/s Tirumala Milk Products Private Ltd. The Copy of which is enclosed here for your reference. Hence, the ground raised by the Department in its appeal is in error.
4. The Learned Commissioner of Income Tax (Appeals) has correctly allowed the claim of the firewood expenses are covered under Rule 6DD in as much as the assessing officer disallowed the same on the basis of agreed addition and non production of any evidence regarding the expenses.
5. Over all, the Learned Commissioner of Income Tax (Appeals) has correctly observed that all the additions made by the Assessing officer, even though based on the admissions at the time of Survey, are not sustainable considering the Ratio of decision of the Madras High court in the case of CIT Vs Khadar Khan and son, which is affirmed by the Supreme Court. Hence, the Grounds of the department as appellant In this appeal need to be dismissed.
First we take up Revenue’s Appeal: 3. The facts of the case are that survey was carried out in the premises of assessee on 06.11.2013. During the course of Survey it was noticed that the figure of Sundry Creditors - Milk Suppliers as on 31/3/13 was mentioned as `12,21,81,032/- in the data maintained in ./2016 :- 5 -: CO No.175/Mds./2016 the hard disc of the computer. However, in the same disc, the opening balances as on 01/04/13 was taken as `5,67,09,835/- i.e. the balance of Sundry Creditors was taken less by `6,54,71,197. In the statement recorded on 24/1/14 under section 131(1A), the Partner of the Firm has admitted this fact. In reply to question no. 32 of the statement dated 06/11/13, it was admitted by the partners that the Firm has boosted the figure of creditors to adjust the Balance Sheet. It was further stated that to his knowledge and belief the sundry creditors to the extent of `2,00,00,000/- may be boosted.
The first issue in Revenue’s appeal is with regard to deletion of addition in respect of non-genuine creditors as not proved.
4.1 For the year under consideration, during the course of survey proceedings, assessee had declared `1,48,15,000/- on account of non- genuine sundry creditors. Assessee has ,however, neither during the course of Survey proceedings nor during the assessment proceedings substantiated as to how the said amount of `1,48,15,000/- was justified when in fact records indicate that the non-genuine sundry creditors are substantially higher. In the assessment order sample of 21, sundry creditor-milk suppliers accounts for the month of March 13 were reproduced to substantiate that the amount of declaration made by assessee on account of non-genuine creditors was without any basis. Accounts of 9 other sundry creditors were also reproduced to ./2016 :- 6 -: CO No.175/Mds./2016 show that despite there being substantial amounts outstanding in these accounts for long period, assessee had not declared them as non-genuine sundry creditors. Thus, the difference in the carry forward figure of sundry creditors, as on 31/3/13, noticed during the course of survey was added to the total income u/s.68 after giving assessee set- off for the amount of `1,48,15,000/- voluntary considered in the revised return of income. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A).
4.2 On appeal,the Ld.CIT(A) placing reliance in the order of Tribunal in assessee's own case for assessment year 2012-13 vide order dated 05.08.2016 in ITA No.1810/Mds./2016 and also in the decision of jurisdictional High Court in the case of CIT Vs. S.Khader Khan Son which has been affirmed by the Apex court in in 352 ITR 480(Mad.), deleted the addition. Against the order of Ld.CIT(A), now the Revenue is in appeal before us.
We have heard both the parties and perused the material on record. Admittedly, similar issue came for consideration before this Tribunal in assessee's own case for assessment year 2012-13(supra) wherein the Tribunal after considering the entire facts of the case observed herein-under:- ./2016 :- 7 -: CO No.175/Mds./2016
“ 6. We have considered the rival submissions and also perused the material on record. Admittedly, survey u/s 133A of the Act was carried out by the Department on 6.11.2013. The previous year relevant to the assessment year was ended on 31.3.2012. In other words, the relevant financial year for this assessment year is 2011-7. The survey conducted u/s 133A was not resulted in unearthing any evidence relating to inflation of purchase cost of milk for the relevant assessment year. Further, the Assessing Officer made estimation of inflated purchase on the reason that the assessee has not furnished the confirmation letters from the creditors. The assessee pleaded before the Assessing Officer that there are large number of milk vendors who were form villages and they exactly not maintained any books of account to show that what exact amount was outstanding to them for the supply of milk. The assessee has categorically stated that it is maintaining collection centres and payments are made to the farmers from there. There is no third party evidence towards purchase cost of milk legally. Payments were made on the basis of own vouchers which are maintained by the assessee. Though the Assessing Officer estimated the inflation of purchase, he was not able to co- relate those inflation of purchases during the assessment year under consideration. Thus, the estimated inflation of purchases is based on the subsequent years’ figures. In our opinion, the information gathered subsequent to the assessment year under consideration cannot be basis for estimation of inflation of purchases for the earlier assessment year. De horse, without prejudice to the fact that even the statement recorded during the course of survey have no evidentiary value. Any admission during such statement cannot by itself be basis for addition. Being so, in our opinion, the addition on the basis of statement collected during survey cannot be basis for addition.
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7. Before us, the assessee produced details of sales, purchase, gross profit for these assessment years as under: A.Y 2010- 2011- 2012- 2013- 11 12 13 14 G.P. 15.42 14.95 14.03 17.14 Ratio 8. As seen from the above, there is a decline in gross profit rate as compared to assessment year 2010-11, 2011-12. The assessee is not able to explain decline on the gross profit at 14.03% as compared to earlier assessment years. In our opinion, to settle the dispute, it is appropriate to take average gross profit rate of assessment years 2010-11, 2011-12 and 2012-13 and to estimate the income of the assessee on the basis of average gross profit rate of last two assessment years since the past history is the best yardstick to estimate the income. Accordingly, we direct the Assessing Officer to re-compute the income of the assessee by applying the average gross profit rate of immediate earlier two assessment years alongwith present assessment year and decide the issue afresh. The assessee shall provide details of gross profit rate of all the two immediate earlier assessment years to the Assessing Officer. The Assessing Officer shall consider the same and decide the issue in accordance with our findings as above.”
5.1 Admittedly, for assessment year 2012-13 in assessee's own case cited supra, the Tribunal observed that the books of accounts of assessee was not reliable and income of assessee to be estimated after considering the average rate of profit of A.Y 2010-11, 2011-12 & 2012-13 as declared by the assessee. Accordingly, in this assessment year under consideration also, we direct the AO to ./2016 :- 9 -: CO No.175/Mds./2016 estimate the income of assessee by considering the average G.P rate of assessment years 2011-12, 2012-13 & 2013-14 as declared by the assessee and decided accordingly. This issue of Revenue raised in its ground No2. 1 & 2 is partly allowed for statistical purposes.
The second issue in Revenue’s appeal is with regard to deletion of addition made on account of unexplained investment in Chilling Plants.
6.1 The facts of the issue are that at the time of survey in reply to question no 33 of the statement recorded on 06/11/2013 Shri. S. P.
Loganathan, Managing Partner of the assessee Firm, had stated that upto 31/3/13 investment in the newly under construction chilling plant units at Karur and Namakkal was around Rs.3,60,00,000/-. During the course of survey he had declared additional income of `1,17,66,347/- on account of unaccounted investment in the chilling plants. This declaration was however not considered while filing the revised return.
Despite being given opportunity during the course of assessment no explanation was filed as to why the said declaration has been retracted. Therefore, the AO added an amount of `1,17,66,347/- to the total income on the basis of the information given in the statement. Aggrieved by the order of ld. Assessing Officer, the ./2016 :- 10 -: CO No.175/Mds./2016 assessee carried the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A) deleted the addition made on account of unexplained investment in Chilling Plants with the following observation:- “Here also the principle laid down in the Jurisdictional High Court decision upheld by the Apex Court squarely applies. Addition for unexplained investments like New Chilling Plants have to be based on concrete evidence available or by making reference to a departmental Valuation Officer for expert opinion, which the Assessing Officer should have done in the normal course, had there been a ground that there is unaccounted investment in the Chilling Plant. This not been done. The case law cited by the Assessing Officer Surjit Chhabra Vs, UOl deals with retraction of a statement made before customs authority and does not in any manner eclipse the decision of the Jurisdictional Highcourt in S.Khader Khan Sons, which has been affirmed by the Apex Court. The addition made is without any positive evidence and is deleted.”
Against the order of Ld.CIT(A), now the Revenue/Assessee is in appeal before us.
We have heard both the parties and perused the material on record. The A.R has rightly pointed out by the ld.A.R that there is no evidence to suggest that this investment is based only on un- substantiated statement made by its partner Shri S.P.Loganathan, Managing Partner of the assessee firm during the course of survey on 06.11.2013. As held by the Supreme Court in the case of S.Khader Khan sons (supra), statement under section 133A are not conclusive piece of evidence by itself and it cannot be relied upon for the prupose ./2016 :- 11 -: CO No.175/Mds./2016 of assessment . Being so, we do not find any infirmity in the order of the CIT(Appeals) for deleting the addition made by the AO. Hence, this issue raised by the Revenue is rejected.
The third issue in Revenue’s appeal is with regard to deletion of disallowance of milk cans and crates to the extent of `16,03,461/-.
8.1 The facts of the issue are that the expense incurred on purchase of crates and cans, the assessee had claimed as revenue expense disallowed, but AO holding them to be capital expense. The Income- tax Rules prescribes depreciation at the rate of 50% for plastic and glass containers which are re-usable. In view of this fact the expense claimed on account of crates and crates were held as capital asset by the AO and disallowance made after allowing depreciation. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A) observed that no enduring benefit is conferred warranting to treat expenditure on milk cans as capital in nature, following the decision of Tribunal in ACIT Vs. M/s.Tirumala Milk Products P Ltd., Narasaropet in ITA No.242/Vizag./2009 for assessment year 2005-06 and deleted the addition made by the ld. Assessing Officer. Against the order of Ld.CIT(A), now the Revenue is in appeal before us. ./2016 :- 12 -: CO No.175/Mds./2016
We have heard both the parties and perused the material on record. The decision of the Ld.CIT(A) is based on the Order of Tribunal in the case of M/s.Tirumala Milk Products P Ltd., (supra). Being the expenditure towards plastic cane and crate, which is not an enduring nature, 100% depreciation to be granted as revenue expenditure.
Hence, this issue in Revenue’s appeal is dismissed.
The last issue in Revenue’s appeal is with regard to deletion of disallowance of firewood purchase expenses.
10.1 The facts of the issue are that during verification it was noticed by the AO that assessee had incurred expense for purchase of firewood in cash as well as by cheque. The cash vouchers were self made. As it was not possible to ascertain whether whole of the expenditure booked are genuine and reasonable, a lumpsum disallowance of `5,00,000.- was made by the ld. Assessing Officer.
Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). On appeal, Ld.CIT(A) observed that this is a case which is a forest produced and covered under Rule 6DD which provides for exception to the applicability of Sec.2A(3) of the Act. Hence, the Ld.CIT(A) allowed the claim of assessee. Against the order of Ld.CIT(A), now the Revenue is in appeal before us. ./2016 :- 13 -: CO No.175/Mds./2016
We have heard both the parties and perused the material on record. As rightly pointed out by the ld.A.R that payments towards purchase of fire wood, which is being a forest products exception provides under Rule-6DD is applicable. Accordingly, deletion is justified.
Since the Cross objections filed by the assessee is in support of the order of Ld.CIT(A), the objections raised in C.O does not require any further adjudication as we have discussed all these grounds in Revenue’s appeal.
In the result, the appeal of the Revenue and the Cross Objections filed by the assessee are partly allowed for statistical purposes.
Order pronounced on 26th July, 2017, at Chennai.