DCIT, MADURAI vs. SHRI GOVINDARAJA MILLS (P) LIMITED, ARUPPUKOTTAI

No one appeared for the assessees inspite of issue of notice.

The assessee in has filed written submission and requested to dispose the appeal on merit. However, no one appeared for the assessee in I.T.A. No. 8/Mds/2016 nor any written submission was filed. Therefore, we heard the Ld. D.R. and disposing the appeals on merit.

Sh. Ajit Kumar Varma, the Ld. D.R. submitted that the assessee is engaged in the business of manufacturing and selling of cotton yarn. During the course of assessment proceeding, the Assessing Officer found that there is huge variation in the expenditure claimed for electricity and fuel by the assessee, while comparing the same with that of other 14 textile mills. In view of the variation, the Assessing Officer found that the average percentage of expenditure of power and fuel with reference to gross turnover of other 14 mills is 15.60. In the case of Tamil Nadu Jaibharath Mills Ltd., it was 19.3. In the case of Tamil Nadu Jaibharath Mills Ltd., the average cost of diesel for production of one unit electricity is `10.12, whereas the assessee is claiming `10.33. Since in normal manufacturing conditions, the average power and fuel expenditure cannot vary, the Assessing Officer found that the claim of power and fuel expenditure was considerably excess. Accordingly, the difference between the excess expenditure claimed by the assessee was disallowed.

We have heard Sh. P. Radhakrishnan, the Ld. Departmental Representative also. In the Ld. D.R. submitted that he places his reliance on the grounds of appeal.

Now coming to the excess purchase price paid for ginned cotton, the Ld. D.R. submitted that the Assessing Officer has taken 55 numbers on random basis for examination. The price paid by the assessees was compared with average monthly price announced by the CAI. Out of 55 purchases made, for 19 purchases, the assessees have purchased at a price less than the average monthly price of CAI. For remaining 36 purchases, the price paid by the assessees was excess of price announced by CAI.

We have considered the submissions of the Ld. Departmental Representatives and perused the relevant material available on record, including the written submission filed by the assessee. Admittedly, the assessees are maintaining books of account. The CAI fixed a rate for purchase of cotton by taking the condition prevailing in a particular locality. However, the price of the cotton would vary depending upon the moisture condition and the quality. The assessees have purchased some of the cotton at CAI rate and the assessees have also purchased some of the cotton at lesser than the price fixed by CAI. In some of the purchases, the rates were higher than the rate fixed by CAI. These are all the prices paid by the assessees in purchasing the raw material. The purchase is not in dispute. The fact that the books of account maintained by the assessees is not in dispute. The Assessing Officer has not taken any pain to examine the vendors and farmers from whom the cotton was purchased by the assessees. Simply by placing reliance on the rate fixed by CAI, the Assessing Officer found that the assessees have paid excess price. This Tribunal is of the considered opinion that the rate fixed by the CAI is only a guideline rate for purchasing the cotton. The guideline rate would vary depending upon the quality and other factors which is relevant in purchasing the cotton. The assessees have, in some cases, paid price lesser than what was fixed by CAI. It means that the quality of cotton purchased by the assessees in such cases is not normal. In some cases, the assessees have admittedly paid little more than what was fixed by the CAI. Therefore, it means that the quality of cotton may be above the average or normal. These are the items which have to be decided by the businessman and the Assessing Officer cannot step into the shoes of businessman and expect that the assessee has to purchase a particular material for a particular cost. In the absence of regularity mechanism governing the vendors and farmers selling the material/cotton at a price over and above the rate fixed by CAI, this Tribunal is of the considered opinion that the Assessing Officer is not justified in making the addition on the basis of the rate fixed by CAI. The rate fixed by CAI is only a guideline and there is no restriction for the assessees to purchase cotton either at lesser or higher rate than the one fixed by the CAI. In those circumstances, the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer. This Tribunal do not find any reason to interfere with the orders of the lower authority and accordingly the same is confirmed.

In the result, both the appeals of the Revenue are dismissed.