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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
O R D E R PER C.N. PRASAD, JM: These appeals are filed by the Revenue and the cross objections are filed by the assessee against the order of the Ld. CIT(A)-13, Mumbai dated 8.6.2011 & 24.5.2011 pertaining to assessment years 2006-07 & 2007-08 respectively. As common grounds are involved in these appeals, they were heard together and disposed of by this common order for the sake of convenience.
ITA No. 6492/Mum/2011 –A.Y. 2007-08
The Revenue has raised following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 4,83,41,876/ on account of alleged unaccounted sales of Maize, Bran, Glutten and Husk etc clubbed as “Maize, Bran and others” ignoring the fact that the quantitative details are taken from the audited accounts of the assessee company itself?
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the addition of Rs. 4,83,41,876/ is not borne out of facts of the case ignoring the fact that quantity of production is mentioned in annual report item 13 schedule 20 to note on account and it is borne out of fact of the case.”
Brief facts are that the assessee is engaged in the business of manufacturing of Starch and Liquid Glucose. The assessee filed its return of income on 27.10.2007 declaring total income of Rs. 7,13,06,200/-. The assessment was completed on 7.12.2009 u/s. 143(3) of the Act determining the income of the assessee at Rs. 13,28,15,930/- 3.1. The AO while completing the assessment made addition of Rs. 4,83,41,876/- towards unaccounted sales of Glutten, Germ and Husk for the assessment year 2007-08. The AO also alternatively made this addition protectively in the assessment year 2006-07. The AO noticed from the balance sheet and profit & loss account filed by the assessee in the previous year, the assessee produced 51,818 M.T. of Maize out of 53,068 M.T. of products and current year there is a production of 58,371 M.T. of Maize out of product of 50,882 M.T. Therefore, he concluded that taking the same ratio of the previous year, the difference in production for the current year was showed at 8,897 M.T. The AO arrived the quantity of shortage in respect of “Glutten/maize barn/mixture at 8756 M.T. out of the total difference of 8897 M.,T and applying average sale price of 5,521, the AO proposed an addition to the extent of Rs. 4,83,41,876/-.
3.2. It was the contention of the assessee before the AO that quantity of previous year production of Husk clubbed with Gluten was given on wet basis. In current year, it is on dry basis. It was further contended that Husk was sold on wet condition but in quantitative tally it is worked out on dry basis except for A.Y. 2006- 07. It was further contended that wet production figure for Husk will be 15218 M.T. instead of 5326 M.T taken on dry basis. However, this was not accepted by the AO and brought to tax Rs. 4,83,41,876/- crores observing that either the production in assessment year 2007- 08 has been shown less or the consumption quantity of raw material in A.Y. 2006-07 were short.
On appeal, the Ld. CIT(A) on analyzing the production, the consumption ratio of last 5 years reflected in the balance sheet and also the year-wise, category-wise sale of Maize Bran, Glutten, mixture & others for the assessment years 2002-03 to 2007-08 after reducing the moisture content in Bran in quantitative details and on analyzing the GP ratio for the assessment years 2005-06 to 2008-09 held that there is no basis for making addition on the facts of the case. Against this order, the Revenue is in appeal before us.
The Ld. Departmental Representative referring to page-17 of the assessment order submits that the AO has categorically stated that assessee’s explanation is not acceptable and the discrepancy in quantitative details cannot be accepted. The quantitative details in the audited accounts are not correct and therefore the Books of Account are not correct and complete. He submits that AO found that purchases, consumption, production and sales are inter-related and balance each other and if assessee’s explanation is accepted, then the entire audit report of assessment year 2005-06 is incorrect as quantities would not balance. It was also observed by the AO that even otherwise no separate quantity of Glutten is given in Annual Report and Maize Bran/Gluten/Husk etc., are clubbed together. Therefore, he vehemently supports the orders of the AO in holding that there is discrepancy in quantitative details and on unaccounted sales in Maize Bran/Gluten/Husk etc.
The Ld. Counsel for the assessee submits that the company is incorporated on 23-7-1980 is nearly three decades old and engaged in the business of manufacture of Starch and liquid Glucose. Its basic raw material is maize corn. It also generates bye- products Maize Bran, Glutton, Mixtures and others. Total yield of the company including main products and bye-products is approx between 87% to 89% in last many years. Yield of bye-products ( Maize Bran Glutton Mixture and Others )is between 18% to 20% in last many years. The assessee is scrutinized on many occasions in past and its yield was not been disputed by the department. He submits that detailed chart of companies yield alongwith comparative chart of by-product yield for last 5 years is also referred on page 18 of CIT appeals order.
The Ld. AR further submits that the Assessing Officer noted the production and consumption quantitative figures on page 30 -31 internal page nos. 25 and 27 of balance sheet of A.Y 2007-08 and observed that in A.Y 2007-08 51818.50 M.T of Maize consumed and total production was 53068.343 whereas in A.Y 2007-08 58371 M.T of maize was consumed and production was only 50881.849 M.T. The A.O further noted that major difference was in production of bye- products category" Maize bran Glutton Mixture & Others" whose production was 17595.238 in A.Y. 2006-07 but only 11359.765 in A.Y 2007-08.
The Ld. AR submits that the A.O thereafter applied the ratio of A.Y. 2006-07(Production of bye-product 17595.238M.T v/s consumption of Raw material 50881.849 M.T) in A.Y 2007-08 and concluded that production of category maize bran, glutton, mixture and others was short by 8756 M.T in A.Y 2007-08 and applied the average sales rate of category of bye-product maize, bran, glutton, mixture and others that is @ 5521/- and made addition of Rs.48341876/-.
The Ld. AR submits that the assessee had explained that average rate of Rs 5521/- is wrongly applied as the alleged difference is only in maize bran and not in other products. This contention was though not accepted in relevant year, the AO in AY:2008-09 has accepted the same pg 151 -159 paper book.
The Ld. AR submits that while making addition the Assessing Officer totally ignored assesses explanation that in the category of byproduct-" Maize bran, glutton, Mixture and others" production of bran was presented in wet form for A.Y 2006-07 whereas normally in earlier years and subsequent years it is presented in dry form. Hence production of bye-products ( Maize Bran, Glutton, mixture and others) of A.Y 2007-08 is not comparable with that of A.Y 2006-07. It can be compared only if Maize bran is converted in dry form which is normally after reduction of approx 65% moisture content from wet form. Assessee had submitted its explanation vide letter dt 30/10/2009 before AO alongwith comparative analysis of production /yield with company in similar business. (pg 50 -52 of paper book). The assessee had explained that complete detail of production and consumption of material is available.
The Ld. AR submits that before the Ld. ClT(A) the assessee filed its explanation alongwith charts showing GP, yield ratio, laboratory certificate, etc (pg 36 -49 paper book). The Ld CIT (A) after appreciating the explanation of the assessee deleted the alleged addition.
The Ld. Counsel for the assessee while supporting the orders of the CIT(Appeals) submits the following:
“1) Logic of Assessing officer of comparing quantitative details consisting production of bran in dry form with quantitative details of bran in wet form is not justifiable and the same will give absurd result which was also noted in CIT Appeals order as under: a) If Additional production of 8756 M.T is accepted than Yield ratio of A.Y 200607 will be 102.42 ( more than R.M consumed) as noted on page no. 18 of CIT appeals order. b) Normal yield from A.Y 200304 to 200708 is between 87% to 89% hence yield of 102.42 is not justified. c) If addition is sustain Yield of category Maize bran mixture and others will be 33.96% against normal yield between 17% to 19% in other years as noted on page 18 of CIT Appeals order. d) Production of bran will give yield of 23.92% against normal yield of 7 to 9% in other years as also noted in CIT appeals order on page No. 19.
2) The Assesses contention that Bran was reflected in wet form in Financial of AY 200607 is further supported by the sales rate chart on page 21 of CIT Appeals order: a) On page 21 of ClT Appeals order it can be noted that Sales rate of Maize Bran, glutton, Mixture & Others" for A.Y 200607 is Rs.2778 per M.T whereas in other years from A.Y 200203 to A.Y 200708 it is between Rs.5220 to 5521 per M.T which itself explanatory that in F.Y Maize was in wet form and hence rate was on the lower side. b) On page 21 it was further noted that sale rate of bran from A. Y 200203 to A. Y 200708 is between Rs.1698 to 2175 per M.T whereas only in A.Y 200607 it comes to Rs. 681.819 which is not justified. Our contention that bran contains 65% moisture content gets further support from rate of 681.819 which comes for wet bran and if this rate is converted in to dry form ( 681.819/35*100) which comes to RS.1948 per M.T and hence comparable with other years.
3) Addition made by Assessing officer of Rs. 4,83,41,876/ is further not justified as the same will give absurd Gross Profit ratio for F.Y 200607 of 26.50% against the normal Gross Profit Ratio between 19% to 20% as noted on page 22 of ClT appeals order.
4) Maize Bran is sold on wet basis in the market which is corroborated by bills/sales register. Even production of maize bran is recorded on wet basis. Only for balance sheet Maize bran is converted in to dry form by reducing the moisture content ( By reducing Maize Bran (wet) by 65% of moisture content) as also noted on page 21 of CIT Appeals order. This conversion does not have any financial impact on balance sheet or profit and loss account.
5) Comparative instance of Sukhjit Starch and Chemicals Ltd. Enclosed in paper book balance sheet Notes relevant page of Listed Company Sukhjit Starch & Industries ltd which shows overall yield of approx 80%. This again supports assessee after adding of production of 8756 M.T by A.O will give absurd yield of 102%.
6) If in A.Y 200607 Bran wet quantitative production is converted in to dry form yield between A.Y 200607 and 200708 will be comparable and will be around 87%. Relevant chart is enclosed herewith.
7) The assessing officer himself was not sure about the additions made which were on surmises & premises and hence to protect the order also made protective assessment for A.Y 2006 07.i.e Appeal bearing no 7174/M/2011.
In view of the above the Id CIT(A) rightly deleted the addition made by AO merely on surmises”.
Heard both sides, perused the orders of the lower authorities. The addition was made by the AO towards unaccounted sale of Maize Bran/Glutton/Husk for the reason that the quantitative details furnished in the balance sheet could not be tallied and therefore he presumed that there is unaccounted sale in respect of Maize Bran/Glutton/Husk. The explanations of the assessee that quantity of production of Husk clubbed with Glutten in the previous year was reflected on wet basis in the accounts and in the current year the same was reflected on dry basis is rejected by the AO and no reason for such rejection has been given by the AO. The AO neither examined the GP ratio adopted by the assessee for last several years nor the production, consumption ratio reflected as per balance sheet of various years was examined. No exercise has been done by the AO to point out whether there is really an unaccounted sale in respect of Maize Bran/Glutton. This aspect of the matter has been elaborately considered by the Ld. CIT(A) with reference to the averments of the AO and the submissions of the assessee and the evidence placed on record and held that on the facts and circumstances, the addition cannot be sustained, there is no basis for such addition. While coming to such conclusion, the Ld. CIT(A) observed as under:
a) The aforesaid chart clearly show that the ratio of production of "Maize, Glution, Bran, Mixture and others" vis-a- vis Maize consumption on an average varies between 17.5% to 19.47%.
• It is only in F.Y ending 31.3.06 that the ratio of "Maize Glution, Bran, Mixture and Others" vis a vis the Maize consumption comes to 33.96%. • Similarly, the production of Gluton (Individually) Visa Vis Maize Consumption in the last five years varies from 9.32 % to 10.55%. • Similarly, the production of Bran visavis Maize consumption varies from 7.31% to 9.18%. It is only in F.Y ending 31.3.06 that the ratio of Bran visavis maize consumption has been shown at 23.92%. • Perusal of the aforesaid facts clearly reveals that there has been inordinate increase in the ratio of "Maize Glution, Bran, Mixture and others" vsavs Maize consumption only in the F.Y ending 31.3.06 ie. at 33.96% visavis in the last five years where the ratio varies from 17.5% to 19.47%. All the aforesaid facts clearly reveal that the figure of production of "Maize Glutton, Bran, Mixture and others" at 17595.238 MT for the Financial year ending 31.3.06 includes Bran on wet Basis. Otherwise there was no reason for inordinate increase in the ratio of production of "Maize Glutton, Bran, Mixture and others at 33.96% of total maize consumption visavis in the last five years varying from 17.47% to 19.47% on an average. • It only implies the "Maize Glution, Bran , Mixture & Others" production at 17,595.238 MT shown in the Balance Sheet in A.Y.0607 is on wet basis (i.e consists of Maize Bran on wet basis) b) This fact is also corroborated by the year wise category wise sales of "Maize Bran, Glutton, Mixture and others" which is reproduced as under:
Maize Bran is sold on wet basis in the market which is corroborated by the bills/sales register. Even the production of maize bran is also recorded on wet basis. Only for the balance sheet Maize Bran is converted into dry form by reducing the moisture content. (By reducing the Maize Bran (wet) by 65% of moisture content) The overall rate of "Maize Bran, Gluton & Mixture & Others" year wise is as under:
0102 0203 0304 0405 0506 0607 5220 5387 5362 5400 2778 5521
It is only in F.Y.0506 that the rate is inordinately low @ Rs.2778/ MT vsavs Average around plus Rs.5000/ MT in other years.
The rate of Maize Bran for the last five financial years as per the Books/ Balance sheet is as under:
0102 0203 0304 0405 0506 0607 Maize 1698.868 1778.02 1681.05 681.819 2173.48 Bran 1749.65 (Dry)
The aforesaid chart clearly shows that the sale rate of maize bran is inordinately low @ of 681.819 MT in 0506 visa vis in other years.
All the aforesaid facts clearly imply that the "Maize Bran Glution,Mixture & Others" production at 17,595.238 MT shown in the Balance Sheet in A.Y.06-07 is on wet basis (i.e. consists of Maize Bran on wet basis)
C) Year wise-G.P Ratio
2004-05 2005-06 2006-07 2007-08 Sales 445,122,178.00 487,546,596.73 663,382,749.03 707,683,331.00 Increase/(Decre 981,711.63 (944,167.61) 4,505,665.37 4,239,835.00 ase) in stock Total A 446,103,889.63 486,602,429.12 667,888,414.40 711,923,166.00 Raw Materials 259,467,944.00 294,552,067.90 409,108,606.00 430,910,915.00 Stores 7,066,004.00 5,526,864.12 7,330,244.97 9,557,427.00 Manufacturing 77 ,635,670.00 77 ,868,697.40 97,226,054.49 98,792,455.00 Expenses Employees 17,279,867.00 12,361,633.00 27,215,899.00 30,831,269.05 Expenses (Only of Workers) Total B 361,449,485.00 390,309,262.42 540,880,804.46 570,092,066.05 Grand Total (A- 84,654,404.63 96,293,166.70 127,007,609.94 141,831,099.95 B) Sales 445,122,178.00 487,546,596.73 663,382,749.03 707,683,331.00 G.P.% 19.02% 19.75% 19.15% 20.04% G.P % 26.50% considering Assumed sales by A.O
Perusal of the G.P chart would also reveal that the gross profit shown by the assessee during the year is 19.15% which is quite comparative with other years as aforesaid. However, if the additional sales of Rs.4,83,41,876/- worked out by the AO on account of alleged unaccounted production and consequential sale therefore is taken - G.P would be 26.50% visavis the average gross profit of 19% in other years which is against the established facts of the appellant's case.
Accordingly, the A.O's assessment that production of " Maize Glutton, , Bran, Mixture and others" should be 34% is not borne the facts of the case.The said discrepancy has occurred because in the F.Y ending 31.3.06, the figures of " Maize Glution, Bran , Mixture and others" consists of Maize Bran taken in wet form visavis the figures of "Maize Glution, Bran, Mixture and others" reported in Balance sheet in other F.Ys on dry basis. Addition of Rs. 4,83,41,876/ not borne out by the facts of the case. The addition is therefore deleted””.
None of the above findings of the Ld. CIT(A) have been rebutted by evidences by the Revenue. In the circumstances, we uphold the order of the Ld. CIT(A) in deleting the addition made towards unaccounted sales.
In so far as the assessment year 2006-07 is concerned, the AO made addition of Rs. 4,60,73,108/- as unaccounted investment u/s. 69C of the Act and G.P. addition on unaccounted sales in the assessment year 2006-07, based on the findings given in the assessment order for assessment year 2007-08 in respect of the quantitative details on the presumption and assumption that there are discrepancy in quantitative details in the assessment year 2007- 08. Since we have deleted the addition holding that there is not discrepancy in quantitative details and the whole basis for making addition is wrong, the protective assessment based on such finding in assessment year 2006-07 will not stand. Thus, we delete the addition made in the assessment year 2006-07 upholding the order of the Ld. CIT(A).
The Ld. Counsel for the assessee submits that the cross objections filed by the assessee may be dismissed as not pressed.
In the result, the appeals filed by the Revenue and the cross objections filed by the assessee are dismissed.