2012 (10) TMI 121 - AT - Income Tax

Disallowance of excessive handling loss The assessee is engaged in the business of manufacturing and sale of ghee and milk powder - The assessee has been maintaining regular books of account and production records - In certain months handling loss was more than standard - AO analyzed the loss in the respective months and considered excessive handling loss Held that - As the books of accounts are verified by Excise Department. AO has also not pointed out any mistake in the books of account. Handling loss in certain months was totally dependent upon the quality of milk. The handling loss shown by the assessee was well below the standard norms of the loss. Case decided in favour of assessee. Addition on account of inflation of milk price Held that - As same issue in assessee s case for another assessment year decided by ITAT in favour of assessee. Therefore decided in favour of assessee Addition on account of freight and loading & uploading expenses The assessee is engaged in the business of manufacturing and sale of ghee and milk powder - The sale is organized through agents appointed all over India and as a part of business understanding, actual expenditure on account of outward freight, loading and unloading expenses are reimbursed to the agents through debit notes - Held that - The assessee produced copy of debit note of the party along with copy of account in order to support the claim. Assessee maintains running account with the party in the books of account and there were regular transactions of credit and debit in such account and the entire amount on the basis of debit note was credited in the account. No discrepancy has been pointed out by AO. The assessee also filed the letter in respect of the amount which gives the details of freight, loading and unloading charges and draft making charges. Decision in favour of assessee

Issues Involved:
1. Deleting the addition on account of loss of milk handling.
2. Deleting the addition on account of inflation of milk price.
3. Deleting the addition on account of freight and loading & unloading expenses.

Issue-wise Detailed Analysis:

1. Deleting the Addition on Account of Loss of Milk Handling:
The first issue pertains to the deletion of the addition on account of loss of milk handling for the Assessment Years 2002-03 to 2004-05. The Assessing Officer (AO) observed that the standard norms for handling loss were 1.8% for fat and 3.3% for fat and SNF. Based on these norms, the AO considered the handling loss excessive and made additions of Rs. 9,82,130/- for AY 2002-03, Rs. 3,73,178/- for AY 2003-04, and Rs. 2,87,450/- for AY 2004-05.

Before the Commissioner of Income-tax (Appeals) [CIT(A)], the respondent argued that the AO's disallowance was out of context and unsupported by the audited accounts. The handling loss varied due to the quality of milk procured from different agencies, and on an annual basis, the loss was within standard norms. The CIT(A) observed that the books of account were regularly maintained, audited, and subject to excise control, with no specific mistakes or irregularities pointed out by the AO. Consequently, the CIT(A) deleted the addition.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that the AO had not provided any substantial reasons or material evidence to support the disallowance. The handling loss was below the standard norms, and the books of account were reliable. Thus, the ITAT found no infirmity in the CIT(A)'s order and directed the AO to delete the addition.

2. Deleting the Addition on Account of Inflation of Milk Price:
The second issue involves the deletion of the addition on account of inflation of milk price. The AO made the disallowance by referring to similar disallowances in preceding years since AY 1993-94. However, the CIT(A) noted that the ITAT had already decided the issue in favor of the respondent for AY 1993-94 and other years.

The ITAT confirmed the CIT(A)'s decision, referencing its earlier order dated 3rd March 2006, which found that the AO had made the addition based on presumptions and assumptions without substantial evidence. The seized documents were not incriminating, and the respondent had adequately explained the entries. The ITAT concluded that the AO's addition was unjustified and unwarranted, affirming the CIT(A)'s deletion of the addition for all three years under consideration.

3. Deleting the Addition on Account of Freight and Loading & Unloading Expenses:
The third issue pertains to the deletion of the addition of Rs. 5,70,156/- made on account of freight and loading & unloading expenses for AY 2002-03. The AO disallowed the amount, stating that the debit note from the party was not produced, and the confirmation filed showed reimbursement of only Rs. 41,844/-.

Before the CIT(A), the respondent provided the debit note dated 12-07-2001 from M/s. Akarshan Food Stuff Pvt. Ltd., supporting the claim of Rs. 6,12,000/- for freight, loading, and unloading charges, and Rs. 67,030/- for draft making charges. The CIT(A) observed that the AO had accepted the draft making charges but disallowed the balance amount without logical reasoning. The debit note and account transactions were regular and genuine, and the AO had not disputed the business expediency or necessity of the expenses.

The ITAT upheld the CIT(A)'s decision, noting that the AO had not doubted the genuineness of the claim or brought any material evidence to suggest otherwise. The respondent had provided sufficient documentation, and the CIT(A)'s order was well-reasoned. Thus, the ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:
The ITAT dismissed the appeals filed by the Revenue for all three years, affirming the CIT(A)'s decisions to delete the additions on account of loss of milk handling, inflation of milk price, and freight and loading & unloading expenses. The judgment emphasized the importance of substantial evidence and logical reasoning in making disallowances.

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