2013 (7) TMI 526 - HC - Income Tax

Disallowance - excess consumption of Tendu leaves - CIT (A) addition of 1/3rd of the amount - Tribunal confirmed addition holding that there was no sufficient explanation, which could fully explain great fall of GP - Held that - there was a fall in GP rate in the relevant assessment year 2003-03, and there was no sufficient explanation, which could fully explain such fall of GP rate. Considering these facts, the adhoc addition sustained by CIT (A), which is of the AO s addition 1/3rd, was found to be reasonable - findings recorded by ITAT are findings of fact based on their assessment of the material on record, which do not raise any question of law - Decided against Revenue.

Summary

Issues:
1. Disallowance of Rs.27,48,644 out of excess consumption of Tendu leaves.
2. Justification of the ITAT's decision in disallowing the amount.

Issue 1: Disallowance of Rs.27,48,644 out of excess consumption of Tendu leaves:
The Income Tax Appeal was filed against the order of the Income Tax Appellate Tribunal (ITAT) regarding the assessment year 2002-03. The department raised questions regarding the disallowance of Rs.27,48,644 out of excess consumption of Tendu leaves. The ITAT examined the orders of the Assessing Officer (AO), Commissioner of Income Tax (Appeals) [CIT (A)], and ITAT itself. The ITAT's decision was based on the fall in consumption of Tendu leaves and the resulting impact on the Gross Profit (GP) rate. The AO had made an addition based on the variation in Tendu patta consumption, considering it as a natural produce with varying quality and size each year. The CIT (A) sustained a portion of the addition made by the AO, and the ITAT found this decision reasonable. The ITAT concluded that the adhoc addition sustained by the CIT (A) was justified, as it was 1/3rd of the AO's addition.

Issue 2: Justification of the ITAT's decision in disallowing the amount:
The ITAT provided sufficient reasons for the disallowance of Rs.27,48,644 due to excess consumption of Tendu leaves. It noted a decrease in the GP rate for the relevant assessment year without a satisfactory explanation for the decline. The ITAT considered the natural variations in Tendu patta quality and size from year to year, leading to the AO's addition. The CIT (A) upheld a portion of this addition, which the ITAT found reasonable. The ITAT's findings were based on factual assessments and did not raise any legal questions. It was determined that there was no error of law or misreading of material by the ITAT, and the decision to dismiss the Income Tax Appeal was upheld.

In conclusion, the High Court upheld the ITAT's decision regarding the disallowance of Rs.27,48,644 out of excess consumption of Tendu leaves, finding the reasoning provided by the ITAT and CIT (A) to be reasonable and based on factual assessments.