2018 (1) TMI 1447 - AT - Income Tax

Addition on account of milling gain - HELD THAT - AO being a quasi judicial authority ought to have recorded specific reason for making any addition in the hands of the assessee. The first appellate authority, whose powers are co-terminus with that of the Assessing Officer, could have deliberated upon the rights and liabilities of the assessee on the very fact that assessee could not attend the hearing because he was medically unwell and relevant evidence was also placed which was not considered by the CIT(A). We find that this addition is being made by the Department without any enquiry being conducted or without there being any material on record and, therefore, we are of the considered view that the addition made by the AO and confirmed by the CIT(A) is without any basis and liable to be deleted - delete the addition made on account of milling gain. Machinery repairing expenses debited under the head machinery repairing expenses - AO on examination of bills and vouchers relating to expenses, noticed that some of the expenses were not supported with verifiable vouchers and were in cash. - HELD THAT - On a perusal of the written submission and the case record, we find that the business of the assessee is trading in food grains and producing Maida which is supplied to various biscuit manufacturers. It is common in factory set up that certain repairs and maintenance work are conducted for which vouching is not always possible. These expenses relate to the fundamentals of the assessee s business and just because they were not vouched, there cannot be any addition. The practical aspects involved in relation to the type of business of the assessee, who is also a tax payer, should be taken into consideration by the Department and taking these facts in totality, we are of the considered view that such ad hoc addition without any basis cannot be sustained and hence liable to be deleted. Accordingly, the addition on account of machinery repairing expenses is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of milling gain
2. Disallowance of machinery expenses

Analysis:
Issue 1: Disallowance of milling gain
The assessee, running a flour mill, filed a return at Nil income after set off of earlier year loss. The Assessing Officer made an addition of Rs. 1,82,245/- on account of milling gain, calculated at 0.5% of total consumption. The Assessing Officer's decision was based on the increase in weight of finished products due to milling gain, even though the assessee produced only Maida, not Atta. The Assessing Officer's computation lacked specific reasons and evidence, leading the ITAT to conclude that the addition was arbitrary and unjustified. The ITAT found the addition to be baseless and deleted the amount of Rs. 1,82,245/-.

Issue 2: Disallowance of machinery expenses
The Assessing Officer disallowed Rs. 25,000/- out of the total machinery repairing expenses of Rs. 5,58,302/- due to lack of verifiable vouchers and cash payments. The ITAT noted that repairs and maintenance in a factory setup may not always have verifiable vouchers, especially in the food grain trading business. The ITAT emphasized that such ad hoc additions without a valid basis cannot be sustained. Therefore, the ITAT deleted the disallowance of Rs. 25,000/- on account of machinery repairing expenses. The ITAT allowed the appeal of the assessee, emphasizing the importance of considering practical aspects and business fundamentals in tax assessments.

In conclusion, the ITAT ruled in favor of the assessee, deleting both the disallowance of milling gain and the disallowance of machinery expenses. The ITAT highlighted the lack of specific reasoning and evidence in the Assessing Officer's decisions, emphasizing the need for a valid basis for making additions in tax assessments.