2014 (12) TMI 1352 - AT - Income Tax

Addition on account of lower rice yield shown by the assessee - HELD THAT - While making the addition AO had applied a mathematical formula claimed to have been adopted from FCI guidelines. It is very strange that before fastening tax liability to the assessee he did not consider it necessary to incorporate the reply of the assessee and rebut it. Principles of natural justice demand that the assessee is entitled to get a reasoned and speaking order. A reasoned order cannot be passed without considering the reply of the assessee filed by the assessee and without giving reasons as to why the reply was not acceptable. Once the assessee had made submission about the FCI Web site it was duty of the AO to give a clear finding about it but he chose to remain silent about it. He had the case records of the assessee of earlier assessment years and he could have easily found as what was the yield for those years. Without referring to the statistics available with him the AO made the addition. He has not referred to any comparable case that could prove that the stand taken by him about the yield of broken-rice and rice was based on any scientific or logical basis. In short there was no justification of any kind to hold that the yield shown by the assessee about broken rice and rice was lower as compared to other comparable cases or yield shown in earlier years. - Decided against revenue

Summary

Issues:
1. Addition of Rs. 67,73,700 on account of lower rice yield.
2. Justification of CIT(A) in deleting the addition.

Analysis:
1. The appellant, engaged in rice manufacturing and trading, declared income of Rs. 1,97,450. The Assessing Officer (AO) finalized the assessment at Rs. 74,92,675, adding Rs. 67,73,700 due to lower rice yield shown by the assessee. The AO compared the declared yields with industry standards and guidelines, concluding that the assessee diverted rice to broken rice, justifying the addition.

2. The First Appellate Authority (FAA) considered the appellant's arguments, highlighting that the AO lacked substantial evidence for the addition. The FAA emphasized that the AO failed to provide comparable cases or consider past yield records submitted by the assessee. The FAA deemed the addition speculative and baseless, deleting it based on lack of concrete evidence.

3. The ITAT Raipur upheld the FAA's decision, criticizing the AO for not incorporating the assessee's explanations or justifying the addition with factual evidence. The tribunal emphasized the importance of natural justice, requiring reasoned orders based on thorough consideration of submissions. The ITAT found the AO's approach arbitrary, lacking scientific or logical basis for the addition, and upheld the deletion of the amount.

4. The Departmental Representative supported the AO's order, while the Authorized Representative argued against the addition, citing the AO's oversight of the assessee's explanations. The ITAT concluded that the AO's failure to substantiate the addition with concrete evidence or comparative data rendered it unjustified. The tribunal upheld the FAA's decision, dismissing the appeal and confirming the deletion of the Rs. 67,73,700 addition.

In conclusion, the ITAT Raipur dismissed the appeal, emphasizing the necessity of factual substantiation and reasoned decision-making in tax assessments, thereby upholding the deletion of the contentious addition based on lower rice yield shown by the assessee.