2019 (8) TMI 1265 - AT - Income Tax

Addition of suppression of income from sale of wastage - AO observed that there is a difference in rate as per the books and the rate conducted for computation of income and Filing of return of income u/s 153A - AO on the information of few Distilleries of U.P. Region considered the market value of wastage rate is 1.22 per kg - HELD THAT - We find the submissions of the ld. AR are duly supported with facts and the rate adopted by the assessee for the said assessment year in filing the Return filed u/s 153A was only to buy peace. Assessing authority though adopted the rate at 1.22 per kg by general enquiries but there is no concrete proof in support of rate at 1.22 per kg. In the present case the assessee has considered the rate of wastage sale generated @ 0.73 per kg in the Books of accounts but whereas at the time of filing of Return of income u/s 153A that assessee has adopted rate 1.13 per kg. AR envisaged that to buy peace the assessee has enhanced the rate by 0.40 per kg and Disclosed in the Return of income. Whereas the Assessing authority without any supporting evidence except mentioning that the few Distilleries of U.P. Region also generates the wastage and they are selling at 1.22 per kg. cannot be a benchmark of unorganized sector. The Assessing authority though made the specific observations but could not support with any logical and documentary evidence. Therefore addition of the AO is without any cogent evidence and cannot be sustained. Therefore we set aside the order of the ld. CIT(A) and Direct the AO to delete the addition and allow the grounds of appeal of assessee Shortage of stock of empty bottles account - addition of alleged distribution of unaccounted surplus computed on the basis of shortage of stock of empty bottles of Radico brand found at the premises of the bottler - HELD THAT - The contention of the ld. AR that the issue of shortages has to be explained by the M/s N.V. Distilleries Breweries Ltd. with whom the assessee has tie up. Further there is no evidence to trace that the shortages has to be taxed in the hands of the assessee. We considering the facts and the findings of the ld. CIT(A) find the explanations of the assessee are not satisfactory though the ld. AR has referred and relied on obligations and warrantees of the assessee and similarly of M/s N.V. Distilleries Breweries Ltd. We find that without any relatable cause the business of bottling cannot proceed. Further agreement was entered which is not disputed by the Revenue but the fact remained that the assessee could not explain the shortage of stock though referred to the permissions of bottling agreement. Whereas the Ld. AR contention that the difference has to be explained by the M/s N.V. Distilleries Breweries Ltd. to the Revenue but the facts remain that the assessee has business tie up with this company various brands of products manufactured and bottled by M/s N.V. Distilleries Breweries Ltd. in the Bottling plant. The assessee has accepted that net distributable surplus after deducting the expenses and bottle charges as per agreement entered by with M/s N.V. Distilleries Breweries Ltd. dated 12.04.2004 and the distributable surplus shall be appropriated. We find there are inter related transactions which the Revenue has rightly made observations and the assessee could not overruled the finding of the Revenue with proper explanations or evidences. CIT(A) has considered the submissions agreement and ratio of distributable surplus has passed a reasoned and logical order on this ground of appeal confirming the addition of the AO which we are not inclined to interfere and upheld the same and dismissed this ground of appeal of the assessee for the AY 2011-12

Summary

Issues Involved:
1. Notional addition on account of alleged suppression of income from the sale of wastage.
2. Addition on account of the alleged distribution of unaccounted surplus computed based on the shortage of stock of empty bottles.

Issue-wise Detailed Analysis:

1. Notional Addition on Alleged Suppression of Income from Sale of Wastage:
The assessee, a public limited company engaged in the spirits, liquor, and power generation business, filed appeals against the CIT(A)'s orders for multiple assessment years, challenging the notional addition of ?36,29,637/- made by the Assessing Officer (AO) on account of alleged suppression of income from the sale of wastage. The AO had enhanced the rate for the sale of cattle fodder by ?0.09 per kg based on ex-parte enquiries without sharing the results with the assessee or pointing out defects in the books of account. The AO observed that the assessee sold wastage generated in the form of organic manure at ?0.73 per kg but declared an additional amount at ?1.13 per kg in the return filed under section 153A of the Income Tax Act. The AO made an addition based on a difference in the sale value of wastages not credited in the books of accounts. The CIT(A) confirmed the AO’s addition.

During the Tribunal hearing, the assessee argued that the AO's rate adoption was without evidence and not comparable to other cases. The Tribunal found that the AO's rate of ?1.22 per kg was unsupported by concrete proof and that the assessee's rate of ?1.13 per kg was adopted to avoid litigation. The Tribunal concluded that the AO's addition lacked cogent evidence and directed the deletion of the addition, allowing the assessee's appeal for the assessment year 2009-10. The same decision applied to the appeals for assessment years 2008-09 and 2010-11.

2. Addition on Alleged Distribution of Unaccounted Surplus Based on Shortage of Stock of Empty Bottles:
For the assessment year 2011-12, the AO found a shortage of stock of empty bottles during a survey on the bottling plant of M/s N.V. Distilleries & Breweries Ltd., which bottled products for the assessee. The AO made an addition of ?56,21,468/- based on the distributable surplus computed from the shortage of bottles. The CIT(A) upheld this addition, noting that the bottles found short were allegedly sold outside the books of accounts, and the profit was shared between the bottling plant and the assessee.

The assessee argued that the shortage was not related to them but to M/s N.V. Distilleries & Breweries Ltd., with whom they had a bottling agreement. The Tribunal found that the assessee could not satisfactorily explain the shortage and that the business tie-up with M/s N.V. Distilleries & Breweries Ltd. involved interrelated transactions. The Tribunal upheld the CIT(A)'s decision, confirming the addition made by the AO.

Conclusion:
The Tribunal allowed the assessee's appeals for the assessment years 2008-09, 2009-10, and 2010-11, directing the deletion of the notional addition on account of alleged suppression of income from the sale of wastage. For the assessment year 2011-12, the Tribunal partly allowed the appeal, upholding the addition related to the alleged distribution of unaccounted surplus based on the shortage of stock of empty bottles. The order was pronounced on 23rd August 2019.