2012 (11) TMI 3 - AT - Income Tax

Addition on account of low yield of oil from cotton seeds - suppression of sales proceeds Held that - Yield of oil from cotton seeds depends upon many factors and cannot be fixed, such as date of sowing and time of harvesting, quality of seeds, quality/type of extraction mill - Traditional Ghanis yields lower oil recovery than solvent extraction and yield also depends upon the fact that whether extraction is made from kohlu or through skilled or unskilled labour - he cannot certify the exact yield during the year under consideration - addition of Rs. 3 lakhs in this case will meet the ends of justice in partly favor of revenue Addition on account of resale and manufacturing of cattle feed by applying low GP rate Held that - Assessee has shown to have sold almost the entire self manufactured feed in cash on varying rates - sale rates can still be higher or lower but he has picked up two instances of sales - Assessing Officer was not satisfied about the genuineness and correctness of the cattle feed manufacturing account, which was rejected - addition sustained by the CIT(A) at Rs. 2 lakhs is on lower side - addition of Rs. 3 lakhs on this count will meet the ends of justice. The Assessing Officer is directed to recompute the income of the assessee accordingly Disallowance of proportionate interest paid to the bank relevant to so called interest free advances made by the appellant Held that - These have been made out of CC A/c which carries interest rate of 15% - disallowance reduced

Issues Involved:
1. Rejection of books of account under Section 145(3) of the Income-tax Act, 1961.
2. Addition on account of low yield of oil in cotton seed.
3. Addition on account of low gross profit rate of cattle feed.
4. Disallowance of proportionate interest paid to the bank related to interest-free advances.

Detailed Analysis:

1. Rejection of Books of Account under Section 145(3) of the Income-tax Act, 1961:
The assessee's appeal argued that the CIT(A) erred in confirming the Assessing Officer's (AO) action in rejecting the books of account under Section 145(3). The AO found discrepancies in the quantitative details of cotton seed, mustard, and groundnut crushed, which were shown separately, but the yield of oil and oil cakes was given in consolidated form. The AO noted that the sales of oil and oil cakes were shown in the manufacturing account in consolidated form despite a wide variation in market prices. The assessee's explanation for mixing up different types of oil seeds was rejected by the AO as unsatisfactory. The Tribunal agreed with the AO's decision, noting that the assessee's books of account were unreliable, incorrect, and incomplete, and upheld the rejection under Section 145(3).

2. Addition on Account of Low Yield of Oil in Cotton Seed:
The AO adopted an 11% yield of oil from cotton seeds, as opposed to the 9.85% declared by the assessee, based on expert opinion from Punjab Agriculture University. This led to an addition of Rs. 8,68,800/- for suppression of sales proceeds of cotton seed oil. The CIT(A) reduced this addition to Rs. 2 lakhs. The Tribunal considered the varying factors affecting oil yield, such as the quality of seeds and extraction methods, and decided that an addition of Rs. 3 lakhs would be just. Consequently, the Tribunal partly allowed the Revenue's appeal and dismissed the assessee's appeal regarding this issue.

3. Addition on Account of Low Gross Profit Rate of Cattle Feed:
The AO applied a gross profit (GP) rate of 15% on estimated sales of Rs. 86,23,533/-, resulting in an addition of Rs. 10,71,467/-, due to the low GP rate declared by the assessee. The CIT(A) reduced this addition to Rs. 2 lakhs. The Tribunal noted that the GP rate of 2.57% or 3.34% declared by the assessee year after year was manipulated and unsustainable for a manufacturing unit. Given the cash sales at varying rates and the lack of a comparable case cited by the AO, the Tribunal concluded that an addition of Rs. 3 lakhs would be appropriate. Thus, the Tribunal partly allowed the Revenue's appeal and dismissed the assessee's appeal on this issue.

4. Disallowance of Proportionate Interest Paid to the Bank Related to Interest-Free Advances:
The AO disallowed interest at the rate of 15% on interest-free advances made by the assessee to R.R. Foods, a concern owned by the assessee's son, from his CC account, resulting in an addition of Rs. 2,89,270/-. The CIT(A) upheld the disallowance but directed the AO to verify the interest rate on unsecured loans and apply the same rate. The Tribunal found no infirmity in the CIT(A)'s findings and upheld the decision. Consequently, the Tribunal dismissed both the assessee's and Revenue's appeals on this issue.

Conclusion:
The Tribunal dismissed the assessee's appeal in its entirety while partly allowing the Revenue's appeal, making specific adjustments to the additions and disallowances as indicated above.

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