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TMI Blog2010 (11) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... PF contribution relating to the employees contribution was decided in favour of the assessee in case such contributions are paid before the due date of filing of return. Hence, the learned CIT(A) was justified in deleting the disallowance of Rs. 22,021. 3.1 The second ground of the Revenue is that the learned CIT(A) has erred in deleting the addition of Rs. 43,12,908 made on account of the trading addition. 3.2 The AO during the course of the assessment proceedings compared the yield of oil from Taramera and groundnut as shown by the assessee as compared to the result shown in the preceding year. The chart as mentioned in the assessment order is as under:- Taramera yield chart:- Sl. No. Asst. yr. Raw material consumed in Qtl. Qty. of oil obtained in Qtl. Yield of oil (%) Yield of oil cake (%) Shortage 1. 2004-05 60244 17700 29.38 69.29 1.33 2. 2005-06 573749.2 166940.5 29.10 69.83 1.07 Groundnut yield chart:- Sl. No. Asst. yr. Raw material consumed in Qtl. Qty. of oil obtained in Qtl. Yield of oil (%) Yield of oil cake (%) Shortage 1. 2004-05 1133950 317778 28.02 50.63 21.35 2. 2005-06 3391494.2 867703.25 25.58 50.30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round 28 per cent though the assessee has shown only 25.58 per cent. The yield of oil also depends upon the quality though it may also depend upon seed purchased from various Mandis. One will have to consider the Mandi from which the seeds have been purchased as well as one will have to consider the purchase price. Hence, simply on the basis that yield of oil from groundnut of Bikaner Mandi is more, is not sufficient to explain the lower yield. The AO verified the production register and has compared the yield in respect of following four months:- Month Cost per Qtl. Yield of oil Yield of oil cake Shortage December, 2004 1454 24.37 50.3 25.33 January, 2005 1454 25.97 51-21 22.82 February, 2005 1420 26.62 49.71 23.91 March, 2005 1430 26.59 51.33 22.08 From the above chart, the AO noticed that the cost of seed per quintal in the month of December, 2004 and January, 2005 is the same but the yield during December, 2004 is less by 1.5 per cent as compared to the yield January, 2005. The AO further noticed that shortage is excessive by 2.77 per cent as compared to shortage in the immediately preceding year. For the year under consideration, the shortage i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s:- (i) Haridas Parikh vs. ITO (2008) 113 TTJ (Jd) 274 : (2008) 1 DTR (Jd)(Trib) 390; (ii) ITO vs. Arun Oil Industries (1985) 23 TTJ (Jp) 378; (iii) Ambalal Manohar Singh vs. ITO 27 Tax World 280 (Jp); (iv) Asstt. CIT vs. Shiv Agrevo Ltd. (2009) 122 TTJ (Jp) 416 : (2009) 24 DTR (Jp)(Trib) 274; (v) Triveni Pharma vs. ITO (2004) 85 TTJ (Jp)(TM) 950. 2. The AO failed to refer the specific provisions of s. 44AA r/w r. 6F in which it is not provided that stock register is to be maintained. The assessee is having opening and closing inventory. Purchases and sales are fully supported by the bills. 3. The AO has commented adversely on the valuation of the closing stock. However, it does not fall within the parameter of s. 145(3) and the matter of valuation of stock is to be considered under s. 145A. 4. The books of account cannot be rejected on account of variation of yield. Reference was made to the decision of jurisdictional High Court in the case of Malani Ramjivan Jagannath vs. Asstt. CIT (2007) 207 CTR (Raj) 19 in which it was held that the books of account cannot be rejected on account of deviation in GP rate. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers are not forthcoming etc. the books of account cannot be rejected without assigning specific reasons.' 5.6 In the case of ITO vs. Arun Oil Industries (1985) 23 TTJ (Jp) 378 Hon'ble Tribunal, Jaipur Bench made following observations:- 'There was no information to indicate that the yield shown by the assessee was low or manipulated. Even if the account of the assessee could be rejected for not being capable of fully verified, no one could say without very much further information that the yield shown by him is low. The Department pointed out that other assessee had shown high yields. The fallacy in the stand was that absolutely no information was available about the nature of the business done by the other manufacturers whose cases are compared with that of the present assessee. Thus the ITO was not in a position also to give the variable as regards purchase, quality, price, wetness, climate of the place, efficiency of crushing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Swastik Oil Industries percentage yield of oil was 28.70 and 28.82 but of cost of raw material for appellant are Rs. 1,724 and Rs. 1,686 per quintial. As against this cost of raw material for appellant was Rs. 1,560 per quintial. In such a case AO is not justified to estimate yield on the basis of these concerns ignoring the impact on price of raw material. I therefore, hold that trading addition of Rs. 43,12,908 is not justified in this case and the same is directed to be deleted. Ground No. 2 of the appellant is thus, allowed." 3.8 During the course of proceedings before us, the learned Departmental Representative drew our attention to the discrepancies noticed by the AO in the course of assessment proceedings. The discrepancies so noticed have not been properly explained. The difference in yield is substantial as compared to that of the immediately preceding year. Our attention was drawn to the comparable cases where the yield was more as compared to the yield shown by the assessee. The assessee has not given an explanation to the effect that the raw materials purchased by comparable cases were of better quality. It was therefore, argued that the learned CIT(A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r additions in plant and machinery in asst. yrs. 2004-05 and 2005-06. Irrelevant objection as assessee never raised such contention. Secondly purchases of seeds certainly required experience in as much as it is the quality of seed which makes a lot of difference. The learned AO did not rebut our contention regarding Amit Kataria. Incorrect finding as the assessee made addition of Rs. 5,81,074 in asst. yr. 2004-05 on account of purchase of two old machines from RFC and others. Otherwise also not relevant. 4. The assessee submitted laboratory reports in support of his contention that Bikaner Mandi contains more oil content in groundnut seeds than Newai and other Mandies, the laboratory reports are related to asst. yr. 2007-08 and not for asst. yr. 2005-06. The assessee did not make any laboratory test in asst. yr. 2005-06. It was made only when the assessee had to prove his contention during the assessment proceedings and it was not possible to file report for asst. yr. 2005-06. Further it will not make any difference that the report belongs to which period. One has to only see that which area it belongs to. Further the AO never asked to file the laboratory report during the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which disproved the contentions of the AO. The AO has not provided any basis of his conclusion that the quality of the crops does not depend on its location and site (but depends only on rairi conditions or irritation facility). It is submitted that location and site plays a very vital role in the yield on the crops quality. To take an example it depends upon the land and the sand of the area on which the fertility depends apart from the atmospheric conditions of that particular area. The AO is not an expert and therefore, he is nobody to make an authoritative comment on such matter, without having a basis i.e., in the shape of technical report. The fact of rain is only one of the criteria however, yield largely depends on the condition of the land i.e. location. Kindly refer a chart showing different rates prevailed in different Mandis in five different years (paper book 8), which shows that in Bikaner Mandi, the prices of groundnut seeds always remained high i.e., Rs. 1,700 to Rs. 2,600 per quintal as against Newai Mandi where it was only Rs. 1,300 to Rs. 2,200 per quintal. 7. Other manufacturing units situated at Newai, i.e. M/s Swastik Oil Industries and M/s Suresh Oil Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of new purchases this year, obviously resulting in a better yield. (iv) Thus, it is the quality of seeds which directly affect the yield and depending upon quality, the market rate of seeds greatly varies. In support, we are enclosing herewith some purchase bills dt. 2nd Nov., 2004 (paper book 44 to 46) which shows rate difference of Rs. 500 to 700. This is also evident from a latest newspaper cutting dt. 29th Jan., 2010 (Punjab Keshri) showing a wide variation from Rs. 1,800 to Rs. 3,000 per quintal of groundnut seeds in Newai Mandi (paper book 133). Also kindly refer a chart showing different rates prevailed in different Mandis in five different years (paper book 8). Hence the case so relied upon by the AO, are not comparable. 8. The variation in rates of G.N. seeds in different Mandies and area has also no force that the rates of the commodities depends on demand and supply when, the demand is much than the cost of the seeds will definitely be higher and on the basis of rates it cannot be judged that the oil content in seeds are whether high or low. Further the contention of the assessee that it could sell at Rs. 50.02 as against Rs. 48.22 per kg. last year, was not tenabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) It is not necessary that the seed purchased in a particular month is always consumed in the same very month. It may be used in next month or even later kindly refer a month-wise chart showing purchases vis-a-vis consumption (paper book 30-32). This fact is also supported by a bank certificate (paper book 33) which shows that the seeds purchased and pledged in the month of December, were released in March, therefore they may be used in March only and not in December itself. (Purchase in March was only 306.7 quintals whereas production was of 1,622.5 quintals). Further the AO never asked the assessee to produce laboratory report. The assessee on its own produced the same. 10. The assessee is engaged in manufacturing activities not in trading activities. It is incorrect because the assessee is engaged in both activities during the year, the assessee purchased oil of 13,51,685 kgs., produced 17,49,042 kgs. and sold 30,45,711 kgs., as per audited accounts. 11. Though the decline in yield of oil in Taramera in terms of % appears to be very little that is to say 0.28% it makes difference in terms of amount so the decline in yield is not negligible and cannot be ignored at all i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of mention of quality, a proper analysis of yield is not possible is devoid of merit as the entire purchases are fully vouched. Further the purchases and consumption are admittedly recorded. At a given point of time there may be crushing of seeds of different qualities which may result into an average yield. In the entire trade, all the manufacturers have been maintaining similar type of production registers and even then no additions were made in those cases. In any case, the AO did not bring any contrary example. Further the Sales-tax Department also accepted the same stock/production register. (ii) The assessee admittedly maintained stock/production register produced before him and the shortage can be taken from the same, i.e., on 4th Dec., 2004 groundnut crushed 16,000 kgs. for consumption out of which production of oil was 4,200 kgs. and oil cake of 8,200 kgs. i.e., shortage came 3,600 kgs. (paper book 75), which is easily ascertainable. (iii) It is factually, wrong because on 14th April yield was 29.09% and on 15th April it was 30% and can be verified from the stock/production register (paper book 69). (iv) The AO proceeded on suspicion that the capacity of machine fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee produced bill dt. 3rd April, 2005 for Rs. 48.53 (paper book 90-91) and the AO considered the bill of 19th March, 2005 for Rs. 53 from which he reduced Rs. 3 for tin but he did not reduce delivery charges of Rs. 1.50 and if it is reduced (in other case, he accepted) then the rate will come of Rs. 48.50 as was shown by the appellant. The assessee otherwise purchased on 6th March, 2005 @ Rs. 48.40 (paper book 97), which continued in the stock. The assessee valued such stock @ 48.50 per kg. 13.3 The value of closing stock of Taramera oil was undervalued by Rs. 0.10 per kg. i.e. by Rs. 1,640 (8,395 kg. x Rs. 0.10). It is very negligible. The calculation of the AO is incorrect because the correct figure is Rs. 839 not Rs. 1,640. Further the AO ignored the loading charges. 13.4 The value of closing stock of Taramera cake was undervalued by Rs. 0.05 per kg. i.e. by Rs. 834 (16,680 kg. x Rs. 0.05). It is very negligible. Further the bardana charges of Rs. 20 was not reduced. 13.5 The value of closing stock of Taramera seed was undervalued by Rs. 12,460. The assessee has not considered loading/unloading charges. The AO wrongly stated that the assessee has not considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be to the extent of Rs. 834. Hence, the undervaluation to the extent of Rs. 834 is correct. In respect of closing stock of Taramera, seed, the assessee has given valid explanation and there is no case of undervaluation of stock of Taramera. 3.13 After considering the discrepancies noticed by the AO and the replies given by the assessee before the lower authorities, it is seen that there is only specific discrepancy in respect of valuation of closing stock. The provision of s. 145(3) is as under:- "Where the AO is not satisfied about the correctness or completeness of the accounts of the assessee or where method of accounting provided in sub-s. (1) of Accounting Standard notified under sub-s. (2) have not been regularly followed by the assessee, the AO may make any assessment in the manner provided in s. 144." In the instant case, the provisions of s. 145(3) is not applicable on account of not following the Accounting Standard notified or by not following the accounting as followed in earlier years. The AO has rejected the books of account, as according to him, the accounts are not correct or complete. After considering the explanation given before the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses." The Third Member decision in the case of Asstt. CIT vs. Ravi Agricultural Industries (2009) 121 TTJ (Agra)(TM) 903 : (2009) 20 DTR (Agra)(TM)(Trib) 379 : (2009) 117 ITD 338 (Agra)(TM) held that the AO was not correct in rejecting the books of account maintained by the assessee merely on the basis of fall in sales value without bringing material on record to show that there were sales outside the books of account. In the instant case the AO was having suspicion that the yield shown by the assessee is lower as compared to the comparable cases. The AO has not been able to establish that there were sales outside the books of account in respect of either finished product or by-product. The Hon'ble Punjab and Haryana High Court in the case of CIT vs. Ludhiana Steel Roll Mills (2007) 295 ITR 111 (P and H) had an occasion to consider the case where the AO found various discrepancies. In that case, the learned CIT(A) and the Tribunal gave a finding on the basis of evidence that there was no discrepancy in the maintenance of accounts. In the instant case, the learned CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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