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TMI Blog2017 (12) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... the allegation of the Learned Departmental Representative that the Assessing Officer was not given opportunity to examine additional evidence is unacceptable. It is further to be noted, the Learned Departmental Representative has not been able to controvert the factual finding of the first appellate authority that the reconciliation submitted by the assessee is on the basis of books of account. - Decided against revenue Suppression of production resulting in unaccounted sales - Held that:- Commissioner (Appeals) having examined the documentary evidences brought on record being satisfied with the claim of the assessee has deleted the addition. As far as the contention of the Learned Departmental Representative that learned Commissioner (Appeals) has deleted the addition on the basis of addition evidence is concerned, we are unable to accept the same. As could be seen from the impugned order of the learned Commissioner (Appeals), the documentary evidences furnished by the assessee before the first appellate authority in a paper book were sent to the Assessing Officer for his examination and comments. It also emerges from record that during the remand to the Assessing Officer, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of suppressed sale of confectionary - Held that:- Commissioner (Appeals) has recorded a factual finding that most of the discrepancies found by the Assessing Officer are on account of maida which is not a raw material for confectionary. That being the case, there is no justification for even sustaining a part of ad–hoc disallowance made by the Assessing Officer in respect of confectionary. Therefore, we delete the addition sustained by the learned Commissioner (Appeals). Disallowance of deduction claimed on account of spoilt and damaged goods - CIT-A sustained the disallowance @ 5% out of the deduction claimed on account of mouthwash and toothbrush - Held that:- We are of the opinion that assessee’s claim of deduction on account of spoilt and damaged goods insofar as it relates to biscuits and confectionaries is allowable, since, assessee itself manufactures such items. However, as far as mouthwash and toothbrush are concerned, the assessee has not manufactured such products, therefore, the assessee could have returned such damaged goods to the manufacturer and claimed reimbursement. In view of the aforesaid, accepting the reasoning of the first appellate authority we dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER For The Revenue : Shri Alok Johri For The Assessee : Shri Percy Pardiwala ORDER PER SAKTIJIT DEY, J.M. Aforesaid cross appeals are directed against order dated 6th May 2002, passed by the learned Commissioner (Appeals), Central V, Mumbai, for the assessment year 1996 97. ITA no.4023/Mum./2002 Revenue s Appeal 2. In ground no.1, Revenue has challenged deletion of addition of ₹ 3,43,237. 3. Brief facts are, the assessee a company is engaged in the business of manufacturing different verities of biscuits and confectionaries. Besides undertaking the manufacturing activity in its own manufacturing unit at Mumbai, it also gets the products manufactured on contract basis through a number of contract manufacturing units located in different parts of the country. For the assessment year under dispute, the assessee filed its return of income on 29th November 1996, declaring total income of ₹ 33,39,71,830. During the assessment proceedings, the Assessing Officer called upon the assessee to furnish itemwise details of valuation of closing stock of raw material af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Authorised Representative drawing our attention to the reconciliation statement produced before the learned Commissioner (Appeals), a copy of which is at Page 233 of the paper book, submitted that the assessee has reconciled the difference in value of closing stock of raw material and others. He submitted, reconciliation chart was duly forwarded to the Assessing Officer by the learned Commissioner (Appeals) which is evident from the submissions made by the assessee before the Assessing Officer in the course of remand. 8. We have heard rival contentions and perused the material available on record. From the facts and material on record, it is evident that the Assessing Officer without calling for an explanation from the assessee to reconcile the difference has made the addition alleging suppression of closing stock. However, before the first appellate authority, the assessee has reconciled the difference with supporting evidence which was sent for verification of Assessing Officer. That being the case, we do not find any reason to interfere with the decision of the learned Commissioner (Appeals) on this issue. Ground no.1, raised by the Revenue is dismissed. 9. In grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authorised Representative on the other hand submitted that all the evidences produced before the learned Commissioner (Appeals) was sent for examination of the Assessing Officer. 13. Having considered the submissions of the parties, we are of the view that there is no need to interfere with the finding of the learned Commissioner (Appeals). As could be seen, on the basis of a monthly statement filed by the assessee, the Assessing Officer has made the addition alleging purchase suppression. However, before the first appellate authority, the assessee has reconciled the difference and the learned Commissioner (Appeals) after examining the reconciliation statement having found that it is on the basis of the books of account of the assessee has deleted the addition. Further, it is evident on record, the first appellate authority has sent the evidences filed in the paper book for the examination of the Assessing Officer. Therefore, the allegation of the Learned Departmental Representative that the Assessing Officer was not given opportunity to examine additional evidence is unacceptable. It is further to be noted, the Learned Departmental Representative has not been able to controvert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. The only submission made by the Learned Departmental Representative before us is, the learned Commissioner (Appeals) has deleted the addition on the basis of additional evidence which were not filed before the Assessing Officer. The learned Authorised Representative strongly supported the finding of the learned Commissioner (Appeals). As could be seen, only on the basis of information obtained from the two contract manufacturing units, the Assessing Officer has made the addition alleging suppression of sales. However, before the first appellate authority, the assessee through proper documentary evidences has been able to reconcile the difference. As could be seen from the facts on record, difference in production of biscuits as per the books of account of contract manufacturing units and the books of assessee arose due to export and depot transfer of biscuits which were demonstrated through documentary evidence. The learned Commissioner (Appeals) having examined the documentary evidences brought on record being satisfied with the claim of the assessee has deleted the addition. As far as the contention of the Learned Departmental Representative that learned Commissioner (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive biscuit as claimed by the assessee before the Excise authorities. Assessee challenged the addition before the first appellate authority. 20. The learned Commissioner (Appeals) after considering the submissions of the assessee qua the materials brought on record, deleted the addition. 21. Learned Departmental Representative submitted, on a physical enquiry conducted by the Assessing Officer at the factory premises of the assessee, it was found that the entire manufacturing process is automated and there is very little scope of wastage. He submitted, even in case of wastage by way of broken biscuits, etc., they are re usable which is found from contract manufacturing unit. He submitted, before the first appellate authority, the assessee produced additional evidence which were not brought to the notice of the Assessing Officer. Therefore, he submitted, learned Commissioner (Appeals) was not justified in deleting the addition. 22. Learned Authorised Representative submitted, there is difference between the broken biscuit on the one hand and burnt and powder biscuit on the other. He submitted, while broken biscuits are reusable in the manufacturing process burnt biscuits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns that expenditure on training program and conference is not in the nature of entertainment and further, the assessee voluntarily having disallowed an amount of ₹ 3,60,353, restricted the disallowance to ₹ 50,000. While doing so, he followed the reasoning of his predecessor in assessment year 1995 96. 26. We have heard rival contentions and perused the material available on record. We find that in assessment year 1995 96, while deciding department s appeal in ITA no.66/Mum./1999, dated 28th October 2003, the Tribunal has restricted the disallowance to ₹ 75,000. Following the aforesaid order of the Tribunal, we direct the Assessing Officer to restrict the disallowance to ₹ 75,000. Ground raised is partly allowed. 27. In ground no.6, Department has challenged deletion of addition of ₹ 20,57,746 on account of disallowance of expenditure on foreign travel. 28. During the assessment proceedings, the Assessing Officer noticing that the assessee has claimed foreign travel expenses of ₹ 40,95,492, called upon the assessee to produce the relevant details and justify its claim. After examining the details furnished by the assessee, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of unutilised MODVAT credit. 33. We have heard the parties and perused the material on record. The Assessing Officer following similar disallowance made in the preceding assessment year has made the impugned disallowance. However, the learned Commissioner (Appeals) following the decision of the Hon'ble Jurisdictional High Court in Indo Nippon Chemicals Co. Ltd., 245 ITR 384 (Bom.) deleted the addition. 34. Learned Counsels appearing before us have agreed that the issue stands decided in favour of the assessee by the decision of the Hon'ble Supreme Court in CIT v/s Indo Nippon Chemicals Co. Ltd., [2003] 261 ITR 275 (SC). Considering the aforesaid submissions of the parties, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised. 35. Ground no.8 of Revenue corresponding to grounds no.4 and 5 of the assessee will be taken up at later part of this order. 36. Ground no.9, of Revenue corresponding to ground no.6 by assessee is on ad hoc disallowance made by the Assessing Officer on account of suppressed sale of confectionary. 37. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 19.66 lakh; and iii) Biscuits Rs. 98.96 lakh; 42. When the Assessing Officer called upon the assessee to justify its claim, the assessee submitted debit notes issued by the distributors for damaged goods. The Assessing Officer, however, was not convinced with the submissions of the assessee. He observed that the agreement with the distributors did not bind the assessee to pay any amount towards spoilt and damaged goods. Accordingly, he made ad hoc disallowance of 5% out of the total claim made by the assessee which worked out to ₹ 6,63,300. Assessee challenged the disallowance before the first appellate authority. 43. The learned Commissioner (Appeals) agreed with the assessee that defective goods cannot be ruled out in manufacturing process and further, manufactured items do have a self life and there can be defects in packaging and goods may be damaged in transit also. He also agreed with the assessee that dealers / distributors will not bear the cost of damaged goods and will get it reimbursed from the assessee who is the manufacturer. However, he held that such deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary comes to 84.50%. Whereas, as per the audit report, the yield works out to 92.55%. Further, the Assessing Officer observed, in the statement of quantitative details submitted before him, the assessee has shown 1059 MTs of coco vita oil as against 1860 MTs reported by the auditor. Further, though, the assessee in the statement furnished before the Assessing Officer has claimed consumption of other materials at 3335 MTs. It was not mentioned in the tax audit report. Further, the assessee has revised the figures of consumption of Mumbai unit from 36690 MTs to 38490 MTs. To further verify the percentage of yield the Assessing Officer sought information from the contract manufacturing units. From the information obtained from contract manufacturing units, he found that consumption of other materials were shown at nil. He also found variation in the consumption of material as recorded in the books of the assessee for contract manufacturing units. He also observed, all the raw materials are provided by the assessee to the contract manufacturing units. He further observed, as per revised statement filed during the assessment proceedings, the yield for Mumbai Unit worked out to 82.67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the quantity available for sale. The Assessing Officer observed, as per standard formula, the yield should work out to 92.59%. He observed, the contract manufacturing units were showing average yield of 91.65% whereas, the Mumbai unit was showing yield of 82.69%. Thus, the Assessing Officer inferred that the assessee did not maintain records for consumption, production and sales of Mumbai Unit in a proper manner or the details were withheld purposely. Thus, on the aforesaid reasoning, the Assessing Officer taking into consideration the difference in percentage of yield shown by the contract manufacturing units and the assessee concluded that such difference of 8.96% was suppressed production resulting in suppressed sales. Taking into consideration consumption of raw material of Mumbai unit at 37498 MTs, he worked out the suppressed production at 3359.820 MTs and by adopting ₹ 36,025, as average sale price, the Assessing Officer worked out the suppressed production of biscuits resulting in suppressed sales at ₹ 12,10,44,000 and added it to the income of the assessee. Being aggrieved of such addition, assessee preferred appeal before the first appellate authority. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing units. However, he accepted assessee s contention that in the manufacturing process, standard formula cannot be applied strongly though it may be a guiding factor for appreciating the result. From the material on record, he found that the yield of contract manufacturing units vary between 87.85% to 100.35%. Therefore, adopting average yield of 91.65% for all contract manufacturing unit will give a distorted picture. Referring to the percentage of yield of few contract manufacturing units, the learned Commissioner (Appeals) held that the percentage of yield of contract manufacturing unit can be taken at 91%. The learned Commissioner (Appeals) observed, as per the bifurcation of consumption of raw material for confectionary and biscuit, the assessee has worked out yield of 84%, whereas, after taking into account various aspects like heating, moistures and other factors, assessee has reconciled the yield for biscuits at 88.4%. The learned Commissioner (Appeals) also accepted assessee s plea that mixtures if rejected results in heavy loss and the work force at Mumbai unit is not as disciplined as at contract manufacturing units. He also accepted assessee s contention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Departmental Representative submitted, once the Assessing Officer has rejected the books of account and made estimation on a scientific basis and to the best of his judgment, the learned Commissioner (Appeals) cannot interfere with the same. In support of such contention, he relied upon the decision of the Hon'ble Supreme Court in Commissioner of Sales Tax v/s H.M. Esufali H.M. Yusuf Ali Abdul Ali, [1973] 90 ITR 271 (SC). 50. Learned Authorised Representative submitted, no defect was found in the books of account. He submitted, if there was any discrepancy, it was in the statement submitted before the Assessing Officer, that too, due to bonafide mistake. He submitted, in the tax audit report, there is no mention of percentage of yield. He submitted, as per Form no.3CD, prescribed under Income tax Rules, 1962, in case of manufacturing concern, full quantitative details of principal items of raw material and finished products are to be given. He submitted, in Annexure to the tax audit report, the auditor has furnished the quantitative details of principal items of raw materials and finished products. In this context, he drew our attention to Annexure V to the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative submitted, such formula cannot be applied as the Tribunal in assessee s own case has held against applicability of such formula. Learned Authorised Representative submitted, compared to the yield for earlier years, the percentage of yield shown in the impugned assessment year is more. Therefore, the inference drawn by the Departmental Authorities regarding suppression of sales is baseless and unfounded. He submitted, even the contract manufacturing units have not shown any standard yield as their yield varies from 87% to 100%. That being the case, on the basis of yield shown by the contract manufacturing units, the books of account of the assessee should not have been rejected and no addition should be made. 51. We have heard rival contentions and perused the material available on record. On a perusal of the order of the Departmental Authorities as well as factual aspect of the issue, it is very much clear that the issue in dispute is purely a factual one and has to be decided after considering the facts brought on record. As could be seen, the Assessing Officer inferred suppression of sales by the assessee primarily taking into account the percentage of yield of bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re consumed by the employees, therefore, cannot be reflected in the accounts; and ix) Waste before production takes place on account of wheat flour remaining in jute bags, grinding loss sweepage, etc., compared to the loss suffered by contract manufacturing units. 52. Notably, the learned Commissioner (Appeals) has found some of the reasons shown for lesser yield at Mumbai unit acceptable. As far as the discrepancies pointed out by the Assessing Officer with reference to the audited accounts and the statements of consumption of raw material filed before him, it is noticed that in the audited accounts while furnishing the quantitative details of principal items of raw materials and finished products, there is no mention of the percentage of yield. Therefore, allegation of the Assessing Officer that as per the audit report, the assessee has shown yield of 92.55% is factually incorrect. This is evident from Annexure 5 of the audit report copy of which is at Page 211 of the paper book. As far as the discrepancies pointed out in the original statement of consumption of raw materials and the revised statement furnished during the assessment proceedings, it is a fact that the quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee in the course of assessment proceedings as well as the information obtained from contract manufacturing units. Further, the Assessing Officer has worked out the yield by applying the standard formula as mentioned by him in the assessment order. It is relevant to observe, in the impugned assessment year, the dispute is with regard to the manufacture of finished products in assessee s own unit at Mumbai. In the preceding assessment year, while dealing with similar addition made by the Assessing Officer, the Tribunal in assessee s own case in ITA no.5320/Mum./2006 and other dated 31st August 2010, held that no addition by applying the standard formula can be made. Facts are no different in the impugned assessment year as well. The Assessing Officer has not found a single instance of sale made by the assessee outside the books. At least, no adverse material to indicate out of book sales has been brought on record by the Assessing Officer. In these circumstances, making addition on estimate basis by rejecting the books of account in the absence of any adverse material brought on record cannot stand legal scrutiny. It is also a fact on record that as per the informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been decided against the assessee by the Tribunal in its own case for assessment year 1994 95 and 1995 96. On a perusal of the order dated 30th September 2004, in ITA no.157/ Mum./1999, in assessee s own case for assessment year 1995 96, we find that the Tribunal has upheld the disallowance of deduction claimed under section 80I and 80IA of the Act. Respectfully following the aforesaid decision of the Tribunal, we uphold the order of the learned Commissioner (Appeals) on this issue by dismissing the ground raised. 59. In ground no.2, the assessee has challenged the disallowance of depreciation on guest house. 60. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have submitted before us that the issue has been decided against the assessee by the Tribunal in the preceding assessment years as well as by the decision of the Hon'ble Supreme Court in Britannia Industries Ltd. v/s CIT, 278 ITR 546 (SC). Notably, in assessee s own case for assessment year 1995 96, in ITA no.157/Mum./1999 dated 30th September 2004, the Tribunal has upheld the disallowance of depreciation on guest house. Respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. He submitted, detail use of machine was submitted before the Departmental Authorities. He submitted, not only the machine was installed in the relevant financial year but it was also used in the impugned year. In this context, he drew our attention to the commissioning certificate issued by the Chief Engineer, a copy of which is at Page 602 of the paper book. He submitted, in the subsequent assessment year, the first appellate authority has allowed assessee s claim of depreciation on this particular machine. 65. Learned Departmental Representative relying upon the observations of the Assessing Officer and the learned Commissioner (Appeals) submitted that onus is on the assessee to prove the use of machinery. Since the assessee failed to prove such facts, deprecation was rightly disallowed. 66. We have heard rival contentions and perused the material available on record. As could be seen from the impugned order of the learned Commissioner (Appeals), he has accepted that the assessee has produced evidence to prove that the machines were purchased through import and it was commissioned and form part of the fixed assets in the impugned assessment year. The only reason on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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