IT: Where consumption decreased and wastage increased and there was no explanation for fall in gross profit rate, ad hoc addition was sustainable
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[2013] 38 taxmann.com 228 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax
v.
Shyam Biri Works Ltd.*
SUNIL AMBWANI AND SURYA PRAKASH KESARWANI, JJ.
IT APPEAL NO. 547 OF 2009†
JULY 12, 2013
Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of income [Gross profit rate] - Assessment year 2002-03 - Assessee was a biri manufacturer - There was fall of consumption of tendu-patta from 17.67 per cent to 17.21 per cent - Huge wastage was shown at Rs. 1.10 crore - There was a fall in gross profit rate - Assessee contended that tendu-patta being a natural product varies in size and quality and, hence, there was fall in profit rate - Assessing Officer rejecting assessee's plea, made an addition of Rs. 82.46 lakhs - Since there was no sufficient explanation for fall in gross profit rate, Commissioner (Appeals) sustained ad hoc addition of Rs. 27.48 lakhs being 1/3 of addition made by Assessing Officer - Tribunal affirmed order of Commissioner (Appeals) - Whether there was no error of law in order of Tribunal - Held, yes [Paras 5 & 6] [In favour of revenue]
A.N. Mahajan and Dhananjai Awasthi for the Appellant. R.P. Agrawal for the Respondent.
ORDER
1. We have heard Shri Dhananjai Awasthi, learned counsel appearing for the department. Shri R.P. Agrawal appears for the respondent-assessee.
1.1 This Income Tax Appeal filed under Section 260-A of the Income Tax Act arises against the order of Income Tax Appellate Tribunal, Allahabad Bench, Allahabad dated 16.3.2009 in respect of assessment year 2002-03.
2. This Income Tax Appeal has been preferred by the department on following substantial questions of law:—
| "1. | Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in law in arbitrarily and without any basis holding that disallowance of Rs.27,48,644/- out of excess consumption of Tendu leaves was reasonable. | |
| 2. | Whether the order of ITAT is perverse inasmuch as it does not give any reasoning or basis for coming to the finding that disallowance of Rs.27,48,644/- only will be reasonable." |
3. We have examined the orders of the AO, CIT (A) and ITAT. The finding with regard to disallowance of Rs.27,48,644/- out of excess consumption of Tendu leaves is recorded in paragraphs 4 to 7 as follows:—
| "4. | Ground nos.1.1 to 1.3 of the assessee's appeal and ground nos. 1 (i) and (ii) of the revenue's appeal are taken on the issue of excess consumption of Tendu Patta. The assessee filed the appeal against the confirmation of addition of Rs.27,48,644/- while the revenue has filed the appeal against the granting relief of Rs.54,97,289/- by CIT (A) on account of alleged excess consumption of Tendu leaves. | |
| 5. | While pleading on behalf of the assessee the ld. AR submitted that this addition was made by the AO without any basis by holding that there was an excess consumption of Tendu leaves. This was an adhoc disallowance. He submitted that consumption of Tendu patta from part of calculation of GP, which is major indicator of control exercised in production of finished product. During the assessment year the GP rate was 17.21%. The assessee has furnished the tax audit report. The GP rate shows that there were some improvements in the result of the company. Therefore, the loss in the normal course of business. In the immediate preceding year %age of loss was 11.43% while in the year under consideration is 7.08%. He further submitted that after ascertaining the same no such addition can be made. He submitted that the assessee maintained complete stock registers at all the branches and its registered were produced before the AO. Therefore, such addition/disallowances were not justified. | |
| 6. | While replying the pleading of the ld. AR, the ld. DR submitted that the ld. CIT(A) has allowed relief without any basis. The AO has recorded sufficient reasons for excess consumption of tendu leaves. He submitted that variation may be small and the AO made the addition of only 75% of the excessive consumption and the ld. CIT(A) has further given relief of 2/3rd without basis. Therefore, the ld. CIT (A) was not justified in reducing the addition. | |
| 7. | After hearing both the sides at length, we find that there was fall of consumption of tendu patta from 17.67% to 17.21%. There was wastage of claim of tendu patta of Rs.1,09,94,578/-. The AO after considering the fact that tendu patta was a natural produce and quality and size varies year to year made the addition of Rs.82,45,933/-. The ld. CIT (A) sustained the addition upto 1/3rd of Rs.82,45,933/-. Keeping in view of the facts, we find that certainly there was a fall in G.P and there was no sufficient explanation, which could fully explain such fall of GP. Considering all these facts, we find the adhoc addition sustained by CIT (A), which is of the AO's addition 1/3rd appears to be reasonable. Keeping this view, we do not any fault in the order of the ld. CIT (A). Hence, we dismiss the appeals on this issue filed by the assessee as well as by the revenue." |
4. We find that the ITAT has given good and sufficient reasons for disallowance of Rs.27,48,644/- out of excess consumption of Tendu leaves. It was found that there was a fall in GP rate in the relevant assessment year 2003-03, and there was no sufficient explanation, which could fully explain such fall of GP rate. Considering these facts, the ad hoc addition sustained by CIT (A), which is of the AO's addition 1/3rd, was found to be reasonable.
5. The Tribunal also considered that the AO had, after considering the fact that the Tendu patta was a natural produce and that its quality and size varies from year to year, made the addition of Rs.82,45,933/- of which the CIT (A) sustained the addition of 1/3rd of the amount. The findings recorded by ITAT are findings of fact based on their assessment of the material on record, which do not raise any question of law.
6. We do not find any error of law misreading of material by ITAT, or perversity in recording such finding to interfere in the appeal. The ITAT has given reasons on which CIT (A) justified addition of 1/3rd of the amount.
7. The Income Tax Appeal is dismissed.
8. Shri Dhananjay Awasthi, appearing for the revenue and Shri R.P. Agarwal have confirmed that no appeal has been filed or is pending in respect of the previous year 2001-02.
SBRegards
Prarthana Jalan
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