High Court Of Delhi
CIT vs. Kohinoor Foods Ltd.
Section : 145, 153A
Assessment Years : 2002-03 to 2007-08
S. Ravindra Bhat And R.K. Gauba, JJ.
IT Appeal Nos. 62,74,75,76,77 & 78 Of 2015
April 20, 2015
JUDGMENT
S. Ravindra Bhat, J. – Issue notice. Mr. Salil Kapoor, advocate, accepts the notice on behalf of the assessee.
2. These appeals are arise out of the common orders dated July 21, 2014, passed by the Income-tax Appellate Tribunal (“the ITAT”) in Kohinoor foods Ltd. v. Asstt.CIT [2015] 67 SOT 108/[2014] 52 taxmann.com 454 (Delhi – Trib.).
3. The question in all these appeals is the acceptance of the assessee’s appeals with respect to rejection of books of account and an addition of 1 per cent. gross profit on uniform basis for the assessment years 2002-03 to 2007-2008.
4. The brief facts are that the assessee deals in processing and trading of rice, pulses and food products. Certain search was carried out in its premises on December 5, 2007, after which a notice was issued to the assessee under section 153A of the Income-tax Act, 1961, on January 27, 2009. Vide order dated September 9, 2009, the Assessing Officer (“the AO”) made a reference to the special auditor under section 142(2A), which lead to a report dated May 10, 2011.
5. The Assessing Officer after considering the materials on record made addition to the income for the relevant assessment years to the tune of Rs. 19,28,42,391. This included 1 per cent. of the sale of rice shown in books of account for each of the assessment years in question. The relative amounts, to the extent of 1 per cent. for various years were added on the ground that the quality-wise day-to-day stock of the rice traded by the assessee was not reflected. The additions made in respect of various years are as follows :
Assessment year  Rs.
2002-03Â 2,73,58,354
2003-04Â 4,31,84,627
2004-05Â 4,01,47,438
2005-06Â 4,74,53,876
2006-07 5,09,45,027
2007-08Â 4,67,39,217
2008-09Â 5,70,57,439
Total    31,28,85,978
6. The assessee’s grievance against these additions was referred to the Dispute Resolution Panel (DRP) since the assessments also concerned an element of transfer pricing and determination of the arm’s length price (ALP). The Dispute Resolution Panel, inter alia, upheld these additions. The assessee, however, successfully appealed to the Income-tax Appellate Tribunal, which rejected the addition on this account.
7. Learned counsel for the Revenue urges that the Income-tax Appellate Tribunal fell into error in rejecting the submissions made with respect to the additions made by the Assessing Officer. In this regard, it is submitted that the assessee has not disclosed anywhere that the qualitative details at all relevant points of time are maintained in a stock register, etc. Counsel emphasises the fact that the Assessing Officer had found that such qualitative details were not reflected in the stock register. He argued that the quality of rice is crucial in the ultimate prices. Learned counsel stated that depending on the quality the cost may vary between Rs. 30 to Rs. 300 per kilogram and having regard to these, the Assessing Officer’s decision ought not to have been interfered with by the Income-tax Appellate Tribunal since it was based on an exhaustive appreciation of the circumstances.
8. Learned counsel for the respondents, on the other hand, relied upon the decision of the Income-tax Appellate Tribunal and submitted that in the previous assessment years 1999-2000 and 2001-02, the Revenue had accepted the books of account as existed as well as the gross profit rates based on the rice yielding rates disclosed by the assessee. It is submitted that in fact a comparison of the gross profit rates accepted by the Revenue for the previous years would show that the significantly higher gross profit rates were disclosed in the concerned assessment years and this itself ought to have prevented the Assessing Officer from making any alteration. Countering the suggestion, learned counsel for the assessee argued that rice milling is a continuous process and it is ultimately not possible to maintain the details of day-to-day stock statements based on quality. He relied upon the findings of the Income-tax Appellate Tribunal and submitted that the impugned order has relied upon by the Special Bench decision in Shanker Rice Co. v. ITO [2000] 72 ITD 139 (Amritsar), which had dealt with an identical issue.
9. This court has considered the submissions. The nature of the business, which the Assessing Officer had considered, in the present case, was with regard to procurement and processing of rice. There is no controversy with respect to the other products, which the assessee had traded or engaged with as far as these cases are concerned. The yield rates, as noticed by the Income-tax Appellate Tribunal for various years were 61.90 per cent. for the assessment year 2002-03, 61.61 per cent. for the assessment year 2003-04, 64.67 per cent. for the assessment year 2004-05, 65.11 per cent. for the assessment year 2005-06, 68.88 per cent. for the assessment year 2006-07, 64.94 per cent. for the assessment year 2007-08 and 65.02 per cent. for the assessment year 2008-09. The Income-tax Appellate Tribunal also noticed that the yield of husk, faak and bran was 38.10 per cent. The by-products were also sold and sales were duly recorded. According to the industry norms apparently the yield rates notified at 61.90 per cent. were considered reasonable. The assessee had relied upon a circular issued by the Punjab Mandi Board, which notified the milling yield rate as 61 per cent. This too was on record and was duly taken note of by the Income-tax Appellate Tribunal.
10. This court notices that the decision in case of Shanker Rice Co. (supra) dealt with somewhat similar, if not identical facts. Like, in the present case, the assessees in those cases also maintained regular books of account, which were duly audited. All statutory registers, mandatory local laws too were kept on regular basis. The sales and purchases documents were regular. In the present case, too, neither the Assessing Officer nor the Dispute Resolution Panel was able to find fault with these documents. Further, for three assessment years prior to the block assessment of the years concerned, the scrutiny assessment orders accepted both the yield rate and the gross profit rate declared by the assessee. Apparently, additions made to the gross profit rate had been challenged successfully by the assessee to the Income-tax Appellate Tribunal, which rejected them. The matter thereafter attained finality.
11. We also notice that in the circular of the Punjab Mandi Board, the assessees were required to pay other tax liabilities. All these materials were part of the record and duly taken note of.
12. At this stage, it will be relevant to notice the reasoning of the Income-tax Appellate Tribunal, which is extracted below :
“We have heard the rival contentions and perused the material available on record on this issue. The assessee’s books of account are regularly maintained, audited and no discrepancies whatsoever have been indicated by the Assessing Officer in any material terms. The alleged inconsistency is to the effect that the assessee says that no day-to-day quantitative stock tally was maintained. However, certain papers found indicate that the assessee was maintaining regular stock details and a presumption is drawn that the assessee is not producing the quantitative tally with a purpose Apropos the assessee’s contention is to the effect that all the books of account have been seized during the course of search proceedings. Looking at the volume of branches and places of working, the assessee’s employee maintained some or other record at various places. Merely because some papers have been found which are not disputed to be made by some employees, a conclusion is being arrived at that the assessee is not deliberately showing the quantitative details. This is an utter disregard of the fact that all the books of account were found and seized and there is no quantitative tally in the account books. Therefore, the conclusion of the Assessing Officer in this behalf to reject the books is purely based on surmises and conjectures. Based on the surmises and conjectures, ad hoc addition of 1 per cent. of sales have been made which also is again a fictional work of guesswork and conjectures based again on already indicated conjectures. Thus, the whole addition is nothing but an interplay of surmises and conjectures arrived at by the Assessing Officer to willy nilly make the addition.
9.1 It is not disputed that the assessee’s yield commensurate to the industrial gross profit disclosed by the assessee is comparable and satisfactory. In our considered view, when no palpable inconsistency in the books of account they cannot be rejected merely on the basis of assumption that the assessee is not producing quantitative tally. Had there been any quantitative tally, the assessee has produced stock register but in the absence of day-to-day stock tally at various places of business by itself cannot be a conclusion to give that the assessee is shine away from producing the day-to-day tally. In view of these facts, we see no justification in rejection of the books of account.
9.2 The assessee has demonstrated that its yield of rice, bran and faak is as per the industry norm and the gross profit rate in all the years is favourably comparable. Under these circumstances, it cannot be held that the assessee’s book results are unsatisfactory. Merely because a search is carried on it is not automatically meant that the assessee is indulging in some nefarious activities. This is the burden of the Revenue to prove in this behalf with material and cogent reasons. Rejection of audited books account otherwise properly maintained cannot be recourse to by the Assessing Officer in a casual and wishy vice manner. The ad hoc disallowance, rejection of books and taking support of this fact which we are not able to subscribe the ad hoc addition of 1 per cent. of sales is again without any basis whatsoever. Stock tally cannot lead to an ad hoc assumption that 1 per cent. of sales are liable to be added in the income of the assessee. Our findings are supported by the hon’ble Rajasthan High Court judgment in the case of CIT v. Gotan Lime Khanij Udhyog [2002] 256 ITR 243 (Raj) and the Income-tax Appellate Tribunal, Amritsar Bench, in the case of Asha Mehra v. Asst. CIT, cited supra. In view thereof, we delete the ad hoc addition of 1 per cent. sales. This ground of the assessee is allowed.”
13. Having regard to the total facts, we are satisfied that the Assessing Officer’s narrow basis for rejecting the books of account and addition of 1 per cent. of sales and directing the same to tax was legally untenable.
14. Considering that all books of account and relevant records could not have been rejected by the Assessing Officer in the manner so done and for the reasons given, we find no error of fact or law in the orders of the Income-tax Appellate Tribunal, which are accordingly affirmed.
15. The appeals are, accordingly, dismissed.
[Citation : 373 ITR 682]
