Commissioner of Income-tax v. Kohinoor Foods Ltd
[Citation -2015-LL-0420]

Citation 2015-LL-0420
Appellant Name Commissioner of Income-tax
Respondent Name Kohinoor Foods Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 20/04/2015
Assessment Year 2002-03
Judgment View Judgment
Keyword Tags quantitative stock tally • regular books of account • ad hoc disallowance • gross profit rate • transfer pricing • stock register
Bot Summary: 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. 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. The assessee had relied upon a circular issued by the Punjab Mandi Board, which notified the milling yield rate as 61 per cent. 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. 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. 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. 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.


JUDGMENT judgment of court was delivered by S. Ravindra Bhat J.-Issue notice. Mr. Salil Kapoor, advocate, accepts notice on behalf of assessee. These appeals are arise out of common orders dated July 21, 2014, passed by Income-tax Appellate Tribunal ("the ITAT") in I. T. A. Nos. 3688/Del./2012, 3689/Del./2012, 3690/Del./2012, 3691/Del./2012 and 3867/ Del./2012. question in all these appeals is acceptance of assessee's appeals with respect to rejection of books of account and addition of 1 per cent. gross profit on uniform basis for assessment years 2002-03 to 2007- 2008. brief facts are that 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 notice was issued to assessee under section 153A of Income-tax Act, 1961, on January 27, 2009. Vide order dated September 9, 2009, Assessing Officer ("the AO") made reference to special auditor under section 142(2A), which lead to report dated May 10, 2011. Assessing Officer after considering materials on record made addition to income for relevant assessment years to tune of Rs. 19,28,42,391. This included 1 per cent. of sale of rice shown in books of account for each of assessment years in question. relative amounts, to extent of 1 per cent. for various years were added on ground that quality-wise day-to-day stock of rice traded by assessee was not reflected. additions made in respect of various years are as follows: Assessment year Rs. 2002-03 2,73,58,354 2003-04 4,31,84,627 2004-05 4,01,47,438 2005-06 4,74,53,876 2006-07 5,09,45,027 2007-08 4,67,39,217 2008-09 5,70,57,439 Total 31,28,85,978 assessee's grievance against these additions was referred to Dispute Resolution Panel (DRP) since assessments also concerned element of transfer pricing and determination of arm's length price (ALP). Dispute Resolution Panel, inter alia, upheld these additions. assessee, however, successfully appealed to Income-tax Appellate Tribunal, which rejected addition on this account. Learned counsel for Revenue urges that Income-tax Appellate Tribunal fell into error in rejecting submissions made with respect to additions made by Assessing Officer. In this regard, it is submitted that assessee has not disclosed anywhere that qualitative details at all relevant points of time are maintained in stock register, etc. Counsel emphasises fact that Assessing Officer had found that such qualitative details were not reflected in stock register. He argued that quality of rice is crucial in ultimate prices. Learned counsel stated that depending on quality cost may vary between Rs. 30 to Rs. 300 per kilogram and having regard to these, Assessing Officer's decision ought not to have been interfered with by Income-tax Appellate Tribunal since it was based on exhaustive appreciation of circumstances. Learned counsel for respondents, on other hand, relied upon decision of Income-tax Appellate Tribunal and submitted that in previous assessment years 1999-2000 and 2001-02, Revenue had accepted books of account as existed as well as gross profit rates based on rice yielding rates disclosed by assessee. It is submitted that in fact comparison of gross profit rates accepted by Revenue for previous years would show that significantly higher gross profit rates were disclosed in concerned assessment years and this itself ought to have prevented Assessing Officer from making any alteration. Countering suggestion, learned counsel for assessee argued that rice milling is continuous process and it is ultimately not possible to maintain details of day-to-day stock statements based on quality. He relied upon findings of Income-tax Appellate Tribunal and submitted that impugned order has relied upon by Special Bench decision in Shanker Rice Co. v. ITO [2000) 72 ITD 139; [2001] 249 ITR (A.T.) 44 (Amritsar) [SB], which had dealt with identical issue. This court has considered submissions. nature of business, which Assessing Officer had considered, in present case, was with regard to procurement and processing of rice. There is no controversy with respect to other products, which assessee had traded or engaged with as far as these cases are concerned. yield rates, as noticed by Income- tax Appellate Tribunal for various years were 61.90 per cent. for assessment year 2002-03, 61.61 per cent. for assessment year 200304, 64.67 per cent. for assessment year 2004-05, 65.11 per cent. for assessment year 2005-06, 68.88 per cent. for assessment year 2006-07, 64.94 per cent. for assessment year 2007-08 and 65.02 per cent. for assessment year 2008-09. Income-tax Appellate Tribunal also noticed that yield of husk, faak and bran was 38.10 per cent. by-products were also sold and sales were duly recorded. According to industry norms apparently yield rates notified at 61.90 per cent. were considered reasonable. assessee had relied upon circular issued by Punjab Mandi Board, which notified milling yield rate as 61 per cent. This too was on record and was duly taken note of by Income-tax Appellate Tribunal. This court notices that decision in case of Shanker Rice Co. (supra) dealt with somewhat similar, if not identical facts. Like, in present case, 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. sales and purchases documents were regular. In present case, too, neither Assessing Officer nor Dispute Resolution Panel was able to find fault with these documents. Further, for three assessment years prior to block assessment of years concerned, scrutiny assessment orders accepted both yield rate and gross profit rate declared by assessee. Apparently, additions made to gross profit rate had been challenged successfully by assessee to Income-tax Appellate Tribunal, which rejected them. matter thereafter attained finality. We also notice that in circular of Punjab Mandi Board, assessees were required to pay other tax liabilities. All these materials were part of record and duly taken note of. At this stage, it will be relevant to notice reasoning of Incometax Appellate Tribunal, which is extracted below: "We have heard rival contentions and perused material available on record on this issue. assessee's books of account are regularly maintained, audited and no discrepancies whatsoever have been indicated by Assessing Officer in any material terms. alleged inconsistency is to effect that assessee says that no day-to-day quantitative stock tally was maintained. However, certain papers found indicate that assessee was maintaining regular stock details and presumption is drawn that assessee is not producing quantitative tally with purpose Apropos assessee's contention is to effect that all books of account have been seized during course of search proceedings. Looking at volume of branches and places of working, 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, conclusion is being arrived at that assessee is not deliberately showing quantitative details. This is utter disregard of fact that all books of account were found and seized and there is no quantitative tally in account books. Therefore, conclusion of Assessing Officer in this behalf to reject books is purely based on surmises and conjectures. Based on surmises and conjectures, ad hoc addition of 1 per cent. of sales have been made which also is again fictional work of guesswork and conjectures based again on already indicated conjectures. Thus, whole addition is nothing but interplay of surmises and conjectures arrived at by Assessing Officer to willy nilly make addition. 9.1 It is not disputed that assessee's yield commensurate to industrial gross profit disclosed by assessee is comparable and satisfactory. In our considered view, when no palpable inconsistency in books of account they cannot be rejected merely on basis of assumption that assessee is not producing quantitative tally. Had there been any quantitative tally, assessee has produced stock register but in absence of day-to-day stock tally at various places of business by itself cannot be conclusion to give that assessee is shine away from producing day-to-day tally. In view of these facts, we see no justification in rejection of books of account. 9.2 assessee has demonstrated that its yield of rice, bran and faak is as per industry norm and gross profit rate in all years is favourably comparable. Under these circumstances, it cannot be held that assessee s book results are unsatisfactory. Merely because search is carried on it is not automatically meant that assessee is indulging in some nefarious activities. This is burden of Revenue to prove in this behalf with material and cogent reasons. Rejection of audited books account otherwise properly maintained cannot be recourse to by Assessing Officer in casual and wishy vice manner. ad hoc disallowance, rejection of books and taking support of this fact which we are not able to subscribe ad hoc addition of 1 per cent. of sales is again without any basis whatsoever. Stock tally cannot lead to ad hoc assumption that 1 per cent. of sales are liable to be added in income of assessee. Our findings are supported by hon ble Rajasthan High Court judgment in case of CIT v. Gotan Lime Khanij Udhyog [2002] 256 ITR 243 (Raj) and Income-tax Appellate Tribunal, Amritsar Bench, in case of Asha Mehra v. Asst. CIT, cited supra. In view thereof, we delete ad hoc addition of 1 per cent. sales. This ground of assessee is allowed. Having regard to total facts, we are satisfied that Assessing Officer s narrow basis for rejecting books of account and addition of 1 per cent. of sales and directing same to tax was legally untenable. Considering that all books of account and relevant records could not have been rejected by Assessing Officer in manner so done and for reasons given, we find no error of fact or law in orders of Income-tax Appellate Tribunal, which are accordingly affirmed. appeals are, accordingly, dismissed. *** Commissioner of Income-tax v. Kohinoor Foods Ltd
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