IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM ITA No.448/JP/15 Assessment Year : 2006-07 M/s Vrindavan Dairies, 22 cuke Add.CIT, Range-5, Jaipur Pulender ji Ka bagh, M.D. Vs. Road,Jaipur PAN No. AAVFS 8130-Q Appellant Respondent Assessee by : Shri Praveen Saraswat (CA) Revenue by :Shri R.S. Dagur(Add.CIT) Date of Hearing : 03.08.2016 Date of Pronouncement : 05/10/2016. ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is appeal filed by assessee against order of Ld. CIT(A)-II, Jaipur dated 27.03.2015 wherein assessee has taken following grounds of appeal: (i) ld. CIT(A) has erred by confirming disallowance of trading losses of Rs. 62,77,969/- merely taken shelter of provisions of section145(3) of IT Act, 1961 and allegedly non maintenance of day to day stock register, inspite of justification & various abundant evidences on record. (ii) ld. CIT(A) has erred by confirming partly disallowed of Telephone expenses and confirming disallowance of staff welfare expenses of Rs. 8966/- and travelling expenses Rs. 3021/- while all these expenses have ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur been considered in FBT assessment and available in FBT return & Assessment. 2. Regarding ground no. 1, brief facts of case are that assessee has started operations during year and in business of procuring milk from villagers and after pasteurizing and other relates processes, sold it in market to various retail outlets/milk booths. assessee submitted its return of income declaring net loss of Rs. 1,54,14,140/- as per audited books of accounts. books of accounts were produced before ld. AO and same were examined in detail, but same were rejected by AO by invoking provisions of section 145(3) of Act and thereafter AO disallowed whole of manufacturing/trading loss of Rs. 62,77,969/-. Being aggrieved, assessee carried matter in appeal before ld CIT(A) who has confirmed action of AO. Hence, assessee is in appeal before us. 2.1 Before we examine contentions of assessee, it would be useful to refer to findings of ld. CIT(A) which are reproduced as under: I have considered facts of case and submission made. AR could not controvert findings of AO. AO clearly mentioned in assessment order that assessee has not maintained any quantitative day to day stock register of raw milk purchases, daily production of milk from SMP, sales thereof and closing stock in quantity at end of each day. Thus no verification with regard to quantities can be made in respect of opening stock purchase, sales and closing stock shown in books of account. Hence, rejection of books of accounts u/s 145(3) is held to be justified and appellant has not filed any written submission in this regard. AO found clearly stated that in assessment order that in absence of any quantitative details of any of items it is not possible whether opening stock milk, raw milk purchased, raw milk produced from SMP etc. are completely shown in consumption/sales or in closing stock. Further valuation of each of items lying in closing stock is not verifiable. There is contradiction in various details given at two different occasions 2 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur when details initially furnished were found suitable that new details were prepared and furnished which were favourable to him. But those details could not be verified due to non maintenance of day to day stock records. During appeal hearing AR for appellant reiterated submission filed before AO. appellant does not explain issue properly. Hence considering entire facts and circumstances of case addition made by AO is held to be justified and same is sustained. appellant fails on this ground. 2.2 At outset, ld AR submitted that assessee incurred manufacturing/trading loss of Rs. 62,77,969/- and net loss of Rs. 1,58,67,382/- as result of following reasons: 1.1 In first year of operations, operating staff of plant was un- trained and there were higher losses due to milk-quality rejections 1.2 On purchase side, assessee found it difficult to create milk procurement network in nearby villages due to already existingnetwork of `Saras (State-owned milk dairy) and therefore villagers/milk suppliers were offered higher rates alongwith upfront cash payments as incentive which ultimately resulted in higher cost of raw milk. 1.3 On sales side, assessee s brand (`Milk Boy ) had to face tough competition from established milk brands such as `Saras , `Amul and `Mother Dairy etc. With view to gain market foothold in highly competitive retail market, assessee had to offer various schemes to retail outlets which included marketing offers such as Free Milk on lifting certain quantity, Discounts in prices on achieving monthly target etc. Such schemes and incentives resulted in lrealization of sold milk. 1.4 There was low utilization of installed capacity in first year (AY 2006- 07) which resulted in turnover of Rs. 3.79 Crore. After stabilization of 3 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur operations, assessee could achieve turnover of Rs. 10.85 Crore in next assessment year 2007-08 and reduced losses. 2.3 Regarding rejection of books of account by AO u/s 145(3), ld AR has submitted as under: ALLEGATION BY LD. AO ( Serial No. 1.1 on Page No. 2 of Assessment Order): 1.5 assessee has shown purchase of raw milk from various villagers for which self made vouchers were maintained for payment without mentioning complete addresses of persons from whom said purchases have been made. payments of raw milk purchases were also made in cash of which no verification could be made for reason that assessee has denied any personal attendance of few of suppliers for verification vide order sheet entry dated 16/12/2008: SUBMISSION OF APPELLANT: Assessee had furnished complete details of milk purchases including ledger account of milk-vendors and submitted sample vouchers of milk purchase on 10/11/2008 to Ld. AO. Villagers selling milk, cannot be expected to give his printed bills and therefore firm prepared `Bill cum Voucher having laboratory analysis of milk, identity & address of milk vendor, signature of vendor on revenue stamp etc. (See PB No. 17 to 26 for sample voucher/ledger). Ld. AO had leveled these `Bills cum Vouchers as self-made. Villagers would, normally, not accept bank payment of milk and therefore payment to milk vendors was made in cash. Even, Rule 6DD of 4 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur Income Tax Rules, 1962 permits cash payment in excess of Rs. 20000/- per day for dairy produce (including milk) as under: No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be profits and gains of business or profession under sub-section (3A) of section 40A where payment or aggregate of payments made to person in day, otherwise than by account payee cheque drawn on bank or account payee bank draft, exceeds twenty thousand rupees, where payment is made for purchase of (ii) produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or Further, it was not possible for assessee to ensure presence of milk vendors at short notice of Ld. AO on 16/12/2008, that too at fag end of assessment proceedings, especially when assessee had stopped milk purchases from these villagers after 31/03/2007 in view of heavy losses. ALLEGATION BY LD. AO (Serial No. 1.2 on Page No. 2 of Assessment Order): 1.6 assessee has not maintained any quantitative day to day stock register of raw milk purchase, daily production of milk from SMP, sales thereof and closing stock in quantity at end of each day. Thus no verification with regard to quantities can be made respect of opening stock, purchases, sales and closing stock shown in books of account SUBMISSION OF APPELLANT: a) assessee has maintained day to day books of accounts which were audited and there is no adverse remark by auditor. 5 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur b) Ld. AO has also not pointed out any instance of purchase or expense which is not verifiable, c) Assessee had kept quantitative records and submitted quantitative tally on 14/10/2008(without including SMP milk) and on 10/11/2008 (after including SMP milk)(See PB No. 27 to 28). Without quantitative records, how could assessee submit Q-Tally to Ld. AO in course of assessment proceedings. ALLEGATION BY LD. AO ( Serial No. 1.3 on Page No. 2 of Assessment Order) 1.7 assessee has manufactured Ghee also during year, for which no quantitative day to day stock register showing opening stock, purchase, sales and closing stock has been maintained, hence production of Ghee shown by assessee remains unverifiable: SUBMISSION OF APPELLANT In dairy business, Ghee is produced when surplus milk is left after supply of milk in accordance with daily demand of milk. During AY 2006-07, assessee did not have such occasions and therefore could sell Ghee worth Rs. 4.59 Lacs ( 3948Kgs.) only out of total sale of Rs. 379.23 Lacs which works out approx 1% of total sale. Ghee falls under `Essential Commodities Act and question of no maintaining quantitative details relating to production/stock/sale etc. does not arise. ALLEGATION BY LD. AO ( Serial No. 1.4 on Page No. 2 of Assessment Order): 6 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur 1.8 assessee has manufactured Chhach and Lassi also during year for which no quantitative day to day stock register showing opening stock, purchase, sales and closing stock had been maintained, hence production of those items shown by assessee remains unverifiable: SUBMISSION OF APPELLANT Chhach/ Lassi are by-products of milk processing which are highly perishable in nature and sold on same day of producing. Therefore, no market purchases, or stocks were required for these products. Assessee had sold 3249198 Kgs. of Milk, Chach and Lassi as per details furnished to Ld. AO on 10/11/2008 (See PB No. 27 to 28) ALLEGATION BY LD. AO ( Serial No. 1.7 on Page No. 2 of Assessment Order): 1.9 It is noticed that for sale of milk and other items also assessee has made self made vouchers without mentioning name and complete addresses of Booth Holder/customers. Further collection from them are mostly by way of cash, hence, sale rate / sale value shown by assessee also remains unverifiable. SUBMISSION OF APPELLANT: Assessee had appointed various retail booths/kirana shops for sale of its products. Dues from such debtors (running into more than 289 Nos. as on 31/03/2006) amounted to Rs. 26,53,749/46 as per audited accounts (See PB No. 29 to 34). Therefore question of non-availability of name and addresses of these booth-holders /customers did not arise. Further as to collection in cash from debtors, Ld AO seems to be oblivious of practical aspect that in dairy business, cash is collected in 7 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur afternoon by delivery persons alongwith empty milk crates for next morning supply. Such practice is prevalent in most parts of India. ALLEGATION BY LD. AO ( Serial No. 1.8 on Page No. 2 of Assessment Order): 1.10 It is noticed that in each month raw milk purchase rate was higher than sale rate which resulted into huge trading loss during year as per details submitted by assessee. SUBMISSION OF APPELLANT: Assessee had submitted average purchase and average sale rate of different months before Ld. AO on 14/10/2008 which has been reproduced by Ld. AO on page No. 3 of his assessment order: MONTH RAW MILK COST OF MILK PER SALE RATE OF MILK PURCHASE RATE PR KG. PRODUCED PER KG. KG. FROM SMP APRIL-05 12 9.55 8 NOV-05 12 10.44 12 MAR-06 12 10.33 10.5 operations of assessee commenced in April, 2005 and had to give free samples/ schemes to distributors on lifting certain quantity for gaining market share. Therefore, milk realization was initially lower which began to improve steadily from November, 2005 onwards. Milk was purchased at fixed rate of Rs. 12/- from villagers and SMP was purchased at market rates from GCMMF Ltd.(Amul) and prices of these items were beyond control of assessee. 8 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur ALLEGATION BY LD. AO ( Serial No. 1.9 on Page No. 2 of Assessment Order): 1.11 It is also noticed that various quantities of opening stock, purchases of raw milk, stock of raw material shown are different in two separate details furnished by assessee vide its letter dated 14/10/2008 and 10/11/2008. These discrepancies are noted below SUBMISSION OF APPELLANT Assessee had submitted two quantitative details i.e. first on 14/10/2008 and second on 10/11/2008. Being first year of assessment, assessee could not submit proper data on 14/10/2008 which was corrected and resubmitted on 10/11/2008. However, instead of ignoring earlier chart of 14/10/2008, Ld. AO based his rejection of books of accounts and disallowance of loss by comparing these two charts. Summary of conclusions drawn by Ld. AO are as under: RAW MILK SMP MILK TOTAL PURCHASES (KGs) PRODUCED (KGs) CHART(14/10/2008) 3109170 274275 CHART(10/11/2008) 3097443 265332 SHORTAGE CALCULATED 11727 8943 20670 KGS. BY Ld. AO PROCESSING AND 99277 KGS HANDLING LOSS Ld. AO finally concluded at end of page No. 4 of his assessment order that closing stock shown by assessee is short by 21389 Kgs of Milk ( including 20670 Kgs.). 9 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur Even if AO conclusion is accepted at face value for once, addition by enhancing Closing Stock should had not exceeded 224584/- (21389 Kgs. multiplied by sales rate of Rs. 10/50 per kg.). But Ld. AO s action of disallowing Gross Loss of Rs. 62,77,969/- is highly arbitrary, without logic and deserves to be quashed. Assessee has claimed process loss of 99277 Kgs. out of total milk handled quantity of 3362775 Kgs which works out to 2.95% and compares favorably with industry standards. 1.12 Further rejection of books of accounts is highly unjustified when supporting documents for all expenses were produced before Ld. AO. Appellant is furnishing details of following major expenses (of Manufacturing Account) for kind consideration before Hon ble Bench: NATURE OF EXPENSES AMOUNT IN RS. PAPER BOOK PAGE NO. Water & Electricity Expenses 1278645/- 35 Processing Charges 1090047/- 36 Packing Material 2006809/- 37 to 38 Furnace Oil 779013/- 39 Purchases of Chemicals 309610/- 40 All purchases exceeding Rs. 35999069/- 41 to 42 1 Lacs Ld. AO had not doubted incurrence of above expenditure in any manner. 1.13 Now moot question arises for kind consideration of Hon ble Bench is that if Ld. AO was so convinced that books of account 10 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur maintained by assessee were not correct and not reliable to show true and correct affairs of business undertaken by appellant, then what is basis for estimating NIL Gross Loss. As per Ld. AO, no proper Q-tally or day-to-day stock register was maintained by assessee and in absence of quantitative details, it cannot be ascertained whether goods mentioned in purchase bills were actually received or not and goods not consumed are taken in closing stock or not. Given this reasoning, Ld. AO has disallowed Gross Loss (Rs. 6277969/-). question is when whole of expenses/income were not verifiable as per opinion of Ld. AO, then what is basis for 100% disallowance of Gross Loss. Being first year of business, assessee did not have any past history and Ld. AO also did not bring any comparable case on record to justify determining ZERO GROSS LOSS. This shows clear arbitrariness and lack of rational, logical approach and thinking on part of Ld. AO. In eyes of law, here is no basis for such arbitrariness and adhoc disallowances. In making best judgment, AO must not act dishonestly or vindictively or capriciously because he must exercise judgment in matter. best judgment assessment is not punitive assessment. In making best judgment assessment, AO does not possess absolute arbitrary authority to assess at any figure he likes. He must be guided by rule of justice, equity and good conscience. 1.14 Besides so-called factual defects in books of accounts, Ld. AO also relied upon following case laws of Hon ble Supreme Court to justify rejection of books of accounts of assessee: S. Case Laws relied upon by Ld. AO Factual Matrix of 11 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur N Assessee vis- -vis case O. law a) N. Namasivayam Chettiar Vs. CIT(1960) ITR Assessee has 579(SC) which deals with situation where maintained complete assessee had failed to maintain Manufacturing books of accounts, Q- A/c, Quantitative Tally, vouchers etc., and tally, vouchers etc. therefore after comparing profits of similarly and Ld. AO did not placed traders, Higher rate of NP was applied. dispute same. No comparable GP Rate was brought on record by Ld. AO b) CIT Vs. British Paints (I) Ltd. 188 ITR 44 (SC) where No such issue was Assessee had valued `Goods in process and raised by Ld. AO `Finished Goods at raw material cost without adding overhead expenses. Commissioner of Sales Tax Vs. H Esuf Ali, HM Abduli Ali 90 No such issue was c) ITR SC 1973 231 where Sales Tax Authorities had inspected raised for assessee by premises of assessee and found proof that there is sales Ld. AO outside books of account and therefore estimate of unrecorded sales was made for bill books not entered in books of account facts and circumstances of each of case laws relied upon by Ld.AO were substantially different from those of assessee. 1.15 Assessee places his reliance on following judgements to support his view that action of Ld. AO was arbitrary and unjustified: 1.15.1 CIT vs. Gotan Lime Khanij Udyog 256 ITR 243: Hon ble jurisdictional High court held: Tribunal, on appeal, while agreeing with Commissione (Appeals) that recourse to section 145(1) was justified, came to conclusion that Commissioner (Appeals) had not given any justification for coming to conclusion that sustaining addition of Rs. 34,000 would be justified. Thus, finding had been reached on ground that in 12 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur absence of recording any finding by Commissioner (Appeals) that expenses incurred on any account appeared to be unreasonable or excessive, additions sustained merely on suspicion of pilferage or leakage were not justified. This conclusion was finding of fact keeping in view that addition in profits and gains returned by assessee were not necessary concomitant of order made under section45(1) or 145(2). As result there was no error in order of Tribunal in deleting entire additions to trading results after holding that proviso to section 145 was applicable. 1.15.2 Malani Ramjivan Jagannath V/s ACIT 207 CTR 19, Hon ble jurisdictional High court of Rajasthan held: Mere deviation in GP rate cannot be ground for rejecting books of account, and entering in realm of estimate and guesswork. Lower GP r rate shown in books of account during current year and fall in GP rate was justified and also admitted by Assessing Officer as well as CIT(A) as well as Tribunal. Therefore, fall in GP rate lost its significance. Having accepted reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither rejection of books of account was justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of opinion that findings arrived at by Tribunal suffers from basic defect of not applying its mind to existing material which were relevant and went to root of matter. When all data and entries made in trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by assessee in books of account. We are, therefore, unable to sustain order of Tribunal . 13 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur 1.15.3 Dhakeswari Cotton Mills Ltd., v/s. CIT (1954) 26 ITR 775, Hon ble Supreme Court concluded: rule of law on this subject has been well settled that estimates framed without giving basis for their fixation or without furnishing to assessee material on which rate of gross profit is arrived at or without giving opportunity to assessee to rebut it are bad 1.15.4 Maharaja B P Singh Deo 76 ITR 690, Hon ble Supreme Court concluded: mere fact that material placed by assessee before assessing authorities is unreliable does not empower those authorities to make arbitrary order. power to levy assessment on basis of best judgment is not arbitrary power; it is assessment on basis of best judgment. In other words, that assessment must be based on some relevant material. It is not power that can be exercised under sweet will and pleasure of concerned authorities. scope of that power has been explained over and over again by this court. 2.3 ld DR is heard who has vehemently argued matter and relied upon order of lower authorities. 2.4 We have heard rival contentions and perused material available on record. assessee derives income from manufacturing and supply of milk and milk products. assessee collects raw milk from villagers, process it and thereafter supply same to various dairy booths and retail outlets in Jaipur and adjacent areas. year under consideration is first year of operation of assessee wherein assessee has reported turnover of Rs. 3.79 crores and manufacturing/ trading loss of Rs. 62,77,969/-. AO after 14 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur going through books of accounts and other details submitted by assessee, rejected books of account holding same as not reliable and and thereafter has disallowed whole of manufacturing/ trading loss of Rs. 62,77,969/- which has subsequently been confirmed by ld. CIT(A). assessee has submitted that being first year of its operations, staff of assessee was untrained to handle procurement and supply and there were losses on account of milk processing and rejections. On purchase side, given presence of other established players in market, villagers were offered high rates alongwith upfront cash payments as incentive which resulted in higher cost of raw milk. Similarly, on sale side, given market dynamics and competition from established brands such as saras, Amul, and Mother Dairy etc., assessee had to offer various schemes to retail outlets such as free milk on lifting specific quantity of milk, discounts in prices on achieving monthly targets, etc which resulted in lower realization of milk sold. Further there was lower utilization of installed capacity in instant year. However, assessee achieved turnover of Rs. 10.85 crores in next financial year as compared to Rs. 3.79 crores in instant year after stabilization of its operation and losses have been reduced in subsequent years. Regarding each of contentions raised by AO while rejecting books of account u/s 145(3) of Act, assessee has filed detailed submissions. Regarding purchase of raw milk from various villages, assessee has submitted that complete details of milk purchases including ledger account of milk vendors and sample vouchers were submitted to AO and given nature of procurement which happens on daily basis, payments to milk vendors were made in cash which is even accepted under Rule 6DD of IT rules. Regarding AO s contentions that assessee has not maintained quantity wise day to day stock register, assessee has 15 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur submitted that it has duly kept quantitative records and submitted before AO quantitative tally on 14.10.2008 and thereafter on 10.11.2008. Regarding self made vouchers for sale of milk, assessee has submitted that it has pointed out to AO that it has sold its milk and milk products to large number of milk booths and retail outlets running into more than 289 nos. and dues from such debtors have been duly recorded in audited financial statement and details have been submitted to AO. Regarding sale collections in cash, assessee has submitted that this is normal industry practice that cash is collected in afternoon by delivery persons alongwith empty milk crates for next morning supply. In respect of contention of AO regarding purchase of raw milk at value higher than sale value, it was submitted that raw milk was purchased at rate of Rs. 12/- per kg. from villages giving market dynamic and with view to gain entry into existing network of established players and Skimmed Milk Powder (SMP) was purchased at market rates from GCMMF Ltd. Regarding discrepancy in quantitative tally reported by AO in terms of assessee letter dated 14.10.2008 and subsequent letter dated 10.11.2008, ld. AR submitted that first quantitative tally which was submitted on 14.10.2008 was without including details regarding SMP milk and subsequently assessee realized data was not correctly submitted and revised quantitative tally including SMP milk was submitted on 10.11.2008 and later quantitative tally is duly supported by quantitative records maintained by assessee and books of accounts. AO however, ignored latter tally submitted on 10.11.2008 and considered earlier tally submitted on 14.10.2008 and arrived at conclusion whereby closing stock was held to be short by 21,389 Kgs. In our view, where assessee has corrected its mistake during course of assessment proceedings in 16 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur terms of incomplete/incorrect data and submitted revised data which is supported by quantitative records and books of accounts maintained by assessee, it is not correct on part of AO to disregard same without any valid reasons. ld. AR has further submitted that even if contentions of AO is accepted that there is shortage in closing stock, AO is not justified in disallowing whole of manufacturing loss of Rs 62,77,969/- as against value of closing stock of Rs. 2,24,584/- in respect of shortage of stock as determined by AO. Regarding processing and handling loss of 99,277/- Kgs, ld AR has submitted that details were submitted as part of quantitative tally filed with AO on 10.11.2008 and same worked out to 2.95 %of total milk quantity handled by assessee of 33,62,775 Kgs. and same is comparable to established industry standard of 0.82 to 2.6%. ld. AR has further submitted that there are other direct expenses in nature of water, electricity expenses processing charges, packing material, chemical, etc. which have been incurred and duly supported by books of accounts and AO has not challenged these expenses and in absence of that, there is no basis for AO to disallow whole of manufacturing/trading loss which includes all these expenses as well. In light of above, we are of view that being first year of operation, there are certain inherent challenges in terms of procurement and supply of milk and related products as well as pricing thereof given market dynamics which have been encountered by assessee and duly explained in instant year which has resulted in manufacturing/ trading losses which have been reduced in subsequent years once operations have been stabilized. Further assessee has submitted quantitative details of milk procured and subsequent sale of milk and milk products and AO should have considered revised quantitative tally duly submitted by 17 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur assessee during course of assessment proceedings. Further processing and handling loss is as per industry standard and other direct expenses not challenged by AO are duly supported by books of accounts. In light of above, we are of view that AO was not right in rejecting books of accounts and disallowing whole of manufacturing/trading loss of Rs. 62,77,969/-. We therefore allow ground no. 1 of assessee. 3. Regarding ground No.2 assessee has submitted that it has paid FBT on telephone, staff welfare and travelling expenses and when same have been considered for purposes of Fringe Benefit Tax (FBT), same are provided by employer to its employees as part of its employment/contractual relationship and same have been incurred wholly and exclusively for purpose of business and has relied on CBDT Circular No.8/2005 dated 29/8/2005. We agree with contention of assessee and in any case, these are adhoc disallowances. Hence, we delete said disallowances. ground no. 2 of assessee is allowed. In result appeal filed by assessee is allowed. Order pronounced in open court on 05/10/2016. Sd/- Sd/- (KUL BHARAT) (VIKRAM SINGH YADAV) Judicial Member Accountant Member Jaipur Dated:- 05/ 10/2016 Pillai Copy of order forwarded to: s 18 ITA No. 448/JP/15 M/s Vrindavan Dairies Jaipur vs. Addl. CIT, Range-5, Jaipur 1. Appellant- M/s Shri Vrindavan Dairies, Jaipur 2. Respondent- Addl. CIT, Range-5, Jaipur 3. CIT II, Jaipur 4. CIT(A)-II, Jaipur 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 448/JP/2015) By order. Assistant. Registrar 19 M/s Vrindavan Dairies v. Add.CIT, Range-5, Jaipur