M/S Shreee Bhawani Mills, Shahjahanpur vs Department Of Income Tax

This is revenue's appeal directed against the order of Learned CIT (A) - Bareilly Dated 27.11.2013 for A.Y. 2010 - 2011.

2. The effective Grounds raised by the revenue are as under:-

"(1) That the learned Commissioner of Income Tax (Appeals) is not justified in deleting the addition made by the Assessing Officer at Rs. 34,66,520/- disallowing expenditure u/s 40A (2) (b) on account of excessive payments made to sister concern.

(2) That the learned Commissioner of Income Tax (Appeals) is not justified in deleting the addition made by the Assessing Officer at Rs. 1,56,408/- on account of suppressed closing stock.

(3) That the learned Commissioner of Income Tax (Appeals) is not justified in deleting the addition made by the Assessing Officer at Rs. 50,000/- + Rs. 50,000/-

on account of transportation and labour charges."

3. Learned DR of the Revenue supported the assessment order. Learned A.R. of the assessee supported the order of Learned CIT (A). He also submitted copy of sale register of sale to sister concern and outside parties and pointed out that the sale to sister concern is @ Rs. 1350 per quintal as rightly noted by the A.O. also but sale to third parties @ Rs. 1155 per quintal only.

4. We have considered the rival submissions. We find that in the assessment order, the basis of addition made by the A.O. is this that the assessee has valued 2

the opening stock at Rs. 1538 per quintal and closing stock at Rs. 1650 per quintal but sales to sister concern is at Rs. 1300 or Rs. 1400 per quintal. He has noted that it was submitted by the assessee before him that sales and purchases were made to sister concern and third parties at comparative rate but still, the A.O. concluded that in view of valuation of closing stock above Rs. 1500 per quintal, it is proper to adopt sale price at Rs. 1500 per quintal in respect of sale to sister concern. Such sale was noted at 23110.13 Quintals and made addition @ Rs. 150 per quintal. As per material brought on record by the learned AR of the assessee before us and also before the lower authorities, the sale to sister concern is at a higher price i.e. Rs. 1350 per quintal as compared to sale to outside parties at Rs. 1155 per quintal only. Hence, it is seen that sales to sister concern is not at lower price as compared to sales to outside parties in the same period. Valuation of closing stock may be at a higher price because of several reasons such as timing difference or quality difference etc. and therefore, it cannot be a basis to conclude that sale to sister concern is at a low price. In this view of the facts, we are of the considered opinion that no addition is called for on this basis that sale to sister concern is at low price. Hence, we decline to interfere in the order of learned CIT (A) on this issue. Ground No. 1 is rejected.

5. Regarding Ground No. 2, we find that the basis of addition made by the A.O. is this that the paddy purchased on 31.03.2010 of 159.600 Quintals could not have been hulled by the assessee on the same day and therefore, the same should be part of closing stock but not so shown by the assessee. The A.O. has noted the contention of the assessee that the assessee has hulling capacity of 140 quintals per hour and therefore the paddy purchased on 31.03.2010 was hulled on the same day and therefore, there was no closing stock of paddy. The A.O. proceeded on this basis that minimum 48 hours are required to complete the process. Before learned CIT (A) it was submitted that if the paddy is wet, time is taken to dry it and in that situation, 48 hours may be required but in the month of March, the paddy supplied is dry and therefore, no drying time is required. We find force in this contention of learned AR of the assessee. March is a dry month and hence, in normal situation, paddy should be dry and no drying time is required. The observation of the A.O. is a general observation without any basis or finding that the paddy in question was not 3

dry. Hence, on this issue also, we do not find any reason to interfere in the order of learned CIT (A). Ground No. 2 is also rejected.

6. Regarding Ground No. 3, we find that the basis of addition made by the A.O. is this that the assessee has not debited any transportation charges on purchase of paddy from Anil Kumar Sunil Kumar. He made addition of Rs. 50,000/- by alleging that the same was paid by the assessee out of books. Second addition of Rs. 50,000/- was made by the A.O. on this basis that the assessee has not debited labour expenses for hulling in the month of April and June. Before learned CIT (A), it was submitted that the purchases from Anil Kumar Sunil Kumar was F.O.R. and therefore, the assessee was not supposed to incur and pay transportation charges. Regarding labour charges, it was submitted that labour charges for April and June were paid in October and accounted for in that month. Learned CIT (A) has obtained Remand Report from the A.O. On these aspects, no adverse material could be brought on record by the A.O. in remand proceedings. Learned DR of the revenue also could not bring on record any material to controvert these assertions of the assessee. Therefore, on these two issues also, we do not find any reason to interfere in the order of learned CIT (A). Ground No. 3 is also rejected.

7. In the result, the appeal of the revenue is dismissed.

(Order was pronounced in the open court on the date mentioned on the caption page) Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member Dated:29/04/2015 *C.L.Singh Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Asstt. Registrar