CIT Centre Circle -22 v. Kohinoor Foods Ltd

1. Issue notice. Mr. Salil Kapoor; Advoeate accepts notice on behalfofassessee.

2. These appeals are arise out of the common orders dated 2L' July, 2014 passed by the Income Tax Appellate Tribunal(ITAT)in ITA Nos. 3688/del./2012, 3689/del./2012, 3690/del./2012, 3691/del./ 2012 and 3867/del./2012.

3. The question in all these appeals is the acceptance of the assessee's appeals with respect to rejection of books ofaccounts and ITANos.62/2015, 74/2015, 75/2015, 76/2015, 77/2015& 78/2015 addition of 1% G.P. on uniform basis for AY 2002-2003 to 2007-

2008.

4. The brief facts are that the assessee deals in processing and trading ofrice, pulses and food products. Certain search was carried 4— out in its premises on December,2007^ after which a notice was issued td:the assessee under Section'153A of the Income Tax.Act, 1.961 on 27"' January, 2009. Vide order dated 9.9.2009, Assessing Officer(AO)made a reference to the Special Auditor under Section 142(2A),which lead to areportdated lO'"May,2011.

5. The AO after considering the materials on record made addition to the income for the relevant assessment years to the tune of RsT[9],28,42,391/-. This included 1% offthe sale of rice shown in books ofaccounts for each ofthe assessment years in question. The relative amounts,to the extent of1%for various years were added on the ground thatthe quality wise day.to day stock ofthe rice traded by the assessee was not reflected. The additions made in respect of various years are as follows:- Assessment year Rs. 2002-03 2,73,58,354/-. ^003-04 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/-

6. Theassessee's grievance againstthese additions wasreferred to the Dispute Resolution Panel (Dl^) since the assessments also concerned an element oftransfer pricing and determination ofArm's Length Price(ALP). The DRP,inter alia, upheld these additions. The assessee, however, successfully appealed to the ITAT, which rejected the addition on this account.

7. Learned counsel for the Revenue urges that theITAT fell into error m rejecting the submissions made with respect to the additions madebytheAO. Inthisregard,itissubmitted thatassesseehasnot disclosed anywherethatthe qualitative/details"atallrelevantpointsof time are maintained in-a stock registef etc. Counsel emphasises the fact that the AO had found that suCh qualitative details were not ' reflected in the stock register. He a%ued that the quality ofrice is crucial m 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 AO's decision ought not:have been interfered with by the pAt,since it was based on an exhaustive appreciation ofthe circumstances.

8. Learned counsel for the responjlents, on the other hand,rely upon the decision ofthe ITAT and submitted that in the previou^ assessment years 1999-2000 and 2001-2002, the revenue had accepted the books of accounts as existed as well as the GP rates based on the rice yielding rates disclosed by the assessee. It is submitted thatin fact a comparison ofthe GP rates accepted by the Revenueforprevious years,wouldshow thatthesignificantly higher ITA Nos.62/2015, 74/2015, 75/2015, 76/2015,77/2015,& 78/2015 GP rate^ were disclosed in the concerned assessment years and this itself ought to have prevented the AO from making any alteration. Countering the suggestion, learned counser 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 ofthe ITAT and submitted that the impugned order has been relied upon by the Special Bench decision? in Shankar Rice Companies Vs. Income Tax Officer, 72 ITDS 13-9, which had dealt with an identical issue.

9. This court has considered the submissions. The nature of the business, which the AO had considered in the present case, was with regard to procurement and processing ofrice. 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,^s noticed by ITAT for various years, were 61.90% for AY 2002-03,

61.61 % for AY 2003-04, 64.67% for AY 2004-05, 65.11% for AY 2005-06'!68.88% for AY 2006-07,64.94% for AY 2007-08 and 65.02% for AY 2008-09. The ITAT also noticed that the yield ofhusk,faak and bran was 38.10%. The by-products were also sold and sales were duly recorded, According to the industry norms apparently the yield rates notified at 61.90% were considered reasonable. The assessee had relied upon a circular issued by Punjab Mandi Board, which notified the milling yield rate as 61%. This too was qn record and was duly taken note ofby the ITAT. Like in the present case, the assessees in those cases also maintained regular books of accounts, which were duly audited. All statutoryregisters,mandatorylocallaws>too werekepton regular basis. Thesales and purchases documents wereregular^ In the presentcase,too,neither AO northe DRP was able tofind fault with,these documents. Further, for three assessment years prior to the block assessment ofthe years concerned,the scrutiny assessment orders accepted both the yield rate andthe GPrate declared bythe assessCe. Apparently,additions madeto ■the. GP rate had been challenged successfully by the assessee to the ITAT,whichrejectedthem. Thematter?thereafter attainedfinality.

11. We also notice that in the circular of Punjab Mandi Board, the assessees were required to pay other tax liabilities. All these materials werepart ofthe record and duly taken note of.

12. At this stage it will be relevant to notice the reasoning of the ITAT, which is extracted below:- We have heard the rival contentions andperused the material available on record on:this issue.-The assessee's ooks ofaccounts are regularly maintained, auditedandno discrepancies whatsoever have., been indicated by the Assessing Officer in any material terms. The alleged inconsistency IS to the effect that assessee says that no dayto-day quantitative stock tally was maintained. However certainpapersfoundindicate thai^assessee wasmaintaining regular stock details and a presumption is drawn that assessee is not producing the.quantitative tally with a purpose Apropos assessee's contention is to the effect that allthe books ofaccounthave been seizedduringthe course 0/ searchproceedings. Looking at the volume ofbranches andplaces ofworking, the assesSee's employee maintained some or other record at various places. Merely because ' somepapers have beenfoundwhich are not disputedto be made by some employees, a condlpsion is beingarrivedat ITA Nos.62/2015, 74/2015, 75/2015, 76/2015, 77/2015& 78/2015; ■ i '.. ■ thit assessee is not deliberately showing the quantitative details. This is an utter disregard ofthefact that all the books ofaccounts werefound and seized and there is no quantitative tally in the account books. Therefore, the conclusion ofthe Assessing Officer in this behalfto reject the books is purely based on surmises and conjectures. Bdsed on the surmises and conjectures, ad hoc addition of 1% ofsales have been made which also is again afictional wdrk ofguesswork and conjectures bdsed again on already indicated conjectures. Thus, the whole addition is nothing biit an interplay ofsurmises and conjectures arrived at by Assessing Officer to willy nilly make the addition. 9.[1] It 'is not disputed that the assessee's yield commensurate to the industrial GP 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 thatassessee is notproducing quantitative tally. Hdd there been any quantitative tally,. assessee has produced stock register but in the absence of day-to-day stocktally atvariousplaces ofbusiness by itselfcannot be a.conclusion to give that assessee. is shine away from producing the day-to-day tally. In fiew ofthesefacts, we. see nojustification in rejection ofbooks ofaccounts.;c I 9.[2] The assessee has demonstrated that its yield ofrice, bran andfaak is asper the industry, norm and the GP rate injall the years is favourably comparable. Under these circumstances, it cannot be held tl^at the assessee's book remits are unsatisfactory. Merely because a search is carried on it is not automatically[meant that assessee is indulging in some nefarious activities. This is the burden of the revenue toprove in this behalfwjth materialandcogent reasons. Rejection of audited books account otherwise properly maintained cannot be recourse to by Assessing tally cannot lead to an ad hoc assumption that 1% ofsales are liable to be added in the income ofthe assessee. Our findings are supported by Hon'ble Rajasthan High Court judgment in the case ofCIT V[5]. Gotah Lime Khanji Udyog and ITAT, Amritsar Bench in the case ofAsha Mehra vs. ACIT, cited supra. In view thereof, we delete the ad hoc addition of[1] %sales. This g'ound ofassessee is allowed."

13. Having regard to the total facts,: we are satisfied that the AO's narrow basis for rejecting the books of accounts and addition of1% of sales and directing the same to tax was legally untenable.

14. Considering that all books ofaccounts and relevant records could 'not have been rejected by the AO in the manner so done and for the reasons given, we find no error of fact or law in the orders ofITAT, I which are accordingly affirmed.