Kichha Sugar Company Ltd, v. ACIT, Haldwani

ITA 561/DEL/2009 | 2005-2006
Pronouncement Date: 08-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 56120114 RSA 2009
Bench Delhi
Appeal Number ITA 561/DEL/2009
Duration Of Justice 10 month(s) 25 day(s)
Appellant Kichha Sugar Company Ltd,
Respondent ACIT, Haldwani
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 08-01-2010
Date Of Final Hearing 22-12-2009
Next Hearing Date 22-12-2009
Assessment Year 2005-2006
Appeal Filed On 13-02-2009
Judgment Text
ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 254/DEL/2009 A.Y. : 2004-05 THE EXECUTIVE DIRECTOR VS. THE DY. COMMISSIO NER OF INCOME TAX KICHHA SUGAR COMPANY LTD. HALDWANI DISTT. UD HAM SINGH NAGAR KICHHA DISTT. UDHAM SINGH NAGAR (UTTARANCHAL) (UTTARANCHAL) ITA NO. 345/DEL/2009 A.Y. : 2004-05 THE DY. COMMISSIONER OF INCOME TAX VS. M/S KICHAA SUGAR COMPANY LTD. INCOME TAX OFFICE KICHHA DISSTT. UDHAM SING H NAGAR HALDWANI DISTT. NAINITAL (UTTRAKHAND) PIN-263139 AND ITA NO. 561/DEL/2009 A.Y. : 2005-06 THE EXECUTIVE DIRECTOR VS. ADDL. COMMISSION ER OF INCOME TAX KICHHA SUGAR COMPANY LTD. HALDWANI DISTT. UD HAM SINGH NAGAR KICHHA DISTT. UDHAM SINGH NAGAR (UTTARANCHAL) (UTTARANCHAL) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH ARORA CA DEPARTMENT BY : SMT. ANUSHA KHURANA SR. DR ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 2 O R D E R PER BENCH BOTH ASSESSEE AND REVENUE ARE IN CROSS APPEALS FOR ASSES SMENT YEAR 2004-05 AND ASSESSEE HAS FILED APPEAL FOR ASSE SSMENT YEAR 2005- 06. SINCE THE APPEALS WERE HEARD TOGETHER AND ISSUE S ARE CONNECTED THESE ARE BEING CONSOLIDATED AND DISPOSED OFF FOR THE SA KE OF CONVENIENCE BY THIS COMMON ORDER. ASSESSEES APPEAL - ITA NO. 254/DEL/2009 2. THE FIRST ISSUE RAISED IS THAT THE LD. CIT(A) E RRED IN CONFIRMING THE ACTION OF THE AO IN ESTIMATING AND ADDING TO THE INCOM E OF THE ASSESSEE AND VALUE OF CLOSING OF STOCK OF BAGGASE. 3. IN THIS CASE THE ASSESSEE IS A COMPANY ENGAGED I N MANUFACTURING AND TRADING OF SUGAR AND CONTROLLED BY THE GOVERNMENT OF UTTARAKHAND. 4. ON THIS ISSUE THE AO OBSERVED THAT THE APPELLANT COMPANY IS ENGAGED IN THE MANUFACTURING AND TRADING OF SUGAR CON TROLLED BY THE GOVERNMENT OF UTTARAKHAND. ON EXAMINATION OF THE AUDIT REPORT IT HAS BEEN NOTICED THAT THE APPELLANT HAS SHOWN CLOSING STOCK OF BAGASSE OF 40688 QTLS. BUT THE VALUE OF THE SAME HAS NOT BEEN S HOWN IN THE TRADING ACCOUNT. ON BEING ASKED TO EXPLAIN AS TO WHY THE VALUE OF BAGASSE HAS NOT BEEN SHOWN IN THE TRADING ACCOUNT TH E APPELLANT HAS ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 3 SUBMITTED THAT IT IS PRACTICALLY IMPOSSIBLE TO WEIGH BAGASSE LYING IN THE YARD AT THE CLOSE OF THE FINANCIAL YEAR. HOWEVER SAL E OF BAGASSE IS ACCOUNTED FOR ON CASH BASIS IN CONCERNED F.Y. HOWEVER THE AO HAS NOT ACCEPTED SUCH EXPLANATION OF THE APPELLANT BECAUSE TH E APPELLANT COMPANY HAS BEEN ADOPTING MERCANTILE SYSTEM OF ACCOUNTI NG AND AS PER THE PROCEDURES LAID DOWN IN SUCH ACCOUNTING SYST EM THE CLOSING STOCK OF BAGASSE GENERATED OUT OF PRODUCTION WOULD HAVE B EEN SHOWN IN THE BALANCE SHEET WHICH HAS NOT BEEN DONE. AS A R ESULT THE AO HAS COMPUTED THE VALUE OF SUCH BAGASSE AT RS. 25 58 055/ - BY ADOPTING THE AVERAGE SELLING PRICE OF ONE QUINTAL OF BAGASSE AT RS. 62.87. THE CLOSING STOCK FOR AY 2003-04 WAS TAKEN BY THE AO AT RS. 15 8 2 552/- AND THEREFORE THE AO HAS MADE NET ADDITION OF (RS. 25 58 0 55 RS. 15 82 552) I.E. RS. 9 75 502/- TO THE TOTAL INCOME OF T HE APPELLANT. 5. UPON ASSESSEES APPEAL THE LD. CIT(A) CONFIRMED TH E ADDITION. 6. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEFOR E US. 7. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT BAGGASE IS A BY- PRODUCT WHICH ARISES DURING THE COURSE OF MANUFACTURIN G OF THE ASSESSEE AS SUCH NO DIRECT COST OF THE SAME IS INVOLVE D. HE SUBMITTED THAT THE SAME IS USED IN BOILER AND THE SOME AMOUNT IS ALSO SOLD AND WHEN SOLD THE AMOUNT IS ACCOUNTED FOR. SINCE THERE IS NO DIRECT COST INVOLVED FOLLOWING THE PRINCIPLE OF COST OF MARKET VALUE WHICHEVER IS ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 4 LOWER THE ASSESSEE HAS BEEN SHOWING THE QUANTITY OF BAGGASE AND NOT THE VALUE THEREOF SINCE INCEPTION I.E. 1974 AND IT IS FOR THE FIRST TIME THAT THIS ISSUE HAS BEEN RAISED. 7.1 LD. DR ON THE OTHER HAND SUBMITTED THAT THE BAG GASE CERTAINLY HAS SOME VALUE AND AS SUCH IT WAS INCUMBENT UPON THE ASSESSEE TO VALUE THE SAME AND SHOW IN THE STATEMENT OF ACCOUNT . HENCE SHE SUBMITTED THAT THE ORDERS OF AUTHORITIES BELOW BE CONFI RMED ON THIS ISSUE. 8. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE R ECORDS. WE FIND THAT NOT SHOWING ANY VALUATION FOR CLOSING STOCK H AS BEEN A PRACTICE FOLLOWED BY THE ASSESSEE SINCE LONG. HOWEVE R IF A ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE IS AGAINST THE FUNDAME NTAL ACCOUNTING PRINCIPLE REVENUE AUTHORITIES ARE PERFECTLY ENTITLE D TO INTERFERE IN THE SAME. IN EXERCISE OF POWER CONFERRED BY SUB-SECTION ( 2) OF SECTION 145 OF THE IT ACT GOVERNMENT HAS NOTIFIED ACCOUNTING STA NDARD-I RELATING TO DISCLOSURE OF ACCOUNTING POLICIES. IN THE ACCOUNTIN G STANDARD ONE OF THE FUNDAMENTAL ACCOUNTING ASSUMPTION HAS BEEN STAT ED TO BE THAT OF ACCRUAL. THIS IS SAID TO REFER TO THE ASSUMPTION THAT REVENUES AND ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 5 COST ARE ACCRUED I.E. RECOGNIZED AS THEY ARE EARNED OR INCURRED (& NOT AS MONEY IS RECEIVED OR PAID) AND RECORDED IN THE FINA NCIAL STATEMENTS OF THE PERIOD TO WHICH THEY RELATED. HENCE NON VA LUATION OF THE STOCK OF BAGGASE HAS LED TO A VIOLATION OF FUNDAMENTAL ACCOUNTI NG ASSUMPTION OF ACCRUAL. AS SUCH VALUATION THEREOF IS MANDATORY. 8.1 NEXT QUESTION IS VALUATION OF INVENTORY. IT IS A SETTLED LAW THAT INVENTORY HAS TO BE VALUED AT COST OR MARKET VA LUE WHICHEVER IS LOWER. ACCOUNTING STANDARD-2 OF THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA DEALS WITH THE VALUATION OF INVENTORIES. FOL LOWING FROM THE SAME MAY BE REFERRED AS UNDER:- MEASUREMENT OF INVENTORIES 5. INVENTORIES SHOULD BE VALUED AT THE LOWER OF COST AND NET REALIZABLE VALUE. COST OF INVENTORIES 6. THE COST INVENTORIES SHOULD COMPRISE ALL COST OF PURC HASE COSTS OF CONVERSION AND OTHER COSTS INCURRED IN BRINGING THE INVENTORIES TO THEIR PRESENT LOCATION AND CONDITION. ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 6 COSTS OF PURCHASE 7. THE COSTS OF PURCHASE CONSIST OF THE PURCHASE PRICE INCLUDING DUTIES AND TAXES (OTHER THAN THOSE SUBSEQUENTLY RECOVE RABLE BY THE ENTERPRISE FROM THE TAXING AUTHORITIES) FREIG HT INWARDS AND OTHER EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION. TRADE DISCOUNTS REBATES DUTY DRAWBACK S AND OTHER SIMILAR ITEMS ARE DEDUCTED IN DETERMINING THE COSTS OF PURCHASE. COSTS OF CONVERSION 8. THE COSTS OF CONVERSION OF INVENTORIES INCLUDE COSTS DI RECTLY RELATED TO THE UNITS OF PRODUCTION SUCH AS DIRECT LA BOUR. THEY ALSO INCLUDE A SYSTEMATIC ALLOCATION OF FIXED AND VARIABLE PRODUCTION OVERHEADS THAT ARE INCURRED IN CONVERTING MATERIALS INTO FINISHED GOODS. FIXED PRODUCT ION OVERHEADS ARE THOSE INDIRECT COSTS OF PRODUCTION THAT RE MAIN RELATIVELY CONSTANT REGARDLESS OF THE VOLUME OF PRODUCTI ON SUCH AS DEPRECIATION AND MAINTENANCE OF FACTORY BUILDI NGS AND THE COST OF FACTORY MANAGEMENT AND ADMINISTRATION. VARIABLE PRODUCTION OVERHEADS ARE THOSE INDIRECT COSTS OF PRODUCTION THAT VARY DIRECTLY OR NEARLY DIRECTLY WI TH THE VOLUME OF PRODUCTION SUCH AS INDIRECT MATERIALS AND INDIRECT LABOUR. 9. THE ALLOCATION OF FIXED PRODUCTION OVERHEADS FOR THE PURPOSE OF THEIR INCLUSION IN THE COSTS OF CONVERSION IS B ASED ON THE NORMAL CAPACITY OF THE PRODUCTION FACILITIES. NOR MAL CAPACITY IS THE PRODUCTION EXPECTED TO BE ACHIEVED ON A N AVERAGE OVER A NUMBER OF PERIODS OR SEASONS UNDER NORMA L CIRCUMSTANCES TAKING INTO ACCOUNT THE LOSS OF CAPACITY RESULTING FROM PLANNED MAINTENANCE. THE ACTUAL LEVE L OF ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 7 PRODUCTION MAY BE USED IF IT APPROXIMATES NORMAL CAPACI TY. THE AMOUNT OF FIXED PRODUCTION OVERHEADS ALLOCATED TO EACH UNIT OF PRODUCTION IS NOT INCREASED AS A CONSEQUENC E OF LOW PRODUCTION OR IDLE PLANT. UNALLOCATED OVERHEADS ARE RECOGNIZED AS AN EXPENSE IN THE PERIOD IN WHICH THEY ARE INCURRED. IN PERIODS OF ABNORMALLY HIGH PRODUCTION TH E AMOUNT OF FIXED PRODUCTION OVERHEADS ALLOCATED TO EACH UNI T OF PRODUCTION IS DECREASED SO THAT INVENTORIES ARE NOT MEASURED ABOVE COST. VARIABLE PRODUCTION OVERHEADS ARE ASSIGNED TO EACH UNIT OF PRODUCTION ON THE BASIS OF THE ACTUAL USE OF THE PRODUCTION FACILITIES. 10. A PRODUCTION PROCESS MAY RESULT IN MORE THAN ONE PRODUCT BEING PRODUCED SIMULTANEOUSLY. THIS IS THE CASE FOR EXAMPLE WHEN JOINT PRODUCTS ARE PRODUCED OR WHEN THER E IS A MAIN PRODUCT AND A BY-PRODUCT. WHEN THE COSTS OF CONVERSION OF EACH PRODUCT ARE NOT SEPARATELY IDENTIFIAB LE THEY ARE ALLOCATED BETWEEN THE PRODUCTS ON A RATIONAL AND CONSISTENT BASIS. THE ALLOCATION MAY BE BASED FOR EX AMPLE ON THE RELATIVE SALES VALUE OF EACH PRODUCT EITHER AT THE STAGE IN THE PRODUCTION PROCESS WHEN THE PRODUCTS BEC OME SEPARATELY IDENTIFIABLE OR AT THE COMPLETION OF PRODUC TION. MOST BY-PRODUCTS AS WELL AS SCRAP OR WASTE MATERIALS BY THEIR NATURE ARE IMMATERIAL. WHEN THIS IS THE CA SE THEY ARE OFTEN MEASURED AT NET REALIZABLE VALUE AND THIS VALU E IS DEDUCTED FROM THE COST OF THE MAIN PRODUCT. AS A RESUL T THE CARRYING AMOUNT OF THE MAIN PRODUCT IS NOT MATERIALLY DIFFERENT FROM ITS COST. 8.2 FROM THE ABOVE IT IS EVIDENT THAT CERTAIN VALUE HAS TO BE ATTRIBUTED AS COST OF EVEN BY-PRODUCT. IN THE PRESENT CASE WE FIND THAT VALUATION OF THE BAGGASE HAS BEEN DONE BY THE AO ONLY ON THE BASIS OF ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 8 MARKET VALUE WITHOUT ANY FINDING ON COST THEREOF. IN THE ABSENCE OF THE NECESSARY FACTS AND FIGURES WE ARE UNABLE TO GI VE ANY FINDING IN THIS REGARD. HENCE WE REMIT THIS ISSUE TO THE FILES OF TH E AO TO EXAMINE THE SAME AFRESH. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 9. THE NEXT ISSUE RAISED IS THAT LD. CIT(A) HAS ERR ED IN NOT DISPOSING OF THE FOLLOWING ADDITIONAL GROUND TAKEN BY THE APPELLAN T ON 4.1.2008:- THAT THE LEARNED ACIT HAS ERRED ON FACTS AND IN LA W IN MAKING DISALLOWANCE OF RS. 50 000.00 OUT OF VEHICLE RUNNING EX PENSES. 10. ON THIS ISSUE LD. COUNSEL SUBMITTED THAT ASSESSE E HAS GOT THE NECESSARY RELIEF FROM THE LD. CIT(A) UNDER SECTION 15 4. HENCE HE SUBMITTED THAT HE IS NOT PRESSING THIS ISSUE. ACCORD INGLY THIS ISSUE IS DISMISSED AS NOT PRESSED. REVENUES APPEAL ITA NO. 345/DEL/2009 11. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN D ELETING THE ADDITION OF RS. 15 LACS ON ACCOUNT OF SALE OF SCRAP. 12. ON THIS ISSUE AO NOTED THAT SALE OF SCRAP WERE L OWER AS COMPARED TO EARLIER YEARS AS WELL AS THE SUBSEQUENT YEARS. ASSESSEE HAS EXPLAINED THAT SCRAP IS NOT AN ITEM OF SALE BUT SOLD ON LY WHEN IT IS ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 9 COLLECTED IN SIZEABLE LOTS. AO OBSERVED THAT ASSES SEE HAS INCURRED EXPENDITURE ON REPAIRS AND MAINTENANCE AND NOTED THE FIGURES FOR ASSESSMENT YEAR 2001-02 TO 2003-04 AND HELD AS UNDE R:- FROM PERUSAL OF PAST RECORDS IT IS NOTICED THAT THE RE IS HEAVY EXPENDITURE UNDER THE HEAD REPAIRS AND MAINTENANCE WHICH IS AS UNDER:- FINANCIAL YEAR AMOUNT OF EXPENDITURE 2003 - 04 1 63 54 285 2002 - 03 1 58 55 992 2001 - 02 1 55 33 622 SINCE THERE IS SUBSTANTIAL EXPENDITURE UNDER THE HE AD REPAIRS AND MAINTENANCE IT MEANS THAT HUGE AND COMPARABLE AMOUN T OF SCRAP WOULD HAVE BEEN GENERATED IN EVERY YEAR. THE A SSESSEE HAS NOT BEEN SHOWN COMPARABLE SALE OF SCRAP AND ALSO THERE IS NO AMOUNT OF SCRAP IN THE CLOSING STOCK MEANING THEREBY T HE SCRAP GENERATED HAS BEEN SOLD OUTSIDE THE BOOKS. CONSIDERING AMOUNT OF EXPENDITURE INCURRED IN REPAIRS AND MAINTENANCE AND COMPARABLE SALE OF SCRAP IN THE YEAR UNDER CONSIDERATI ON WITH OTHER ASSESSMENT YEARS I.E. AY. 03-04 02 03 01-02 00-01 AND 05- 06. I ESTIMATE SALE OF SCRAP OUTSIDE BOOKS OF RS. 15 0 0 000/- WHICH IS BEING ADDED TO THE INCOME OF THE ASSESSEE BEI NG SALE OF SCRAP OUTSIDE BOOKS. THEREFORE PENAL ACTION U/S 271(1 )(C) IS BEING INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 12.1 UPON ASSESSEE APPEAL LD. CIT(A) HELD AS UNDER:- AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE COUNSEL OF THE APPELLANT IT IS OBSERVED THAT THE AO HAS NOT BEEN AB LE TO BRING ON ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 10 RECORD ANY MATERIAL FACTS OR EVIDENCE TO JUSTIFY THAT THE SALES HAVE BEEN EFFECTED OUTSIDE THE BOOKS OF ACCOUNTS IN RESPECT OF SCRAP. THE EXPLANATION OF THE APPELLANT THAT THE SCRAPS ARE GENERATED FROM YEAR TO YEAR AND WHEN SIZEABLE QUANTITY OF SUCH S CRAPS ARE ACCUMULATED IT IS SOLD BY PUBLISHING ADVERTISEMENT IN THE NEWS PAPER TO REALIZE THE HIGHEST PRICE BY KEEPING THE EX PENDITURE ON LOWER SIDE CANNOT BE BRUSHED ASIDE ALTOGETHER. SIMP LY BECAUSE THE REPAIRS AND MAINTENANCE EXPENSES HAVE BEEN INCU RRED AT HIGH VALUE CONCLUSION CANNOT BE DRAWN THAT THE SCRAPS GENE RATED OUT OF SUCH REPAIRS AND MAINTENANCE OF PLANT AND MACHINER Y HAVE BEEN SOLD IN THE YEAR UNDER CONSIDERATION OUTSIDE THE B OOKS OF ACCOUNTS UNLESS CONCRETE EVIDENCE IS UNEARTHED TOWARD S SUCH PRESUMPTION. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE I AM NOT IN A POSITION TO SUSTAIN THE ADDITION OF RS. 15 00 000/- ON ACCOUNT OF UNACCOUNTED SALE OF SCRAP AND THE AO IS HERE BY DIRECTED TO DELETE SUCH ADDITION. 13. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 14. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE R ECORDS. WE FIND THAT AO HAS MADE THE ADDITION ON BIZARRE FOUNDAT ION THAT IF EXPENDITURE IS INCURRED ON REPAIR AND MAINTENANCE SIZEABLE AMOUNT OF SCRAP SHOULD COME OUT. THIS PROPOSITION IS NOT ACCEPTAB LE AT THE THRESHOLD. HOWEVER THE ASSESSEE HAS STATED THAT S CRAP IS SOLD WHEN THE SAME BECOMES IN SIZEABLE LOT. FROM THE CHART PREP ARED BY THE AO HIMSELF IT IS FOUND THAT AS AGAINST THE SALE OF SCRA P OF RS. 413109 IN THE IMPUGNED YEAR AND IN THE NEXT YEAR 2005-06 THE SALE IS 46 83 652/-. FURTHER ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) TH AT SCRAP SALE IN ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 11 PREVIOUS YEAR WAS ONLY 17998/-. UNDER THE CIRCUMSTA NCES AO INFERENCE THAT THERE IS 15 LACS OF SALE OF SCRAP OUTSI DE THE BOOKS IN THE IMPUGNED FINANCIAL YEAR IS DEVOID OF COGENCY. UNDER THE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND HENCE WE UPHOLD THE SAME. 15. IN THE RESULT REVENUES APPEAL IS DISMISSED. ASSESSEES APPEAL ITA NO. 561/DEL/09 16. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN C ONFIRMING THE ACTION OF AO IN ESTIMATING THE PRODUCTION OF BAGGASE AT 34% OF SU GAR CANE CRUSHED INSTEAD OF 32.64% AND SHOWN BY THE ASSESSEE AND ADDING RS. 8124991/- TO THE INCOME OF THE APPELLANT IN THE VALUE OF CLOSING STOCK OF BAGGASE. 17. ON THIS ISSUE THE AO DEALT WITH THE ISSUE AS UN DER:- STOCK OF BAGGASE:- DURING THE YEAR ASSESSEE HAS SHO WN TO HAVE CONSUMED 34 73 334/- QUINTALS OF SUGARCANE. OUT OF TH IS THE SUGAR PRODUCTION HAS BEEN SHOWN AT 3 35 950 QUINTALS WHICH COMES TO 9.67% AS AGAINST RECOVERY OF 10.03% IN THE IM MEDIATELY PRECEDING YEAR. THE RECOVERY OF BAGGASE HAS BEEN SHOW N AT 11 33 696 QUINTALS WHICH COMES TO 32.67% AS AGAINST 33.46% IN THE IMMEDIATELY PRECEDING YEAR. VIDE ORDER SHEET E NTRY DATED ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 12 5.11.07 THE ASSESSEE WAS REQUIRED TO EXPLAIN THE RE ASONS FOR FALL IN RECOVERY OF SUGAR AS WELL AS BAGGASE. THE ASSESSEE F ILED A WRITTEN REPLY ON 16.11.2007. IN THIS CONNECTION THE ASSESSEE HAS ALSO FILED A REPLY ON 22.8.2007 EXPLAINING THEREIN REASONS FOR FALL IN RECOVERY OF SUGAR FROM SUGARCANE. IN BOTH THE REPLIES THE ASSESSEE HAS CLAIMED THAT THE RECOVERY OF SUGAR DEPE NDS ON VARIOUS FACTORS LIKE EARLY START OF SEASONS WEATHER /CLIMATE AND NATURAL REASONS. THE ASSESSEE HAS ALSO FILED COMAPRA BLE FIGURES OF RECOVERY IN OTHER SUGAR MILLS OF THE AREA WHERE ALSO THE RECOVERY OF SUGAR HAS DECLINED. IT WAS POINTED OUT TO THE ASSESSEE THAT IF THE RECOVERY OF SUGAR HAS DECLINED DUE TO NAT URAL REASONS RECOVERY OF BAGASSE SHOULD INCREASE WHILE IN THE CASE OF ASSESSEE RECOVERY OF BAGASSE HAS ALSO DECLINED. TO THIS QUERY ALSO THE ASSESSEE FILED REPLY ON 16.11.07 GIVING VERY GENERAL REASONS THAT THERE IS SLIGHT DECREASE IN RECOVERY OF BAGASSE IN COM PARISON TO LAST YEAR WHICH IS ONLY .7% WHICH IS NEGLIGIBLE AND THE RECOVERY DEPENDS ON VARIOUS REASONS. WITH THIS REPLY THE ASSE SSEE FILED COMPARATIVE FIGURES OF RECOVERY OF BAGASSE BY OTHER MILL S OF THE AREA. FROM THIS CHART IT IS SEEN THAT RECOVERY OF BA GASSE IN TWO MILLS I..E OF NADEHI AND GADARPUR HAS INCREASE AS COM PARED TO PRECEDING YEAR BY ALMOST THE SAME PERCENTAGE BY WHIC H THE YIELD OF SUGAR HAS DECLINED. THE ASSESSEE DID NOT OFFER ANY OTHER ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 13 EXPLANATION FOR THE LOW YIELDS. IT HAS ALSO BEEN ACCE PTED BY THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 16.11.207 THAT IT HAS NOT MAINTAINED ANY STOCK REGISTER FOR BAGGASE AND THE QUA NTITY OF BAGASSE CONSUMED BY MILL QUANTITY OF CLOSING STOCK AND PRODUCTION OF BAGASSE ALL ARE ESTIMATED ON THE BASIS OF CANE CRUSHED. IT WAS ALSO NOT TALLY WITH THE ACTUAL SALE S AS PER BOOKS. ON BEING POINTED OUT THE ASSESSEE FILED A REPLY ON 19 .11.07 STATING THAT THE DIFFERENCE IS DUE TO TYPOGRAPHICAL M ISTAKES. IT WAS STATED THAT ACTUAL SALES ARE OF 20 589/- QUINTAL S ONLY AS AGAINST 2 05 886 QUINTALS SHOWN IN MANUFACTURING A/C . SIMILARLY THE BAGGASE USED FOR OWN CONSUMPTION IS 11 24 741/- QUI NTALS AS AGAINST 9 39 444 QUINTALS SHOWN IN THE MANUFACTURIN G A/C. IT WAS STATED THAT THE FIGURES OF QUANTITY TAKEN IS BY ESTIMATE ONLY. NEITHER ANY RECORD IS MAINTAINED FOR RECOVERY OF BAGGA SSE NOR FOR CONSUMPTION AND NEITHER FOR CLOSING STOCK. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE THE BOOKS O F A/C OF THE ASSESSEE CANNOT BE ACCEPTED AS CORRECT AND COMPL ETE TO THE EXTENT THAT THE QUANTITY OF BAGASSE PRODUCED DI SCLOSED BY THE ASSESSEE CANNOT BE ACCEPTED AS CORRECT. CONSIDERI NG THAT IN THE IMMEDIATELY PRECEDING YEAR THE YIELD OF BAGGASE HAS BEEN SHOWN AT 3.46 AND ALSO CONSIDERING THAT THIS YEAR YIE LD OF SUGAR ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 14 HAS DECLINED BY .37% AS COMPARED TO IMMEDIATELY PRECE DING YEAR THE YIELD OF BAGASSE FOR THE YEAR IS ESTIMATED AT 34 % OF THE SUGAR CAN CONSUMED. THIS WILL GIVE YIELD OF BAGASSE AT 1 1 80 933/- QUINTALS AS AGAINST YIELD OF 11 33 696 QUINTALS. THE EXCESS PRODUCTION COMES TO 47 237 QUINTALS. 18. AS IN THE PRECEDING YEAR THE AO VALUED THE CL OSING STOCK OF BAGGASE AND CAME TO A FIGURE OF 81 24 991/- ON THE BAS IS OF RS. 106.5 PER QUINTAL RATE OF SALE. AO ALSO GAVE SOME REDUCTI ON ON ACCOUNT OF OPENING STOCK ESTIMATED FOR THE PRECEDING YEAR. 19. UPON ASSESSEES APPEAL THE LD. CIT(A) CONFIRMED THE ADDITION. 20. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. ON THE ISSUE OF VALUATION OF STOCK OF BAGGASE WE HAVE ALRE ADY DEALT WITH THE SAME ISSUE IN ITA NO. 254/DEL/09 ABOVE. HENCE A S REGARDS THE VALUATION OF CLOSING STOCK OF BAGGASE THE MATTER STANDS REMITTED IN ACCORDANCE WITH THE DIRECTIONS IN ITA NO. 254/DEL/09 A S ABOVE. 20.1 AS REGARDS THE ESTIMATE OF PERCENTAGE OF BAGGASE WE FIND THAT IN THE INSTANCES GIVEN BY THE ASSESSEE DURING THE ASSE SSMENT PROCEEDINGS THERE ARE SOME INSTANCES OF LOWER YIELD ALSO AS COMPARE D WITH THAT OF ASSESSEE WHICH THE AO HAS IGNORED. THE SUBMISSION OF THE ASSESSEE DURING THE PRECEDING YEARS THAT CERTAIN PORTION OF PRE CEDING MARCH ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 15 MONTH WERE ALSO TAKEN INTO ACCOUNT IN THE CONCERNED YEAR HAVE NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW. AO HAS A LSO NOT GIVEN ANY FINDING ON THE ASSESSEES CONTENTION THAT PRODUCTION OF B AGGASE AND ITS CONSUMPTION INTO THE BOILER IS A CONTINUOUS PROCESS AND IT IS NOT PRACTICALLY POSSIBLE TO MAINTAIN ANY STOCK RECORD IN T HIS REGARD. AO HAS NOT ADDRESSED THIS ALSO. UNDER THE CIRCUMSTANCES IN OUR OPINION IT WILL BE APPROPRIATE TO REMIT THIS ISSUE TO THE FILES OF THE AO. ACCORDINGLY THIS ISSUE IS REMITTED TO THE FILES OF AO. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNI TY OF BEING HEARD. 21. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) E RRED IN CONFIRMING THE ACTION OF AO IN TREATING THE NURSERY FORM INCOME (NETT ) RS. 187332.00 AS INCOME OF THE BUSINESS INSTEAD OF AGRICULTURAL INC OME AS CLAIMED BY THE APPELLANT. 21.1 ON THIS ISSUE THE AO NOTED THAT ASSESSEE HAS SH OWN INCOME FROM CANE NURSING FARM AT RS. 3 29 553/- AND EXPENSES ON THIS ACCOUNT WAS RS. 1 42 221/- AND THE NET AMOUNT WAS SHOWN ONLY AS EXEMPT INCOME. ASSESSEE EXPLAINED THAT COMPANY WAS RUNNING CANE NUR SERY FARM FOR GROWING VARIOUS VARIETIES OF CANE FOR EXPERIMENTAL PURP OSE SO THAT GOOD QUALITY OF CANE BE AVAILABLE TO THE GROWERS AND IT WAS ALSO STATED THAT THIS WAS AN AGRICULTURAL INCOME AND IT WAS NOT T HE BUSINESS OF THE ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 16 ASSESSEE. AO DID NOT ACCEPT THE ABOVE. HE HELD THAT ASSESSEE HAS HIMSELF ADMITTED THAT THIS ACTIVITY IS FOR RESEAR CH PURPOSE TO GROW GOOD QUALITY OF CANE. HENCE HE HELD THAT THE ACTIVIT Y IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND IT IS NOT AN AGRICUL TURAL INCOME. 21.2 UPON ASSESSEES APPEAL THE LD. CIT(A) CONFIRMED THE ADDITION. 21.3 AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEFORE US. 21.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT IT IS NOT DISPUTED THAT INCOME FROM CANE N URSERY WAS ON ACCOUNT OF GROWING OF CANE AND SALE THEREOF. THIS IS ADM ITTEDLY AN AGRICULTURAL INCOME. ONLY BECAUSE AS A RESULT OF THI S OPERATION GOOD QUALITY OF CANE CAN ALSO BE IDENTIFIED CAN NOT LEAD TO THE CONCLUSION THE ACTIVITY IT IS NOT AN AGRICULTURAL INCOME. UNDER TH E CIRCUMSTANCES WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECI DE THE ISSUE IN FAVOUR OF THE ASSESSEE. 22. THE LAST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS. 1808337.00 BEING EXPEN SES RELATING TO EARLIER YEAR CRYSTALLIZED DURING THE YEAR. 22.1 ON THIS ISSUE AO NOTED THAT IN THE COMPUTATION OF INCOME THE ASSESSEE HAS DEBITED RS. 1808336/- BEING PREVIOUS YE AR EXPENSES WHICH WERE NOT ACCOUNTED FOR IN PROFIT AND LOSS ACCOUNT BUT WE RE CLAIMED IN ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 17 PROFIT AND LOSS APPROPRIATION ACCOUNT. ASSESSEE CLAIME D THAT THESE LIABILITIES WERE DETERMINED AND CRYSTALISED DURING THE YEAR. HENCE THE SAME SHOULD BE ALLOWED. IN SUPPORT THEREOF THE ASSES SEE HAS FILED A COPY OF GOVT. LETTER NO. 566 DATED 22.1.2005 REGARDING EXPENSES OF RS. 9 LACS PAID TO GANNA VIKAS PARISHAD KICHA ACCOUNT FOR ROAD REPAIR. HOWEVER FROM PERUSAL OF THE SAID LETTER AO FOUND THAT EXPENSES OF RS. 9 LACS REFERRED IN THE SAID LETTER PERTAINING TO FI NANCIAL YEAR 2001-02 2002-03 AND 2003-04. FURTHER AO OBSERVED THAT REGA RDING OTHER EXPENSES ALSO ASSESSEE HAS GIVEN A GENERAL REPLY WIT HOUT BRINGING ANY EVIDENCE ON RECORD THAT THE LIABILITIES BE CRYSTILIS ED DURING THE YEAR. HENCE AO DID NOT ALLOW THIS EXPENSE. 22.2 UPON ASSESSEES APPEAL THE LD. CIT(A) CONFIRMED THE ADDITION. 22.3 AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. 22.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAD ITSELF IN ITS ACCOUNTS DEBIT ED THESE EXPENSES AS PRIOR PERIOD EXPENSES IN THE PROFIT AND LOSS APPROPRIATI ON ACCOUNT. THE CLAIM FOR ALLOWING THE EXPENSE IN THE CURRENT YEAR IS THAT THEY HAVE BEEN DETERMINED AND CRYSTALLIZED DURING THE CURRENT YEAR. HOWEVER IN THE ABSENCE OF THE NECESSARY EVIDENCE THE AUTHORITIE S BELOW HAVE NOT ACCEPTED THIS CLAIM. BEFORE US ALSO THE ASSESSEE HAS NOT BROUGHT ANY FRESH MATERIAL TO PROVE THESE EXPENSES PERTAINING TO PRIOR PERIOD HAVE ITA NO. 254 345& 561/DEL/2009 A.YRS. 2004-05&2005-06 18 CRYSTALLIZED DURING THE CURRENT YEAR. UNDER TH E CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDERS OF T HE AUTHORITIES BELOW. ACCORDINGLY WE CONFIRM THE SAME AND THE ASSESSEES APPEAL ON THESE ISSUES IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 23. IN THE RESULT BOTH THE ASSESSES APPEALS ARE P ARTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/01/2010. SD/- SD/- [RAJPAL YADAV] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE:08/01/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES