Commissioner Of Income Tax, Faridabad v. M/S Mandeep Mushroom Ltd., Gurgaon

ITA No. 267 of 2008 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 267 of 2008 (O&M) Date of Decision: 25.8.2015 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Mandeep Mushroom Ltd., Gurgaon ...Respondent. CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Tajender K. Joshi, Advocate for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. 1.Delay of 78 days in re-filing the appeal is condoned. 2.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 29.12.2006 (Annexure A-III) passed by the Income TaxAppellate Tribunal, Delhi Bench “G”, New Delhi (hereinafter referred toas “the Tribunal”) in ITA No. 1159/DEL/2003, for the assessment year1997-98, claiming the following substantial questions of law:- (i)Whether, on the facts and circumstances of thecase, the order of the Hon'ble ITAT is notperverse in deleting the addition of ` 6,65,792/-made by the Assessing Officer relating tomushrooms account, when the AssessingOfficer had clearly pointed out variouscase, the order of the Hon'ble ITAT is notperverse in deleting the addition of ` 6,65,792/-made by the Assessing Officer relating tomushrooms account, when the AssessingOfficer had clearly pointed out various ITA No. 267 of 2008 -2- discrepancies on the basis of enquiries madeand as discussed in the assessment order?and as discussed in the assessment order? (ii)Whether, on the facts and circumstances of thecase, the order of the Hon'ble ITAT is notperverse in deleting the addition of ` 4,74,683/-made by the Assessing Officer in strawberryaccount, when the Assessing Officer had clearlypointed out various discrepancies on the basisof enquiries made and as discussed in theassessment order?case, the order of the Hon'ble ITAT is notperverse in deleting the addition of ` 4,74,683/-made by the Assessing Officer in strawberryaccount, when the Assessing Officer had clearlypointed out various discrepancies on the basisof enquiries made and as discussed in theassessment order? 3.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee wasearning income from mushroom and strawberry growing and salethereof. The said income was claimed as agricultural income. Theassessee filed its return of income on 28.11.1997 showing loss at` 5,50,015/- and agricultural income at ` 9,39,738/-. The said return wasprocessed under Section 143(1)(a) of the Act on 31.3.1998. TheAssessing Officer vide order dated 6.11.2000 (Annexure A-I) framed theassessment by making additions in the trading account amounting to` 4,74,683/- in strawberry account and ` 6,65,792/- in the mushroomsaccount. Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. TheCIT(A) vide order dated 8.1.2003 (Annexure A-II) dismissed the appealand upheld the additions of ` 4,74,683/- and ` 6,65,792/-, respectivelymade by the Assessing Officer. Still dissatisfied, the assessee filed anappeal before the Tribunal who vide order dated 29.12.2006 (AnnexureA-III) allowed the appeal and deleted the additions made by the Assessing Officer on account of strawberry and mushrooms amountingto ` 4,74,683/- and ` 6,65,792/-, respectively. Hence, the present appealby the revenue. 4.We have heard learned counsel for the revenue andperused the record. Assessing Officer on account of strawberry and mushrooms amountingto ` 4,74,683/- and ` 6,65,792/-, respectively. Hence, the present appealby the revenue. 4.We have heard learned counsel for the revenue andperused the record. 5.The Tribunal while accepting the appeal of the assesseeheld that the assessee had given the details of purchase of raw material,expenses and the sales. The quantitative details of raw material, thequantity of wheat straw, wheat bran, chicken dropping, wheat, urea,gypsum etc. was given. Even the datewise details by mentioning billnumber, party's name and purchases from 1.4.1996 to 31.3.1997 wasalso given. Both, the Assessing Officer as well as the CIT(A) had failedto examine the said details properly. From the statement of Shri RajSingh examined by the Assessing Officer, who made the purchases forthe assessee stood verified. Since Shri Raj Singh had not denied thepurchases made by him for the assessee, therefore, the transactions ofpurchases from him could not be held to be non-genuine. Further, ShriRaj Singh filed his affidavit deposing that he got the bills prepared byother literate persons. Regarding non-verification of the weighing slips,Shri Mahavir Singh, owner of the Mahala Dharamkanta was examinedon 19.11.1999. Although he had not verified the bills produced beforehim but had admitted that he was not sitting on the Dharamkanta and hisemployees were working who had issued the duplicate receipts. Further,the payments to M/s KC Traders were made through a/c payee chequesdrawn on the assessee's bankers. The relevant findings recorded by theTribunal read as under:- 18.We have carefully considered the entire material on record and the rival submissions. Onexamination of documents filed in the paper book,reliance on which was placed by the learned counselfor the assessee, it is found that the assessee hasgiven complete details of purchase of raw material,the expenses and the sales. In the quantitativedetails of raw material available on pages 10 & 11 ofthe paper book, the quantity of wheat straw, wheatbran, chicken dropping, wheat, urea, gypsum etc. hasbeen given. Further, date-wise details giving billnumber, party's name and purchases from 1.4.1996 to31.3.1997 have been given in the chart which isavailable on pages 16 to 18 of the paper book. It is tobe pointed out that the assessee was using 100%indigenous raw material and purchases of thismaterial is not made from the open market. Neitherthe AO nor the learned CIT (Appeals) have properlyexamined the details. The AO has examined Mr. RajSingh who too has affirmed that he used to purchasematerial for the assessee. He has also explained thathe was not maintaining any books of account nor washaving any account in the bank. He has deposed thathe used to purchase the material and supplied thesame directly to the assessee who was also bearingthe loading and unloading charges. Thus, even fromhis statement the fact of purchases made by him forthe assessee stood verified. 19.It is to be pointed out that he could not verify thebills produced by the assessee. In this regard hisexplanation was that on the bills his name wasentered by the assessee in the bill book of M/s RajAgro because he was totally illiterate. Thus, itappears that the bill book was not maintained by himbecause he was illiterate and the same might havebeen maintained by the assessee and his signatureswere obtained on the bills by the assessee for his ownpurposes. This might have been an extra precautionon the part of the assessee. In any case, since ShriRaj Singh has not denied the purchases made by himfor the assessee, the transactions of purchases fromhim cannot be held to be non-genuine. It may bepointed out that Shri Raj Singh has not denied thepurchases made by him for the assessee, thetransactions of purchases from him cannot be held tobe non-genuine. It may be pointed out that Shri RajSingh has filed affidavit, which is available on page 49of the paper book. In this affidavit he has deposedthat he got the bills prepared by other literate persons.He has further deposed that he was supplying wheatchicken dropping, wheat straw etc. to the assessee.He has also stated that wheat straw used to beweighed at Mahala Dharamkanta, Bilaspur, by him.After this affidavit, this witness was not summoned forfurther cross-examination or confrontation by the AO. Therefore, the basis of his affidavit also, he hasverified the transaction of sale of wheat, wheat straw,chicken dropping etc. to the assessee. In view of thisevidence, the AO was not justified in rejecting thetransactions as unverifiable. 20.The other defect pointed out by the AO is aboutthe non-verification of the weighing slips. In thisregard Shri Mahavir Singh, who is the owner ofMahala Dharamkanta, was examined. He has notverified the bills produced before him. In the cross-examination he has admitted that he was not sittingon the Dharamkanta but his employees were working.His statement was recorded on 19.11.1999 and hefailed to disclose the name of the employeesemployed in 1997. This fact may be on account of thefailure of human memory. In any case, since he washimself not sitting on the Dharamkanta and hisemployees were working, the duplicate receipts mighthave been issued by his employees as submitted bythe learned counsel for the assessee also. 21.So far as payments made to M/s K.C. Tradersare concerned, in the assessment order although theAO has observed that the party was not traceable butit has also been observed that the payments weremade to that party through a/c payee cheques drawnon the assessee's bankers. 22.There is another aspect of the matter. The assessee has filed a comparative chart, which isavailable at page 19 of the paper book. In this chartfor A.Y. 1996-97 the gross profit has been shown at60% and net profit at 40%; whereas in assessmentyear under consideration i.e. 1997-98, the GP ratehas been shown at 65% and net profit rate at 39%.The assessee has also explained the decrease of 1%in the net profit rate before the AO as well as beforethe learned CIT(Appeals). In the chart it has alsobeen indicated that in this year on account ofappointment of more staff and expenditure increasednominally and increase in the expenses was also onaccount of foreign travel during the year and new carspurchase. Further, a sum of ` 39,000/- was paid onaccount of HRA reimbursement to the staff. Therewas increase in the freight charges and also increasein the expenses on account of better quality package.The assessee made detailed submission before thelearned CIT (Appeals) vide letters dated 18.01.01 and19.01.01. Some of the reasons given before thelearned learned CIT (Appeals) for decrease in the netprofit rate were as under:- “a)The material cost is 17% of turnover inAssessment year 1997-98 as against 21.7% inthe corresponding earlier year 1996-97, hencethere arises no dispute on materialconsumption.Assessment year 1997-98 as against 21.7% inthe corresponding earlier year 1996-97, hencethere arises no dispute on materialconsumption. ITA No. 267 of 2008 -8- b)Production cost is 17.9% as against17.8% in the corresponding previous year. c)Consequently the Gross Profit ratio hasincreased to 65.01% in assessment year 1997-98 as against 60.5% in the earlier year-assessment year 1996-97. d)There have only been increase inadministrative & selling expenses from` 13.67 lacs in assessment year 1996-97 toadministrative & selling expenses from` 13.67 lacs in assessment year 1996-97 to ` 19.14 lacs in the assessment year 1997-98. i)Since nature of these expenses are suchwhich are not directly proportional toturnover viz Director/Staff Salary, rent,travelling, communication etc.which are not directly proportional toturnover viz Director/Staff Salary, rent,travelling, communication etc. ii)Reasons for increase in all items ofAdministrative & sales expenses havealready been submitted to Ld. DCIT withletter dated 21.10.2000. The copy of thesame is enclosed herewith.Administrative & sales expenses havealready been submitted to Ld. DCIT withletter dated 21.10.2000. The copy of thesame is enclosed herewith. e)All these Administrative & Sales expenses are vouched by The Assessing OfficerThe Assessing Officer The Statutory Auditor &The Statutory Auditor & The Special Auditor u/s 142(2A) of the Income Tax Tax.”The Special Auditor u/s 142(2A) of the Income Tax Tax.” 6.No perversity could be shown by the learned counsel for therevenue in the aforesaid finding recorded by the Tribunal which may ITA No. 267 of 2008 -9- warrant interference by this Court.7.Accordingly, the substantial questions of law are answeredagainst the revenue and in favour of the assessee. The appeal standsdismissed. (AJAY KUMAR MITTAL)JUDGE August 25, 2015gbs (RAMENDRA JAIN) JUDGE