Ita/330/2010 Of Parrisons Roller Flour Mills (P) Ltd v. The Asst.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN MONDAY, THE 25TH JULY 2011 / 3RD SRAVANA 1933 ITA.No. 330 of 2010() --------------------- AGAINST THE ORDER DATED 08/01/2008 IN ITA 77/COCH/2006-2007(2003-04) of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT IN ITA ----------------------------------------------- PARRISONS ROLLER FLOUR MILLS (P) LTD., CHEROOTY ROAD, CALICUT. BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH SMT.PREETHA S.NAIR RESPONDENT/APPELLANT IN ITA ------------------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, CALICUT. BY ADV. SRI.JOSE JOSEPH, SC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ALONG WITH ITA NO.313/2010 & CONN. CASES ON 25/07/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX(ITA 330/2010) ANNEXURE A: TRUE COPY OF ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2003-04DT.17.3.2006. ANNEXURE B: TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) DT.10.10.2006. ANNEXURE C: TRUE COPY OF ORDER DT.8.1.2008 OF INCOME TAX APPELLATE TRIBUNAL. ANNEXURE D: TRUE COPY OF ORDER IN MISCELLANEOUS PETITION PASSED BY THEINCOME TAX APPELLATE TRIBUNAL DT.31.3.2010. ANNEXURE E: TRUE COPY OF THE CERTIFICATE DT.28.12.2005 OF THE CFTRI, MYSOREISSUED TO THE APPELLANT. TRUE COPY P.S. TO JUDGE C.N.RAMACHANDRAN NAIR &P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal Nos.330,313,314,318,321,327, 331 & 337 of 2010, 1656,1657,1666,1667 & 1688 of 2009 .................................................................... Dated this the 25th day of July, 2011. JUDGMENT Ramachandran Nair, J. The common question arising in the connected cases pertainingto two assessees is with regard to reduction in the percentage ofproduction loss claimed by the assessees who are flour mills. We haveheard Sri.A.K.Jayasankar, counsel appearing for the appellants andStanding Counsel appearing for the Income Tax Department. 2. Most of the assessments are made under Section 153A afterconducting search in the premises of the assessees and after recordingstatements from employees. The percentage of production loss claimedby Parrisons Roller Flour Mills is 2.87%, whereas the officer allowedonly 1%. In the case of Yenkey Roller Flour Mills, the claim was2.44% and the Assessing Officer allowed 1.57%. Counsel for theassessee contended that the Tribunal has no justification to disallow thepercentage of loss claimed because during inspection department could ITA 230/10 & conn. not detect any unaccounted production or sale by the assessee. Further,counsel has relied on other orders of the Tribunal and even assessmentorders in the case of similar assessees, where the loss allowed isranging from 2.05% to 2.42%. Counsel for the assessee pointed outthe yardstick applied by the Tribunal in allowing production loss in thecase of different assessees. He has also pointed out that while theAssessing Officer allowed 1.57% loss in one case, in the other case hehas allowed only 1% which itself is arbitrary and indicative ofirrational basis adopted for estimation of output. 3. Standing Counsel appearing for the Revenue contended thatthe main loss suffered by Flour Mills is the refraction loss which is theloss arising in the original processing of raw wheat which containsimpurities. According to Standing Counsel, the assessee's claim ofrefraction loss is only 3% and the same is allowed in full. Thedepartment's main case is that the entire refraction loss is made up bymaking addition of water of 3 to 4% which goes into the product asmoisture content which is retained in the product and so much so, theoutput should be only more than the input by weight. However, ITA 230/10 & conn. 3. Standing Counsel appearing for the Revenue contended thatthe main loss suffered by Flour Mills is the refraction loss which is theloss arising in the original processing of raw wheat which containsimpurities. According to Standing Counsel, the assessee's claim ofrefraction loss is only 3% and the same is allowed in full. Thedepartment's main case is that the entire refraction loss is made up bymaking addition of water of 3 to 4% which goes into the product asmoisture content which is retained in the product and so much so, theoutput should be only more than the input by weight. However, ITA 230/10 & conn. counsel for the assessee has relied on the certificate issued by theCentral Food Technological Research Institute, Mysore, wherein theyhave stated that output in the case of wheat products may range from95 to 102% depending on the quality of wheat. 2. After hearing both sides and after going through the records,we are of the view that the input output ratio in respect of wheatproducts will essentially depend on the quality of wheat. We certainlyfind force in the contention of Revenue that refraction loss is made upby water addition and the fact that wheat product retains the moisturecontent when sold is also admitted by the assessee. However, counselfor the assessee rightly pointed out that in the course of packing and inmanufacturing process itself there is likelihood of loss and the onlyreason for making disallowance is that assessee has not accountedquantity loss at each stage of production, which according to theassessee, is not required at all. After hearing both sides we feel this iscertainly a case for remand because Tribunal has not considered thestatements recorded from the employees, the orders issued and theclaim allowed in similar cases. Further, the department also did not ITA 230/10 & conn. choose to conduct trial production under their supervision which wouldhave established the input output ratio by weight. However, we feel forthe sake of finality we can modify the orders of the Tribunal bycapping wastage at 2% in both the cases. In other words, input-outputratio should be adopted at 100-98. The Assessing Officer will revisethe assessments reducing the disallowance to the above extent.Appeals are allowed in part as above. However, we make it clear thatthe percentage of loss allowed in this case should not be treated aseither industrial average or rate of loss applicable in all cases which iscertainly a varying factor depending on the quality of wheat used inmanufacture, age of the machine and manufacturing and packingprocess engaged. Sd/-C.N.RAMACHANDRAN NAIRJudge pms Sd/-P.S.GOPINATHANJudgeTrue copyP.S. to Judge