2019 (3) TMI 2068 - AT - Income Tax

Revenue's appeal dismissed over plastic division calculation errors, trade discount deductions, and acceptable stock shortage limits

Bishan Saroop Ram Kishan Agro P. Ltd. Versus ACIT, Circle 5 (1)

ITAT Delhi dismissed revenue's appeal on three grounds. First, regarding plastic division loss addition, AO committed factual error by using wrong sales ... Addition on account of loss in the plastic division - Rectification of factual mistake committed taking up the wrong figures of sales - HELD THAT:- There was a factual mistake committed by the AO in not taking into consideration the details about the plastic division as per the tax audit report filed by the assessee in From 3CD, the audited annual accounts which were duly certified by the CA and downloaded by them from the portal of the Ministry of Corporate Affairs which were prepared after conducting inspection of assessee's record available with the Registrar of Companies whereas the details of the plastic division were given in Schedule XVIII of the balance sheet. AO should have rectified the factual mistake committed by him in taking up the wrong figures of sales, namely, in the place of Rs. 50,02,37,179/-, he had taken Rs. 45,64,60,012/- and thereby arrive at a loss of Rs. 4,18,26,767/- instead of finding the profit of Rs. 19,50,401/-. The factual error committed by the AO is rectified by the learned CIT(A) by looking into the record and on that aspect the Revenue should not have any grievance. This ground of appeal is devoid of merit and is accordingly dismissed. Addition on account of trade discount allowed to the customers - In so far as the relationship between M/s. Mohsen Line General Trading, LLC and M/s. Pearl Beach General Trading LLC, CIT(A) found that in view of the letter dated 1.8.2009 whereby M/s. Mohsen Line General Trading, LLC had informed the assessee on two contracts dated 1.7.2009 in respect of supplies of 7000 MT to be effected to their associate concern M/s. Pearl Beach General Trading LLC of 'MOHSEN' brand rice. Such a factual finding is not disputed in this appeal and in view of the fact that transaction took place in this year to crystallize after the date of balance sheet or before the settlement of accounts, the assessee rightly claimed the deduction of this amount in this year and it cannot be denied. We are in agreement with the submissions made on behalf of the assessee. On this premise, we do not find any reason to interfere with the findings of the learned CIT(A) and accordingly, dismiss this ground. Shortage of stock - CIT(A) recorded that the shortage of 1447.17 qtls. works out to 0.0032% of sales made and according to the FCI norms 0.50% is the normal wastage - HELD THAT:- There cannot be any dispute that some shortage is bound to happen in transit, loading and unloading also. When the FCI accepts 0.50% as normal, we have to keep in mind that such a shortage was acceptable in a situation where there is no process involved. However, in the matter in hand, some process is involved. So, normally apart from the loading, unloading and transportation, the process losses should also be considered. However, in this matter, the shortage recorded is only 0.0032% and by no stretch of imagination, could we say that this is unacceptable. We do not find any irregularity or illegality in the findings of the learned CIT(A). With this, appeal of the revenue stands dismissed. Issues:Crossed appeals filed by assessee and Revenue challenging the order dated 31.3.2015 in Appeal No. 332/14-15 for Assessment Year 2010-11.Analysis:1. The assessee, engaged in manufacturing and trading, filed a return declaring income of Rs. 1,80,11,900 for AY 2010-11. The AO assessed income at Rs. 14,35,36,000, making additions including loss in plastic division, trade discount, shortage of closing stock, and shipping expenses.2. The CIT(A) deleted certain additions but sustained Rs. 30 lacs for shipping expenses. Assessee challenged this in ITA No. 4689/Del/2015, while Revenue challenged the deletions in ITA No. 4862/Del/15.3. In ITA No. 4862/Del/2015, the Revenue's appeal focused on the addition for the plastic division loss. The AO questioned the existence of the division, leading to a loss calculation. The CIT(A) found factual errors in the AO's assessment and rectified them, dismissing the Revenue's appeal.4. The Revenue's second ground was the trade discount addition. The dispute was whether it should be treated as a bad debt or trade discount. The CIT(A) upheld the deduction, stating it was a legitimate expense in the current year.5. The last ground was the shortage of stock. The CIT(A) found the shortage within acceptable limits, considering the process involved. The Revenue's appeal was dismissed on this ground.6. In ITA No. 4689/Del/2015, the assessee's appeal focused on the payment for shipping expenses. Both authorities found lack of evidence to support the payment. The matter was remanded to the AO for verification, allowing the assessee's appeal for statistical purposes.7. Ultimately, the Revenue's appeal was dismissed, and the assessee's appeal was allowed for statistical purposes. The judgment was pronounced on 28th March 2019.