TaxTMI 
TaxTMI 
2010 (8) TMI 881
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....e, in brief, are that the assessee company is in the business of manufacturing of biscuits. The same are manufactured under the brand names of Parle-G, Krackjack, Monaco, Nimkin, etc. Besides having its own manufacturing unit at Bahadurgarh (Haryana) and at Neemrana (Rajasthan), it also gets the manufacturing done through its various Contract Manufacturing Units (CMUs) which manufacture Parle-G and cream biscuits. 4. The Assessing Officer during the course of assessment proceedings noted that in the earlier year an addition for the difference between the actual consumption of raw materials and the manufacture of the products and the standard consumption as per the standard input-output formula has been made wherever there has been excess consumption. 5. He noted the first addition was made in A.Y. 1988-89. In that year, the assessee was asked to give the input-output ratio of the raw material consumed and the finished product manufactured. Assessee submitted the input-output ratio as 108.19 : 100 which means 108.19 kg of raw material to be consumed for producing 100 kg of biscuits. This input-output ratio was based on scientific calculations for ideal condition. The Assessing Off....
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....cision given by the CIT(A) in A.Y. 1989-90. However, in the year under consideration following the same principle there was a short consumption of raw material to the tune of ₹ 1,11,21,729 instead of excess consumption as was being worked out in all earlier years and as such it was submitted that no addition was to be made. The Assessing Officer has, however, departed from the method of working out the excess consumption in earlier year and did not allow following adjustment. i) In respect of production from own factory of the assessee, the Assessing Officer did not accept the contention of the assessee for allowing wastage of 1 kg maida in each bag of maida consumed. ii) The difference between the declared weight of biscuits and the actual weight of biscuit packets in respect of Crackjack, Monaco and Nimkin biscuits were taken on the same proportion as in the case of Parle-G ignoring the laboratory reports of excess weight in biscuit packets submitted by the assessee. iii) No adjustment made by the Assessing Officer in respect of biscuits produced by contract manufacturer. The Assessing Officer accordingly made an addition of ₹ 1,57,84,868 to the total income of th....
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....er has no evidence on record to doubt the genuineness of the input-output ratio in respect of CMUs in the books of account. Further if the input-output ratio of 108.190:100 is applied to the CMUs, the wastage as allowed in respect of own factory should also be allowed in respect of production from CMUs. However, as the CMUs were on contract basis, the detailed figures of wastage are not available with the assessee and therefore, exact amount of adjustment for different kinds of wastage as has been done in respect of the own factory input-output ratio shall not be possible in the case of CMUs. 11. Based on the various arguments advanced by the learned counsel for the assessee, the CIT(A) rejected the contention of the assessee for allowing wastage of 1 kg of maida in each bag of maida consumed. He noted that during the A.Y. 1989-90 the Assessing Officer while giving effect to the order of the CIT(A) had only made adjustment in respect of weight of empty bag and not on account of left over maida. In all subsequent years also adjustment for the weight of empty bag which was found to be nearly 1 kg has been allowed. He accordingly directed the Assessing Officer to allow adjustment for....
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.... by the Commissioner of Income-tax (Appeals), Central V, Mumbai, ("CIT(A)") for the aforesaid assessment year on the following among other grounds. 1. The learned CIT(A) erred in not deleting the addition made by the Assessing Officer (AO) for alleged excess consumption of raw materials of ₹ 1,57,84,868. 2. The learned CIT(A) erred in confirming the action of the AO in applying the Input/Output formulae of 108.19:100 for computing alleged excess/short consumption of raw materials at the appellant's Contract Manufacturing Units (CMUs) as against the formulae of 110.607:100 as contended by the appellant. He erred in not appreciating the submissions made by the appellant in this connection. 3. Without prejudice to the above contention, the learned CIT(A), while confirming the action of the AO in applying the Input/Output formulae of 108.19 for the appellants CMUs, erred in not directing the AO to make the adjustments to the amount of production of the CMUs in computation of excess/short consumption at the CMUs. 4. Each one of the above grounds of appeal is without prejudice to the other. Revenue's Grounds of Appeal: 1. On the facts and in the circumstanc....
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....g Officer cannot make the addition. Referring to the consolidated order of the Tribunal for the A.Ys. 1989-90, 1991-92 and 1994-95 to 1996-97, a copy of which is placed at Paper Book pages 166 to 174, the learned counsel for the assessee referred to para 11 of the order and submitted that the Tribunal while accepting the grounds of the assessee has held that no addition can be made on account of excess consumption. 18. Referring to the decision of the Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand Spinning & Weaving Mills vs. CIT reported in 75 ITR 260, he submitted that the Assessing Officer's right under the proviso to section 13(Income-tax Act, 1922) arises only if a finding is recorded as to the unacceptability of the method and irregularity of the accounts kept. In the absence of such a finding recorded by the authority the results cannot be ignored or brushed aside. The mere fact that the percentage of dead loss of cotton is high in a particular year cannot lead to an inference that there has been suppression of the production in the spinning mill. Accordingly it was held that the addition of ₹ 50,000 to the total income of the assessee on acc....
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....d or theoretical formula cannot be applied to work out the consumption of raw material was given to the Assessing Officer. Therefore, without considering all these factual documents, the Assessing Officer cannot make an addition on account of excess consumption of raw material. He submitted that since the Tribunal has already deleted such excess consumption to the extent sustained by the CIT(A) for the A.Ys. 1989-90, 1991-92 and 1994-95 to 1996-97, therefore, no addition is called for. 21. The learned DR, on the other hand, while supporting the order of the CIT(A) drew the attention of the Bench to page 4 of the CIT(A)'s order and submitted that the assessee has nowhere explained as to why there was short production. He submitted that if the accounts are correct there cannot be any short consumption. The assessee had not produced any evidence as to whether it is the gross weight or net weight. The wastage as submitted by the assessee has already been taken care of by the standard formula. He submitted that the Assessing Officer and the CIT(A) have not discussed the issue of 108.19:100 in a scientific manner. The various decisions relied on by the learned counsel for the assess....
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....aw material is comparatively less. But at the same time it is to be noted that the assessee's accounts are audited, book results are not rejected and there is no case for the revenue that there is sale outside the books. Revenue itself is indirectly accepting assessee's contention that there cannot be standard formula for usage of raw materials. In some items there is excess use and in some items there is less. The raw materials which are shown as used less, the revenue itself allowed set off against excess use shown in some other items, which indirectly accepts assessee's contention that there cannot be any standard formula. Secondly it is difficult to reject assessee's contention that the output depends on the quality of raw material. It may depend on various factors. Under these circumstances, we are of the view that the appeal by the assessee on this ground is to be allowed. It is allowed." 24. Since the facts of the present case on account of manufacturing of biscuits through own factory are identical to the facts in the preceding assessment years, therefore, respectfully following the decision of the Tribunal in assessee's own case and in absence of ....
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.... the ratio of consumption of raw material and production. The grounds of appeal No. 1 by the Revenue is accordingly dismissed. 27. In the result, the appeal filed by the assessee is allowed for statistical purposes and the grounds raised by the Revenue are dismissed. I.T.A. No. 5542/Mum/2006 (A.Y. 2000-01) (By Revenue): I.T.A. No. 5320/Mum/2006 (A.Y. 2000-01) (By Assessee): I.T.A. No. 5543/Mum/2006 (A.Y. 2001-02) (By Revenue): I.T.A. No. 5321/Mum/2006 (A.Y. 2001-02) (By Assessee): 28. The grounds raised by the assessee and the Revenue are as under: I.T.A. No. 5542/Mum/2006 (A.Y. 2000-01)(By Revenue): 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to allow adjustment for empty bags of maida while working out the ratio of consumption of raw material and production without appreciating that: a) The maida bags come in net weight and not as gross weight as made out to be by the assessee before CIT(A). The AO has already allowed adjustment of 25% on account of pre-production and post-production wastages. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow all a....
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....lso without appreciating the fact that the excess consumption of raw material is worked out on the total production on the different brands of biscuits irrespective of production in own factory or by CMUs, and deduction was allowed in the same proposition in all the brands of biscuits ignoring the fact that pre- production and post production wastages are not included in the production of biscuits by CMUs. Therefore, question of taking input output ratio at 110.607:100 does not arise. I.T.A. No. 5321/Mum/2006 (A.Y. 2001-02)(By Assessee): The appellant objects to the order dated 08.08.2006 passed by the Commission of Income-tax (Appeals), Central IV, Mumbai (CIT(A)) for the aforesaid assessment year on the following among other grounds: 1.1 The learned CIT(A) erred in not deleting the addition made by the Assessing Officer for alleged excess consumption of raw materials of ₹ 1,37,16,820. 1.2 The learned CIT(A) erred in confirming the action of the AO in applying the input/output formulae of 108.19:100 for computing alleged excess/short consumption of raw materials at the appellants Contract Manufacturing Units as against the formulae of 110.607:100 as contended by the appel....
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....assed by the Commission of Income-tax (Appeals), Central V, Mumbai (CIT(A)) for the aforesaid assessment year on the following among other grounds: 1. The learned CIT(A) erred in not deleting the addition made by the Assessing Officer for alleged excess consumption of raw materials of ₹ 51,63,729 2. The learned CIT(A) erred in not directing the AO follow the order of the Income-tax Appellate Tribunal in the appellant's own case for the assessment years 1989-90, 1991-92, 1994-95, 1995- 96 and 1996-97 in respect of the addition for alleged excess consumption of raw materials made in the case of the Contract Manufacturing Units of the appellant. He further erred in confirming the action of the AO in applying the Input/Output formulae of 108.19:100 for computing alleged excess/short consumption of raw materials at the appellant's CMU's as against the formulae of 110.607:100 as contended by the appellant. Without prejudice to the above contention, the learned CIT(A), while confirming the action of the AO in applying the input/output formulae of 108.19:100 for the appellant's CMUs, erred in not directing the AO to make the adjustments to the amount of production....
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....uring the year though it might have been deferred in the accounts for a period of two years. Hence the entire amount of ₹ 16,88,82,896/- has been claimed as a deduction in computation of income......" 34. The reliance was also placed in the case of Amar Raja Batteries V. ACIT (272 ITR 17, ITAT Supplement), Core Health Care Ltd. (78 ITD 1(TM), CIT vs. Bhor Industries Ltdd. (264 ITR 180) and Silcon Interfaces Pvt. Ltd. V. ITO (ITA No.7434/Mum/03). However, the A.O was of the view that matching concept is a necessary prerequisite for computing true and correct income of the assessee. Admittedly the benefit is derived by the assessee over a number of years and on this basis only, the accounts have been prepared and, therefore, he disallowed the deduction of ₹ 8,44,41,448/- and added to the income of the assessee. 35. On appeal, ld. CIT(A) while distinguishing the decisions relied on by the AO, relied on the decision cited by the assessee wherein it has been held that the advertisement expenditure in one year is allowable even though written off in the books over a period of time, held that the entire advertisement expenditure is allowable in the year under considerat....
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....wable in this year and hence deleted the disallowance made by the AO. 39. Here it is necessary to take note of the following cases on this issue. 40. In CIT vs. Berger Paints(India) Ltd.(No.2)(Cal.)(supra), it has been held(page 504 head note): "Held,(i) that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not estopped by the treatment given by the assessee to it in its own books of account. Advertisement expenses are normally to be treated as revenue expenditure. The Tribunal was justified in law in allowing a sum of ₹ 8,29,723/- as revenue expenditure.........." 41. In CIT vs. Sakthi Soyas Ltd. (supra), it has been held(page 195 head note): ".....(ii) That in respect of the project launching expenses amounting to ₹ 16,41,125/- also the assessee had spent the money mainly for advertisement through visual and print media and also for designing and printing leaflets, brochures, etc. and hence these expenses were also in the nature of business expenditure entitled for deduction in computing the assessee's income." 42. In CIT vs. Bhor Industries Ltd.(....
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.... introduction charges which were debited as "deferred revenue expenses" in the balance-sheet. The expenditure was written off over a period of five years starting from the assessment year 1990-91 and accordingly the assessee claimed reduction of ₹ 3,89,625 in the return. The claim was allowed by the Assessing Officer. In appeal before the Commissioner (Appeals), the assessee claimed an additional ground that the entire deferred revenue expenses were deductible in the assessment year in appeal. The appeal was allowed. The Tribunal restored the matter to the Assessing Officer. The Assessing Officer allowed only a reduction of ₹ 3,89,625 and disallowed the claim of ₹ 15,58,500 on the ground that this was not claimed by the assessee in its return of income in the assessment year 1990-91. The Commissioner (Appeals) held that the Assessing Officer erred in disallowing the expenditure on the sole ground that no claim for deduction of the amount was made in the return of income. This order was confirmed by the Tribunal. On appeal: Held, dismissing the appeal, that there was no prohibition on the powers of the Tribunal to entertain an additional ground which ac....