Addition on account of milling gain on adhoc basis without conducting any enquiry, without any cogent and specific reason or without any material on record deleted-ITAT
ABCAUS Case Law Citation:
ABCAUS 2180 (2018) (01) ITAT
The appellant assessee was aggrieved by the order of the CIT(A) confirming the addition made by the Assessing Officer on account of milling gain.
Brief Facts of the Case:
The assessee was running a flour mill. The return for the year under consideration was filed at Nil income after set off of earlier year loss. The case was selected for scrutiny.
During the course of the assessment proceedings, the books of account were produced and were examined by the AO. During the year under consideration, the assessee had shown production of finished product as 100% of the wheat milled. No milling gain had been shown by the assessee.
However, the AO was of the view that in the flour production, due to the absorption of moisture, finished products increases on account of milling gain. Accordingly, the AO required the assessee to explain the reason.
The assessee stated that he had produced only Maida and no Atta was produced. The assessee submitted that he only supplies Maida to manufacturers of biscuits in which no moisture was required. The assessee submitted that trading results were based on the books of account. It was also stated that milling gain are dependent on the quality of raw material, weather conditions, etc.
The AO, held that though the assessee produced only Maida but in other cases where Atta and Maida are produced, milling gain is not only on account of Atta production but Increase in weight of finished product is on account of total production.
As not accepting the submissions of the assessee, the Assessing Officer took the milling gain a at 0.5% of the total milled quantity and applying market rate treated the amount so arrived as sale outside the books. Thus the aassessment was completed u/s 143(3) of the Income Tax Act, 1961 (the Act) by making inter alia the disallowance/addition on account of Milling gain.
CIT(A) dismissed the the appeal of the assessee on the ground of limitation
Being further aggrieved, the assessee was in appeal before the Tribunal.
Observations made by the Tribunal:
The ITAT observed that the Assessing Officer being a quasi judicial authority ought to have recorded specific reason for making any addition in the hands of the assessee. On the contrary, the AO had not brought out any cogent and specific reason regarding milling gain worked out by him. The AO had not denied the fact that assessee was producing Maida only. The assessee had explained that the Maida which was supplied to the biscuit manufacturers required no moisture. Thereafter, without bringing out any material evidence on record nor citing any comparable cases, the Assessing Officer summarily and on ad-hoc basis worked out the milling gain which was not warranted in the eyes of law.
The ITAT opined that the addition on account of milling gain was made by the Department without conducting any enquiry or without there being any material on record.
In view of the above the ITAT opined that the addition made by the Assessing Officer and confirmed by the CIT(A) was without any basis and liable to be deleted.
The Tribunal deleted the addition made on account of milling gain.