Handling-distribution loss in dealing wholesale poly pack milk allowed as nature of business demanded such losses & % was consistent

Handling-distribution loss in dealing wholesale poly pack milk allowed. The nature of business demanded such losses and the percentage incurred was consistent.

ABCAUS Case Law Citation:
ABCAUS 1256 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the Commissioner of Income Tax  (Appeals) [CIT(A)] confirming the disallowance made by the Assessing Officer (‘AO’) on account of day to day handling of distribution loss of milk claimed in the business of dealing in packaged milk.

Assessment Year : 2008-09
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The assessee was dealing in wholesale poly pack milk, which is delivered in crates. The AO, on the basis of Form 3CD observed that the assessee had claimed handling/distribution loss of 81,780 litres of milk on total sales of 1,20,91,781 litres, which came to 0.68% and 225 litres per day.

The AO was of the view that given the nature of the assessee’s business, the loss claimed by the assessee was on the higher side. He therefore disallowed 20% of such loss and added a sum of Rs. 16,35,600/-

When the matter went  before the CIT(A), the CIT(A) reduced the loss of Rs.12,70,600/-.

Observations made by the Tribunal:
The ITAT opined that the nature of assessee’s business demanded such loss to be incurred. It was noted that in the preceding assessment years 2005-06 to 2007-08 and assessment year 2009-10, assessee had incurred similar loss to the extent of 0.68%. In the A.Y 2005-06 such type of loss was duly allowed when the assessment fwas completed u/s 143(3). While in the A.Y 2009-10, the AO disallowed 20% of such loss.

The Tribunal opined that since the nature of the business demanded such losses to be incurred and the percentage of loss incurred by the assessee was consistent as compared to the earlier and subsequent years, the addition was unwarranted.

Held:
The ITAT set aside the order of the CIT(A) and allowed the appeal.