Expense cannot be disallowed for mere absence of voucher

M/s Maheshwari Flour Mills Vs. JCIT (ITAT Lucknow)

Business of the assessee is trading in food grains and producing Maida which is supplied to various biscuit manufacturers. It is common in factory set up that certain repairs and maintenance work are conducted for which vouching is not always possible. These expenses relate to the fundamentals of the assessee’s business and just because they were not vouched, there cannot be any addition. The practical aspects involved in relation to the type of business of the assessee, who is also a tax payer, should be taken into consideration by the Department and taking these facts in totality, we are of the considered view that such ad hoc addition without any basis cannot be sustained and hence liable to be deleted.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal preferred by the assessee emanates from the order of the ld. CIT(A), Bareilly dated 2/11/2015 on the following ground of appeal:-

1. Ld. Authorities below have erred in law as well as on facts in not appreciating peculiar nature of business and rejecting the explanation of assessee even though books of account are accepted. Thus, addition on account of milling gain is against law.

2. The facts in brief are that the assessee is 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 and assessment completed under section 143(3) of the Act by making the following dis allowance/addition:-

3. From the order of the Assessing Officer, it is noticed that the assessee is carrying on the business of flour mill and trading in food grains. The books of account were produced and have been examined by the Assessing Officer. During the year under consideration, assessee has milled 25584.70 quintals of wheat against which 100% production of finished product was shown. In the flour mill business, according to the Assessing Officer and as appearing in his order, there is increase in wheat of finished products on account of milling gain. This is due to absorption of moisture. However, there is no milling gain shown by the assessee. The assessee was required to explain the reason. The ld. A.R. of the assessee stated that the assessee has produced only Maida and no Atta was produced. The assessee supplies Maida to manufacturers of biscuits in which no moisture is required. Moreover milling gain also depends on the quality of raw material, weather conditions, etc. The assessee also submitted that trading results are based on the books of account. The Assessing Officer, after going through the submission of the assessee, observed and held that it is true that assessee produced Maida only but in other cases where Atta and Maida are produced, milling gain is not only on account of Atta production. Increase in weight of finished product is on account of total production. As such, the contention of the assessee is not fully acceptable and the Assessing Officer has taken the milling gain in the assessee’s case at 0.5%, therefore, assessee milled 25584.70 quintals of wheat. Milling gain @ 0.5% of total consumption comes to 127 quintals of finished products. By applying the selling rate of finished products @ Rs. 1,435/- per quintal, the value of 127 quintals of milling gains works out to Rs. 1,82,245/- which is treated as sale outside the books. Accordingly, an addition of Rs. 1,82,245/- was made to the total income of the assessee.

4. The matter thereafter traveled before the ld. CIT(A) and though the assessee has filed condonation of delay petition as appearing in the ld. CIT(A)’s order, the ld. CIT(A) was not convinced with the reasons in the condonation petition and accordingly he dismissed the appeal of the assessee on the ground of limitation.

5. Being further aggrieved, the assessee is in appeal before us. The ld. A.R. of the assessee at the time of hearing filed a written submission and prayed that his case be decided on the basis of the written submission filed.

6. The ld. D.R. relied upon the orders of the authorities below.

7. We have perused the case record, written submission filed by the assessee and observe that in the assessment order, the Assessing Officer has not brought out any cogent and specific reason regarding milling gain worked out @ 0.5% in the case of the assessee. The Assessing Officer has agreed the fact that assessee is producing Maida only. The assessee has earlier explained to the Assessing Officer that assessee is producing only Maida which was supplied to the biscuit manufacturers, in which no moisture is required. Thereafter, without bringing out any material evidence on record nor citing any comparable cases, the Assessing Officer summarily and on ad-hoc basis taken 0.5% as milling gain in the assessee’s case which, in our considered view, is not warranted in the eyes of law. The Assessing Officer being a quasi judicial authority ought to have recorded specific reason for making any addition in the hands of the assessee.

8. The first appellate authority, whose powers are co-terminus with that of the Assessing Officer, could have deliberated upon the rights and liabilities of the assessee on the very fact that assessee could not attend the hearing because he was medically unwell and relevant evidence was also placed which was not considered by the ld. CIT(A). After perusing the entire case details, we find that this addition is being made by the Department without any enquiry being conducted or without there being any material on record and, therefore, we are of the considered view that the addition made by the Assessing Officer and confirmed by the ld. CIT(A) is without any basis and liable to be deleted. We, therefore, delete the addition of Rs.1,82,245/- made on account of milling gain.

9. Regarding machinery repairing expenses, an amount of Rs. 5,58,302/- has been debited under the head “machinery repairing expenses”. The Assessing Officer, on examination of bills and vouchers relating to expenses, noticed that some of the expenses were not supported with verifiable vouchers and were in cash. Considering the facts and circumstances of the case, he disallowed Rs. 25,000/- on this account and added to the income of the assessee.

10. The ld. CIT(A), since dismissed the appeal on limitation, has not adjudicated upon the issue on merit.

11. On a perusal of the written submission and the case record, we find that the business of the assessee is trading in food grains and producing Maida which is supplied to various biscuit manufacturers. It is common in factory set up that certain repairs and maintenance work are conducted for which vouching is not always possible. These expenses relate to the fundamentals of the assessee’s business and just because they were not vouched, there cannot be any addition. The practical aspects involved in relation to the type of business of the assessee, who is also a tax payer, should be taken into consideration by the Department and taking these facts in totality, we are of the considered view that such ad hoc addition without any basis cannot be sustained and hence liable to be deleted. Accordingly, the addition of Rs. 25,000/-on account of machinery repairing expenses is deleted.

12. In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 11/01/2018.