IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN MONDAY, THE 25TH JULY 2011 / 3RD SRAVANA 1933 ITA.No. 330 of 2010() --------------------- AGAINST THE ORDER DATED 08/01/2008 IN ITA 77/COCH/2006-2007(2003-04) of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT IN ITA ----------------------------------------------- PARRISONS ROLLER FLOUR MILLS (P) LTD., CHEROOTY ROAD, CALICUT. BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH SMT.PREETHA S.NAIR RESPONDENT/APPELLANT IN ITA ------------------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, CALICUT. BY ADV. SRI.JOSE JOSEPH, SC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ALONG WITH ITA NO.313/2010 & CONN. CASES ON 25/07/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX(ITA 330/2010) ANNEXURE A: TRUE COPY OF ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2003-04 DT.17.3.2006. ANNEXURE B: TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DT.10.10.2006. ANNEXURE C: TRUE COPY OF ORDER DT.8.1.2008 OF INCOME TAX APPELLATE TRIBUNAL. ANNEXURE D: TRUE COPY OF ORDER IN MISCELLANEOUS PETITION PASSED BY THE INCOME TAX APPELLATE TRIBUNAL DT.31.3.2010. ANNEXURE E: TRUE COPY OF THE CERTIFICATE DT.28.12.2005 OF THE CFTRI, MYSORE ISSUED TO THE APPELLANT. TRUE COPY P.S. TO JUDGE C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal Nos.330,313,314,318,321,327, 331 & 337 of 2010, 1656,1657,1666, 1667 & 1688 of 2009 .................................................................... Dated this the 25th day of July, 2011. JUDGMENT Ramachandran Nair, J. The common question arising in the connected cases pertaining to two assessees is with regard to reduction in the percentage of production loss claimed by the assessees who are flour mills. We have heard Sri.A.K.Jayasankar, counsel appearing for the appellants and Standing Counsel appearing for the Income Tax Department. 2. Most of the assessments are made under Section 153A after conducting search in the premises of the assessees and after recording statements from employees. The percentage of production loss claimed by Parrisons Roller Flour Mills is 2.87%, whereas the officer allowed only 1%. In the case of Yenkey Roller Flour Mills, the claim was 2.44% and the Assessing Officer allowed 1.57%. Counsel for the assessee contended that the Tribunal has no justification to disallow the percentage of loss claimed because during inspection department could ITA 230/10 & conn. 2 not detect any unaccounted production or sale by the assessee. Further, counsel has relied on other orders of the Tribunal and even assessment orders in the case of similar assessees, where the loss allowed is ranging from 2.05% to 2.42%. Counsel for the assessee pointed out the yardstick applied by the Tribunal in allowing production loss in the case of different assessees. He has also pointed out that while the Assessing Officer allowed 1.57% loss in one case, in the other case he has allowed only 1% which itself is arbitrary and indicative of irrational basis adopted for estimation of output. 3. Standing Counsel appearing for the Revenue contended that the main loss suffered by Flour Mills is the refraction loss which is the loss arising in the original processing of raw wheat which contains impurities. According to Standing Counsel, the assessee's claim of refraction loss is only 3% and the same is allowed in full. The department's main case is that the entire refraction loss is made up by making addition of water of 3 to 4% which goes into the product as moisture content which is retained in the product and so much so, the output should be only more than the input by weight. However, ITA 230/10 & conn. 3 counsel for the assessee has relied on the certificate issued by the Central Food Technological Research Institute, Mysore, wherein they have stated that output in the case of wheat products may range from 95 to 102% depending on the quality of wheat. 2. After hearing both sides and after going through the records, we are of the view that the input output ratio in respect of wheat products will essentially depend on the quality of wheat. We certainly find force in the contention of Revenue that refraction loss is made up by water addition and the fact that wheat product retains the moisture content when sold is also admitted by the assessee. However, counsel for the assessee rightly pointed out that in the course of packing and in manufacturing process itself there is likelihood of loss and the only reason for making disallowance is that assessee has not accounted quantity loss at each stage of production, which according to the assessee, is not required at all. After hearing both sides we feel this is certainly a case for remand because Tribunal has not considered the statements recorded from the employees, the orders issued and the claim allowed in similar cases. Further, the department also did not ITA 230/10 & conn. 4 choose to conduct trial production under their supervision which would have established the input output ratio by weight. However, we feel for the sake of finality we can modify the orders of the Tribunal by capping wastage at 2% in both the cases. In other words, input-output ratio should be adopted at 100-98. The Assessing Officer will revise the assessments reducing the disallowance to the above extent. Appeals are allowed in part as above. However, we make it clear that the percentage of loss allowed in this case should not be treated as either industrial average or rate of loss applicable in all cases which is certainly a varying factor depending on the quality of wheat used in manufacture, age of the machine and manufacturing and packing process engaged. Sd/- C.N.RAMACHANDRAN NAIR Judge Sd/- P.S.GOPINATHAN Judge True copy P.S. to Judge pms