Gujarat High Court
Commissioner Of Income Tax-Ii vs Standard Tea Processing Co on 4 April, 2013
Author: Akil Kureshi
Bench: Akil Kureshi
COMMISSIONER OF INCOME TAX-II....Appellant(s)V/SSTANDARD TEA PROCESSING CO LTD....Opponent(s) O/TAXAP/966/2010 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 966 of 2010 ================================================================ COMMISSIONER OF INCOME TAX-II....Appellant(s) Versus STANDARD TEA PROCESSING CO LTD....Opponent(s) ================================================================ Appearance: MR MR BHATT, SR. ADV. WITH MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR JP SHAH WITH MR MANISH J SHAH, ADVOCATES for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 04/04/2013 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal ( the Tribunal for short) dated 31.7.2009 to the extent the same is against the Revenue. Following questions have been raised for our consideration:
A. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) in deleting the addition of Rs.19,08,28,714/- made on account of inflated purchases?
B. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) in deleting the addition of Rs.1,36,21,468/- made on account of sale of scrap?
Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) in deleting the addition of Rs.23 lakhs made on account of unaccounted stock?
D. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) in deleting the addition made on account of unaccounted investment of Rs.19,650/-?
At the outset, we may record that question D pertains to an amount which is extremely small. Such question, only on that ground, is not examined.
Questions A and B though relate to different commodities involve similar factual and legal considerations. They have, therefore, been taken up together for the purpose of discussion in this order. We may confine the scrutiny of facts as relate to question A. Such issue arises in the backdrop of following broad facts.
Respondent-assessee is engaged in the business of processing and selling tea through various sources. For such business, the assessee makes large scale purchases through various sources. During the search operations carried out on 29th July 1998, the Revenue authorities seized several documents and materials. On the basis of such documents and materials, the Assessing Officer examined the question of the purchase price paid by the assessee for various grades of tea purchased through different sources. He painstakingly analyzed the material and came to the conclusion that the assessee had on various occasions paid unusually high purchase price when such commodity was purchased through Pratima Traders. He compared the purchase price paid by the assessee for such goods of the same grade when purchase was made directly. The Assessing Officer, therefore, was of the opinion that Pratima Traders was only a front and the assessee had inflated artificially the purchase price of the commodity in order to eventually suppress the profit. These unusual activities were noticed by the Assessing Officer for the period between 1st April 1998 till the date of search. The Assessing Officer, discarded the assessee s several contentions, such as, that Pratima Traders retained only a small portion of cost by way of commission and cost of certain services in the nature of transport, etc. was borne by the broker, and so on. Be that as it may, to the extent the Assessing Officer made additions on the basis of such findings for the period between 1.4.98 till the date of search, the Tribunal ultimately retained the additions. With respect to such additions, we are not concerned with in this appeal. We may, however, notice that the assessee has independently challenged such additions in their Tax Appeals and such appeals are admitted.
We are, therefore, confining our observations to the extent the Tribunal confirmed the CIT(Appeals) order reversing the order of the Assessing Officer. Such portion relates to the Assessing Officer s action of making additions for the entire block period on the premise that the modus operandi of purchasing tea at artificially high price through Pratima Traders would have continued for the entire period. On such premise, the Assessing Officer projected the possible purchases through such agency and the resultant possible tax suppression. It was this element of the Assessing Officer s order which the CIT (Appeals) reversed. The Tribunal also upheld the order of the CIT (Appeals). We may notice the observations of the Tribunal in this regard:
19. We find that as a result of amendment made (w.e.f. 1.07.1995) in section 1558BB by the Finance Act, 2002, the provisions in Chapter VI-A should be taken into consideration in determining the undisclosed income of the block period and the section 158BB(1) has been amended to clarify that the block assessment of undisclosed income is based on the evidence found in the search and material, or information gathered in post search inquiries made on the basis of evidence found in the search. In view of the above legal position, when c-related with the facts of the present case, it is a fact that the AO found from the seized material that the purchases of tea from April 1998 to July, 1998 show the instance that the private garden purchases at a price which is 10 to 15% higher than the price prevailing in auction and majority of purchases, i.e. roughly more than 90% of the total purchase are made from M/s.Pratima Traders. The Assessing officer after analyzing the seized material of purchases found from the assessee for the period April, 1998 to July 1998, re-worked the inflated price by enhancing from 2 to 8% in financial years 1993-94 to 1998-99 and accordingly estimated the inflation of purchase price at Rs.12,99,98,281/- Similarly, the AO by assuming the approximate inflation at 5% for the period prior to financial year 1993-94, falling in the block period, estimated the inflation in purchase price at Rs.6,08,30,488/-. Accordingly, the AO made addition of undisclosed income on amount of inflation in purchase price of Rs.19,08,28,714/- for the block period. We find that the AO has estimated the inflation in purchase price for the entire block period on the basis of seized documents for the period April 98 to July 98 and reworked the inflation in purchase price and made addition to the above legal and factual position. No doubt, the Assessing Officer can make reasonable estimate on the basis of seized material relatable to the evidences and information. Accordingly, the Assessing officer at the best can estimate the inflation in price on the basis of seized material for the year starting from April to the datge of search as there is relatable material, which is found during the course of search. Even from mere reading of amendment made (w.r.e.f. 1.07.1995) in section 158BB by the Finance Act, 2002, the provisions in Chapter VI-S is very clear that while determining the undisclosed income of the block period, the provisions of section 158BB(1) has been amended to clarify that the block assessment of undisclosed income is based on the evidence found in the search and material, or information gathered in post search inquiries made on the basis of evidence found in the search. When co-related with the facts of the present case, it is a fact that the AO found from the seized material that the purchases of tea from April 1998 to July 1998 show the instances that the private garden purchases at a price which is 10 to 15% higher than the price prevailing in auction and majority of purchases, i.e. roughly more than than 90% of the total purchases are made from M/s.Pratima Traders even the Ld. Counsel for the assessee has also made the alternative plea for assessing the undisclosed income on the basis of seized materials for the period to which the seized materials pertains, which is for the period April to July 1998. Accordingly, we direct the Assessing Officer to recompute the undisclosed income from the period 1st April 98 to 16th July 98 on the basis of inflation in purchase price and make addition accordingly. This issue of the Revenue s appeal in IT(SS)A No.107/Ahd/2002 is partly allowed as indicated above.
We are broadly in agreement with the view of the Tribunal noted above. It may be that on the basis of the seized material for a certain period, during the part of the block period, certain additions were made by the Assessing Officer. In the present case, however, such materials admittedly related to a brief period between 1.4.98 till 29.7.98. Thereafter, for the entire block period to extrapolate the same basis of modus operandi, that too without any basis or material from the seized documents, in our opinion, was simply not permissible. The Assessing Officer, presumed several things such as, the continued purchase by the assessee through the same agency at artificially inflated price. He also projected the rate at which such higher purchases were made for the said period about four months in absence of any evidence that such activities continued for the entire block period. In other words, in absence of any documents found during search to even link the assessee s activities for the entire period, to project by way of extrapolation the facts found during the brief period of about four months would not be permissible and rightly so held by the Tribunal.
Similar facts arise with respect to question B, but with respect to different commodity. No separate discussion is therefore necessary.
Question C pertains to excess stock allegedly found at the time of search. The Assessing Officer found that such stock was unaccounted and therefore made addition of Rs.23 lacs. In further appeal, however, CIT (Appeals), after calling for remand report deleted the same finding that the same was duly accounted for. The prime contention of the assessee was that such stock represented the on account stock supplied by the suppliers. After full verification and also enabling the Assessing Officer to comment on the additional evidence produced by the assessee, the CIT (Appeals) made the deletion. The Tribunal upheld such findings observing as follows:
28. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the Assessing Officer in this remand report submitted vide dated 07.02.2001 has stated that the assessee has submitted the explanation in respect of stock found at other places have already been considered during the course of assessment proceedings. We find that the AO has noted from the contentions of the assessee that the majority of the stock of the goods received on approval basis and this practice of goods on Jangad is prevailing since inception and regular records are maintained for such goods and he also noted that in respect of these goods, goods inward receipt is prepared with the market Jangad and such note are kept in book form and serially pre numbered when such goods are accepted separate GRN is prepared and thes ame entered into stock register. He also noted that the assessee has slao submitted a statement showing the details of goods received on approval basis which indicate Jangad slip number, receipt date, quantity in kgs.
etc. and the assessee has also submtited that such Jangad slip number are between 9851 to 9950. He noted the argument of the assessee that in many cases the Jangad goods are accepted subsequent but before the date of search and the some were reflected in the stock at the time of search. The AO, accordingly considered the submissions of the assessee and stated that he assessee may be flowing a regular system of accepting goods on approval basis and maintaining such records but the fact which still remained that at the time search the discrepancies were not explained by the assessee and all these records produced after wards which cannot be relied upon. In view of this uncontroverted facts that the assessee has received the goods on approval basis and the same was lying in the stock at the time of search, the CIT(A) has rightly deleted the addition and we confirm the same. This issue of the Revenue s appeal is dismissed.
The entire issue is based on facts and appreciation of evidence on record. When two authorities concurrently found that the stock was duly explained, we see no question of law arising.
In the result, Tax Appeal is dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) (vjn) Page 7 of 7