Income Tax Appellate Tribunal - Panji
The Income Tax Officer, Muktsar vs M/S Sanman Rice Mills,, Muktsar on 18 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND
SH.N.K.CHOUDHRY, JUDICIAL MEMBER
I.T.A. No.455(Asr)/2016
Assessment Year:2012-13
Income Tax Officer, Vs. M/s Sanman Rice Mills,
Ward-II(2), Muktsar. Sadarwala Road, Muktsar.
PAN:AFUPV-2701A
(Appellant) (Respondent)
Appellant by: Sh. Rahul Dhawan (Ld. DR)
Respondent by: Sh. Ashwani Kumar &
Sh. Aditya Kumar (CAs)
Date of hearing: 14.09.2017
Date of pronouncement:18.09.2017
ORDER
PER N. K. CHOUDHRY:
The instant appeal has been preferred by the Revenue Department, on feeling aggrieved against the order dated 20.06.2016, passed by the Ld. CIT(A)-, Bathinda, relevant to the Asst. Year: 2012-13.
2. The Revenue Department has raised the following grounds of appeal.
"(i) The Ld. CIT( A) has erred in no t taking into cons ider ation, the judg ments of Punjab & Haryana H ig h Cour t in the case of M/s B.T. S tee ls Ltd. Vs. C1T, IT A No. 186 of 2004- and f ailing to appreciate the r atio of the judg ment of the jur isd ic tio nal H igh Cour t in the case of Shakun tla Thukr al vs. CIT (366 JTR 644).
( ii) The Ld. CIT(A) has erred in ignor ing that s to ck s tate ments d uly s igned by the assessee were submitte d by the assessee to the bank and the bank as per its procedure go t the sto ck ver if ied.
2 ITA No.455(Asr)/2016Asst. Year: 2012-13 ( iii) The Ld. CIT(A) has erred by f ailing to appreciate that the s tock s tate ment g iven by the assessee to the bank is an ad miss ion and bind ing on the assessee as per sectio n 34 of the Ev idence Ac t in v ie w of the judg men t of the Hon'ble Supre me Cour t in the case of Chuhar mal V s. C1T'(1998) 172 IT R 250(SC) where in it was held that salu tary pr inciple of common law jur ispr udence imbedded in sectio n 110 of Evidence Act co uld be applie d to the tax atio n proceed ings.
( iv) The Ld. CIT( A) has erred by f ail ing to appreciate that the onus was on the assessee to prove the d if f erence on s to ck and rebu t the presumption of und is closed s tock as submitte d to the Bank and that assessee had f aile d to d ischarge this onus.
(v) The Ld. CIT (A) has erred by f ail ing to appreciate that the assessee was no t at libe r ty to supply two d if f erent se ts of inf or matio n at the s ame time to the bank and the I.T. Depar tmen t and such conduct wo uld co mpe l an inf erence that assessee was no t sho wing his correct inco me so me thing he was leg ally bound to do."
3. The brief facts of the case are as under:
The brief facts of the case are that return of income was filed by the assessee on 29.09.2012 declaring an income of Rs.5,91,940/-. Subsequently, the case was selected for scrutiny under CASS with remarks "Large increase in unsecured loans". It is submitted that the assessee is running a rice sheller at Muktsar. During the course of assessment proceedings it was found that the assessee has shown GP at 11.36% & NP at 0.37% as compared to the last year i.e. 12.58% and 0.28% respectively. As the gross profit and net profit were found lower than that of last year, the assessee was asked to file the justification regarding manufacturing of rice, trading, stock quantity and rate submitted to the bank on 31.03.2012, claiming of depreciation, interest, bonus and non charging of interest on advances. The assessee filed reply dated 24.03.2015 stating that the separate accounts are not possible. It is also submitted that detail of hypothecated by the assessee to the bank were also 3 ITA No.455(Asr)/2016 Asst. Year: 2012-13 called for u/s 133(6) from Punjab National Bank, Muktsar. It is submitted that on examination of bank statement of valuation of stock it was noticed that there is a huge difference in the value of stock as per books of account of the assessee as reported in the audit report as per bank assessment. The assessee also stated that the figures for valuation of stock as made in the stock statement furnished to the bank were on estimated basis keeping in view the future profit and in order to avail excess overdraft. The figure are imaginary and figure mentioned in the income tax return are real the reply of the assessee was found not convincing. Accordingly, the difference in value of stock works out at Rs.1,37,95,965/- as per books of account and as reported in the audit report and as per bank statement. Accordingly, a reliance was also made on the case of Smt. Shakuntla Thukral Vs. CIT reported in 366-ITR-644(P&H) wherein the Hon'ble High Court has upheld the addition on account of difference in the value of stock shown by the assessee in the statement given to the bank vis-a vis the stock shown in the books of account. Accordingly, an addition of Rs.1,37,95,965/- was made to the returned income.
It was also submitted that on examination of the trading and profit & loss account it was noticed that the assessee has debited huge expenses on account of labour, daily wages labour and machinery repair and misc. expenses. The assessee also not shown any sale of scrap during the year and the vouchers produced for these expenses were found self prepared and the satisfaction of the same could not be authenticated. Accordingly, a disallowance of Rs.1,00,000/- was also made and added to the income.4 ITA No.455(Asr)/2016
Asst. Year: 2012-13 It is also submitted that during the course of assessment proceedings on examination of profit & loss account it was also noticed that the assessee has debited car expenses at Rs.86,505/-, dep. Car at Rs.2,30,918/-, Mobile Expenses at Rs.1,00,836/- and telephone expenses at Rs.9932/-. Out of these expenses an addition of Rs.71,365/- was also made to the income returned.
In view of the above facts the total income was assessed at Rs.1,45,59,270/- vide order u/s 143(3) dated 28.03.2015. A demand of Rs.58,93,350/- was created. The penalty proceedings u/s 271(1) (c) for furnishing of inaccurate particulars of income were also initiated.
4. On feeling aggrieved against the order passed by the Assessing Officer, the assessee preferred to file the first appeal before the Ld. CIT(A), who while deleting the addition made by the Assessing Officer observed as under:
"That in the instant case there is no difference in the quantity of stock statements submitted to the bank and the appellant's books. There is only difference in the value of stock in respect of four items viz. (i) Basmati Paddy (ii) Basmati Rice (iii) Sela Rice (iv) Raw Rice, which difference has been worked out of Rs.1,37,95,965/- It is also an admitted fact that the appellant's stock was hypothecated and not pledged with the bank in as much as the stock was in the possession of the appellant and not of the bank. In hypothecation statements only approximate figures are furnished for the stock to be shown to cover the hypothecation loans. The said figures cannot be considered to be sacrosanct or be taken at their face value to be true and correct as they are neither counted, nor verified or actually measured by the financing Bank. Bankers normally do not take objection to the 5 ITA No.455(Asr)/2016 Asst. Year: 2012-13 estimated ballpark figures as the loans taken are otherwise secured by other securities offered by the loan takers. It is also not in dispute that when estimated figures are submitted to the bank for hypothecation purposes only, they are generally inflated to get accommodation. The Ld. CIT(A) has held that the decision of Hon'ble Punjab & Haryana High Court in the case of Smt. Shakuntla Thakral reported in [2014] 366 ITR 644 is not applicable in the case of the appellant assessee. Accordingly, the addition of Rs.1,37,95,965/- made to the income of the assessee has been deleted.
However, the Ld. CIT(A) has sustained the adhoc and estimated additions of Rs. 1 lac of and Rs. 71,365/- made on account of being reasonable in view of marginal dip in the GP and NP figures in the year under consideration as compared to the immediately preceding assessment year.
5. The Revenue Department preferred to file the instant appeal against the order passed by the Ld. CIT(A). In support of its appeal, the Ld. DR submitted that the details of stock hypothecated by the assessee to the bank was called for and on examination of banks statements valuation of stock it was noticed that there was huge difference in the value of stock as per books of account of the assessee as reported in the audit report and as per bank statements. The assessee submitted that the figures for valuation of stock as made in the stock statements furnished to the bank on estimated basis keeping in view the future profit and in order to avail excess overdraft. The stock statements submitted to the bank were duly signed by the 6 ITA No.455(Asr)/2016 Asst. Year: 2012-13 assessee and there is nothing mentioned in these statements that these are estimated figures. The figures are imaginary and figure mentioned in the income tax return are real. Accordingly, the AO has rightly inferred that there was something wrong in the books of account of the assessee and the assessee has with hold the information for the reason best known to him.
The Ld. DR also submitted that the Ld. CIT(A) has erred in holding that the assessee's stock was hypothecated and pledged with the bank as much as the stock was in the possession of the assessee and not of the bank. In the hypothecated statements only approximately figures are furnished for the stock to be shown to cover up the hypothecation loans and the said figures cannot be considered to be sacrosanct or be taken at their face value to be true and correct as they are neither counted, nor verified or actually measured by the financing Bank. It is submitted that the difference of Rs.1,37,95,965/-
was correctly worked out as per details as per books of account as reported in the audit report and as per bank statements as mentioned in the assessment order. Accordingly, the decision of Hon'ble Punjab & Haryana High Court in the case of Smt. Shakuntla Thakral reported in [2014] 366 ITR 644 was rightly relied upon by the AO.
6. On the contrary, the Ld. AR relied upon the order passed by the CIT(A) and submitted that order under challenge is reasonable, logical 7 ITA No.455(Asr)/2016 Asst. Year: 2012-13 and best on facts and circumstances, therefore, does not deserve to be interfered with.
7. We have gone through with the facts and circumstances of the case, as recently this Bench has already dealt with the similar and identical issue in the case of ITO vs. M/s. Jain Industries, in ITA No.450(Asr)/2016 for Asst. Year: 2012-13. For the sake of convenience and brevity the finding part of the said order is reproduced herein below.
"8. We have heard the rival parties and have gone through the material placed on record. We find that the first ground of appeal filed by Revenue is that the ld. CIT(A) had not followed ratio of judgment of jurisdictional High Court in the case of Smt. Shakuntala Thakral Vs. CIT, [2014] 366 ITR 644. We find that ld. CIT(A) has clearly distinguished the facts of the present case with the fact of the case law relied upon by Assessing Officer. He has held that books in the case of Smt. Shakuntala Thakral Vs. CIT, [2014] 366 ITR 644 were not found to be accurate by Assessing Officer because of the specific defect in non recording of sales. He has further held that in that case stock statement field on 4.7.2007 was replaced by another stock statement which established that no stock inventory was prepared as on the close of the year. He has further held that in that case of Smt. Shakuntala Thakral Vs. CIT, [2014] 366 ITR 644, she herself had not disputed that the value of stock as submitted to the Bank was actually laying in the business premises as on 31.03.2005. It was further held by ld. CIT(A) that reports of physical inspection carried out by bank authorities in respect of Smt. Thakral's stock at quarterly interval was available for the perusal of the AO and the appellate authorities. As regards the case laws of B.T. Steels as relied on by Ld. DR, we find that in that case the stocks were physically verified by the regional office of Bank and assessee was not able to give explanation for the difference whereas in the present case there is no difference in the quantitative tally and difference is only on account of adoption of Higher rates for same quantity which was submitted to Bank Authorities. For the sake of completeness the quantitative tally as per books and as submitted to Bank alongwith its valuations as recorded by Assessing Officer at page 2 of his order is reproduced below.
8 ITA No.455(Asr)/2016Asst. Year: 2012-13 Information as per Bank as on 31-03-2012 Information as per audit report as on 31-03-
2012
Item Quantity Rate (in Rs. Amount (in Rs.) Quantity Difference
Sr. (inqtls.) (inqtls.)
No. Rate (in Rs.) Value (in Rs.)
Paddy 7320 1400 10248000 7320.50 1230 9004215 1243785
1. PR
16390 36058000 1 6406.20 27562416 8495584
2. Basmati 2200 1680
Paddy
3. 1750 1900 3325000 1750.20 1625 2844075 480925
Rice
Raw
10220294
Moreover, we find that Amritsar Bench of Hon'ble ITAT in its order dated 07.02.2016 in the case of Baba Farid Solvex Pvt. Ltd. after considering the case law of Smt. Shakuntla Thakral (supra) has decided the issue in favour of assessee. In view of the above, the first ground of appeal taken by Revenue does not hold any force.
9. Now coming to the addition, we find that the ld. CIT(A) has relied upon the judgment of Hon'ble Punjab & Haryana High Court in the cases of Santosh Box Factory; (ii) Sidhu Rice Mills; and (iii) M/s. Devi Dayal Rice Mils. The ld. CI T(A) has also held that in these judgments there was a clear unanimity of the opinion to the effect that stock in the statement made before the Bank for hypothecation purposes cannot be held against the assessee. We find that Hon'ble Punjab & Haryana High Court in the case of Sheena Exports in IT A 382 of 2011 has held that value furnished to the bank without any detail or verification by the bank may not constitute the basis to make additions in the face of other evidence to the contrary. We further find that in the present case Assessing Officer did not point out any discrepancies in the books with reference to purchase sale or closing stock. The Amritsar Bench of Tribunal in the case of Baba Farid Solvex (Pvt.) Ltd has followed the case of Ishar Infrastructure Development (Pvt) Ltd. in I TA No. 198(Asr)/2013. The findings of the Tribunal in the case of Ishar Infrastructure Development (P) Ltd. are reproduced herein below.
"24. It is a fact on record that the credit facility has been extended by the Bank to the assessee against the hypothecation of stock and not against pledge of stock, in which the control and possession of the stock remained with the assessee.
25. The AO has not pointed out any discrepancy in the books of account or purchase/sales or has not brought on record to prove that extra purchases have been made by the assessee at any point of time. The books of account of the assessee are audited is not 9 ITA No.455(Asr)/2016 Asst. Year: 2012-13 under dispute and no defect by the auditor has been pointed out. It is the real income which can be taxed, whereas in the present cases all the additions are made on conjectures and surmises.
26. Time and again before both the authorities below, the ld. Counsel for the assessee has submitted the explanation that the statement has been submitted before the Bank Authorities only on estimated basis to avail of the bank loan and there is no other purpose. This contention of the assessee has not been rebutted at any point of time by the AO or by the ld. DR. It is a fact that the AO as not pointed out any defects in the books of account and in fact, the AO has not invoked the provisions of section 145(3) of the Act. As argued by the Ld. DR that cash credit limit is calculated on the basis of DP register, which in turn is maintained on physical verification of the stock and no documentary evidence has been brought on record that the stock mentioned in the .DP register by third party i.e. Bank Authorities, has been maintained on physical verification of the stock, maintained by the assessee at different cities in different States.
27. The AO has much relied on the decision in the case of Devgan Rice & General Mills (supra). The issue before the Hon'ble Punjab & Haryana High Court, in the case of Devgan Rice & General Mills (supra) was with regard to the proceedings u/s 148 of the Act and whether the said proceedings u/s 148 of the Act could be initiated on the basis of information regarding inflating the value of the stock in the bank statement was received from the bank after completion of assessment u/s 143(3) of the Act.. The Hon'ble High Court has held that the reopening in such cases can be done. However, the decision of Hon'ble Punjab & Haryana High Court in the case of Devgan Rice & General Mills (supra) was with regard to a different context and did not prove that the assessee had made unexplained investment u/s 69 of the Act.
28. Much reliance has been placed by the ld. DR on the decision of the Hon'ble Punjab & Haryana High Court in the case of Smt. Shakuntla Thukral vs. CIT reported at 366 ITR 644. As required order of the CIT(A) in the case of Shakuntla Thukral was placed on record by the party and on perusal of the same in para 2.11 to 2.18 and at page 4 of CIT(A)'s order, it was found that the books of the assessee were not accurate because of specific defect of non- recording of sales in the books of account .pointed out. In para 2.8 at page 6 of CIT(A)'s order in the case of Shakuntla Thukral, stock statement filed on 04.07.2007 has been replaced by other stock statement which establishes that no stock inventory was prepared at the close of the financial year, whereas there are no such finding by the AO in any of the present appeals.
29. Further, in the case of Shakuntla Thukral (supra), the ld. CIT(A) has recorded finding at para 2.11 (page 24), of the order that the higher stock as on 31.03.2005 was given for the purpose of making payment for import of machinery cannot be accepted as the payment for purchase of machinery had already been released in 10 ITA No.455(Asr)/2016 Asst. Year: 2012-13 February, 2005. In para 2.12.1 (Page 25) of ld. CIT(A)'s order, it has been perused that tat there are reports of physical inspection carried out by the bank authorities in respect of assessee's stock at quarterly intervals is availale and such findings has not been rebutted before the ITAT or before the Hon'ble High Court. But in the present case in view of our findings hereinabove, nothing has been established that physical inspection of the stock has been carried out as per facts on record. Further, in para 2.12.2 (page 25), of CIT(A)'s order in the case of Smt. Shakuntla Thukral (supra), it has been stated by the ld. CIT(A) that the assessee has not disputed the stock of the value which was submitted to the bank was actually lying in business premises as on 31.03.2005. But in the present appeal the assessee all along before the AO and the ld. CIT(A) and before us stating that the stock was inflated to get the cash credit limit from bank. Thus, in the case of Smt. Shakuntal Thukral (supra), the AO after pointing out defects in the books of account of the assessee a categorical finding has been given that the books of account are not accurate and meaning thereby that the books of account were rejected. But in the present appeal, there is no such finding by the AO and no books of account have been rejected and provisions of section 145(3) have not been invoked. In the case of Smt. Shakuntla Thukral (supra), the ld. CIT(A) has relied upon the physical inspection carried out by the bank authorities in respect of assessee's stock at quarterly intervals, as mentioned hereinabove and such findings have neither been rebutted before the ld. CIT(A) or ITAT or Hon'ble High Court. But in the present case, the assessee has established that no physical inspection of the stock has been carried as per facts on record.
30. Further and finally, in the case of Shakuntla Thukral (supra), the ld. CIT(A) has recorded the finding that the assessee has accepted that fact that the stock as per stock statement as on 31.03.2005 was lying in the premises of the assessee.. But in the present appeal, the assessee all along stated before the authorities below and before us that the stock was inflated to get the cash credit limit from bank and the onus is on the Revenue to prove that the assessee owned the stock more than the stock reflected in the balance sheet as on 31.03.2005, which has not been done in any of the case referred to hereinabove.
31. In view of the above discussion, the decision of Smt. Shakuntla Thukral (supra) as relied upon by the ld. DR is not applicable to the facts and circumstances of the present case.
32. The decisions relied upon by the ld. CIT(A) of the Hon'ble Punjab & Haryana High Court, in the cases of M/s.Santosh Box Factory, M/s. Sidhu Rice Mills and in the case of M/s. Devi Dayal Rice Mills are squarely applicable to the facts of the present case as the Revenue as the Revenue has not brought on record during the assessment proceedings or before the ld. CIT(A) or even before us that physical verification of the stock has actually been 11 ITA No.455(Asr)/2016 Asst. Year: 2012-13 done and accordingly stock statements so submitted before the bank authorities and DP register cannot be relied upon.
33. In the case of CIT vs. Veerdip Roller (P) Ltd. (2010) 323 ITR 341 (Guj), the facts are that the AO made addition on account of difference in the value of closing stock furnished to the bank and the value of the stock found in the books of account furnished to the Income Tax Authorities - inflated stock was hypothetical and not pledged and the bank officials had not verified the statement showing inflated stock so produced by the assessee. The addition on account of difference furnished to the bank as per books of account u/s 69B of the Act can not be sustained. Consequently, the appeal was dismissed by the Hon'ble Gujrat High Court against the said decision, the Revenue went in appeal before the Hon'ble Supreme Court and the Hon'ble Supreme Court vide its order dated 13.12.2008 dismissed the SLP filed by the department.
34. Similar decisions have been made by various courts of law referred to hereinabove:
i) CIT vs. Sidhu Rice & General Mills reported in 281 ITR 428 (P&H)
ii) CIT vs. Santosh Box Factory (P) Ltd.., 44 IT Reps. 472 (P&H)
iii) CIT vs. N. Swamy reportede in 241 ITR 363 (Madras)
i) ITO vs. Devi Dayal Rice Mills reported in 75 TTJ 24 (ITAT, Amritsar Bench.
ii) CIT vs. Sirohi Steel Rolling Mills, reported in 200 CTR 595 (All.)
iii) Ashok Kumar vs. ITO, reported in 201 CTR 178 ( J & K)
iv) CIT vs. Das Industries, reported in 303 ITR 199 (All.)
v) CIT vs. Sri Padmavathi Cotton Mills, reported in 236 ITR 340 (Mad.)
vi) Jai Sharda Rice Mills. Vs ITO reported in 36 ITD 254 (ITAT, Asr.)
vii) CIT vs. Riddhi Steel and Tubes (P) Ltd. reported in 220 Taxman 148 (Guj.)
viii) CIT vs. Apcom Computers P. Ltd. reported in (2007) 292 ITR 630 (Mad.).
In view of the facts and circumstances as above, and in view of the judicial precedents, we do not find any infirmity in the order of ld. CI T(A), therefore, the appeal filed by the Revenue is dismissed."
12 ITA No.455(Asr)/2016Asst. Year: 2012-13 Hence, considering the facts and circumstances of the instant appeal and of the aforesaid order are identical and similar, therefore, the appeal of the Revenue Department is dismissed.
7. In the result, the appeal filed by the Revenue Department stands dismissed.
Order pronounced in the open Court on 18.09.2017.
Sd/- Sd/-
(T. S. KAPOOR) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:18.09.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By Order