The Dy. Commissioner of Income Tax, Amritsar. V. M/s New Bharat Rice Mills, BATALA

ITA 107/ASR/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2483 (ITAT-AMRITSAR)
• Duration Of Justice: 5 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 22-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Corroborative evidences; Non passing of speaking order; Set aside
• Section: 143(3); 69B; 201; 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 107/Asr/2017 Assessment Year: 2012-13 Deputy Commissioner of Income Tax, Circle-2, Amritsar [PAN: AACFN 5002H] Vs. M/s New Bharat Rice Mills, Faizpura Road, Batala (Appellant) (Respondent) Appellant by : None Respondent by: Sh. Ram Mohan Singh, CIT-DR Date of Hearing: 26.04.2022 Date of Pronouncement: 12.05.2022 ORDER Per Anikesh Banerjee, JM: The instant appeal was filed by the Revenue against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Amritsar [in brevity the CIT(A)], bearing Appeal No. 33/2015-16 dated 30.11.2016 u/s 250(6) of the Income Tax Act, 1961 [in brevity the Act], in respect of Assessment Year 2012-13. 2. The grounds of appeal is raised by the Revenue is as under: “1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is justified in deleting the addition of Rs.4,23,32,795/- made by the AO on account of under valuation of closing stock of rice. 2. While deleting the addition, the Ld. CIT(A) has not appreciated the facts that quality of rice is not mentioned in stock register maintained by the assessee, ITA No. 107/Asr/2017 DCIT v. New Bharat Rice Mills 2 purchase bills, most of sale bills, stock statement furnished to the bank and audit report filed by the assessee. 3. When the quality wise stock of Rice/Paddy is not maintained properly, then how it was possible to ascertain quantity of stock, quality wise at any point of time which further defies the very purpose of maintaining books of account especially in the case of this assessee who is dealing in different qualities of rice/paddy. 4. The Ld. CIT(A) has not put light on the fact that the quantum of opening stock of broken rice at 45725 qtls. seems disproportionate considering the fact that the production of broken rice in one year is only 7819 qtls. To add further, this ultimately affects the quantum of closing stock of broken rice. 5. The appellant craves leave to add, amend, modify or delete any or more ground(s) of appeal.” 3. Brief fact of the case is that the Revenue agitated the grounds related and deleting all the additions of under valuation of closing stock amount of Rs.4,23,32,795/- by the ld. CIT(A). The assessee is a rice seller. The ld. AO is aggrieved about the improper maintenance of stock register by the assessee-firm. As per the ld. the assessee-firm did not maintain the stock register on basis of quality of rice. As per revenue the assessee-firm was unable to explain the valuation of closing stock of rice on quality wise. The assessee-firm submitted item-wise closing stock before the ld. Assessing Officer. But unable to produce quality-wise closing stock before the ld AO. But the assessee maintained quality wise stock of paddy. A valuation report on closing stock was received by the ld. AO from bank. The assessee-firm calculated the average rate of rice in stock statement which was furnished in the bank by the assessee-firm. This said report was considered by the ld. AO as mother valuation. Accordingly, revalued the closing stock of rice & paddy amount to Rs. 27,44,91,196/- as against valuation declared by the assessee amount to Rs.23,21,58,401.29. As a results the valuation ITA No. 107/Asr/2017 DCIT v. New Bharat Rice Mills 3 of excess closing stock amount of Rs.4,23,32,795/- was added with the total income of the assessee. 4. Aggrieved assessee filed an appeal before the ld. CIT(A) and the ld. CIT(A) has deleted the entire additions of the assessee-firm. 5. Aggrieved Revenue filed an appeal before us for further adjudication. 6. The ld. CIT-DR argued against the deletion of the addition of excess valuation of closing stock amount of Rs. 4,23,32,795/-. Reliance was placed in the order of ld. AO which is reproduced as under: “H). The assessee has been furnishing stock statements to the bank wherein it has been giving quality wise details of paddy but no quality wise detail of Rice has been given in any of the monthly stock statement furnished by the assessee to the bank. Even in the Stock Audit Report, Auditor has not been able to show the quality of Rice lying at its premises at the time of his visit and he too had given the report of Rice (Without mention of any variety). Thus, it becomes clear that there the assessee has been maintaining no quality-wise day to day details of Rice. I). The assessee has shown during the year Broken rice of Paddy 1121 only and no Broken Rice in respect of Paddy Parmal and Sharbati. Thus, it is clear that the valuation adopted by the assessee is totally imaginary and is far removed from reality. In view of the above discussion, I am entirely satisfied that trading version of the assessee is not reliable and as such the same is rejected. The only inescapable conclusion of the above discussion is that the assessee has under-valued its closing stock or to vary the narration it has adopted an imaginary figure of closing stock squarely with a view to minimizing its tax liability. It has claimed that it had consistently been following the same method of valuation of its closing stock but I wonder what method it has deployed. There is no pattern, no method, no coherence and only cut and paste of Bills of certain parties have been adopted for showing the valuation at the desired figure. The Stock Register in itself falsifies the whole of the claim of the assessee as regards the authenticity of its Closing stock. The assessee has no explanation as to how the quality of stock which remained with it at the close of the year was the same as purchased from the parties which have been shown in the Closing stock valuation. The other potent factor which belies the claim of the assessee is that the purchase bills which the assessee has adopted for its closing stock valuation carry no mention of the quality of Rice. No basis of the ITA No. 107/Asr/2017 DCIT v. New Bharat Rice Mills 4 opening stock of quality-wise rice has been given. The scanned copy of the closing stock valuation furnished by the assessee has incorporated above. Now the issue remains of correctly valuing the closing stock. Though the assessee has given no basis for adoption of the opening stock figures of Rice and as such the trading version is not reliable. Nonetheless, the major charge which emerges out of the whole discussion is that the assessee has undervalued the closing stock. The assessee itself had been declaring far higher value of its stock in its monthly stock statements furnished to the bank which are as under: - Date & Month of Submission of Stock statement to the Bank Average Rate of Rice reported in Stock Statement furnished to the bank 30.04.2011 Rs.2350 30.06.2011 Rs.2450 31.07.2011 Rs.2550 31.08.2011 Rs.2550 30.09.2011 Rs.2500 31.10.2011 Rs.3000 30.11.2011 Rs.3000 31.12.2011 Rs.3250 31.01.2012 Rs.3000 29.02.2012 Rs.2800 25.03.2012 Rs.2800 It is also pertinent to mention here that the Auditors in their Stock Statement Report had adopted the average cost of Rice at Rs.3000/- as on 29.11.2011. But looking to the fact that the assessee itself had adopted average rate in the last two months of February and March, 2012 at Rs.2,800/-, the same rate is adopted and the resultant valuation of closing stock of Rice comes to Rs. 27,44,91,196/- as against valuation declared by the assessee at Rs.23,21,58,401.29 which result in addition of Rs. 4,23,32,795/-. Thus, the amount of Rs. 4,23 , 3 2 , 7 9 5 /- is added back to the total income of the assessee.” ITA No. 107/Asr/2017 DCIT v. New Bharat Rice Mills 5 7. A perusal of the record of the appeal, the ld. CIT(A) did not take cognizance of the view of the Assessing Officer. The ld. CIT-DR pointed out that the additional evidence which was accepted by the appellate authority was denied for reasonable opportunity to verify the documents by the Assessing Officer. Here, the reasonable opportunity of the ld. Assessing Officer is denied. He further pointed out that the order was passed by the ld. CIT(A) without basis of valuation. So, the order of the appellate authority is non reasoned and non speaking order with full of lacunae. 8. The observations of the ld. CIT(A) is reproduced as under: “The closing stock of A.Y 2011-12 was accepted by the department and the assessment order under section 143(3) was passed by the then JCIT. The appellant had submitted closing stock valuation vide page 321 and 322 of the paper book filed at this office which was submitted to the then JCIT while making the assessment under section 143(3) of the A.Y 2011-12. It is very strange on how the valuation of opening stock can be challenged when the same has been accepted by the predecessor AO in the immediate preceding assessment year. The Closing stock of A.Y 2011-12 is the opening stock of A.Y 2012-13. When the closing stock of A.Y 2011-12 has been accepted; the opening stock in that scenario cannot be rejected without any supporting evidence. Thus, the objection of the AO is dismissed and explanation of appellant is valid. Thus, the vary basis of not accepting the closing stock valuation is bad in law and the grounds of appeal are allowed. Further the AO has adopted the bank rate for the purpose of valuation of closing stock. The Bank rate in stock statements cannot be adopted for the purposes of valuation of closing stock. The Hon Tile ITAT Amritsar bench in the case of ITO Vs S.M Builder & Developers ITA No 164/2014 held as under: “The above issue is squarely covered against the Revenue and in favour of the assessee by the consolidated order dated 26.03.2015 of the ITAT, Amritsar Bench, in a bunch of appeals in which ITA No.l98(Asr)/2013, in the case of Dy. Commr. of Income Tax, Circle- 1, Bathinda vs. Ishar Infrastructure Developer (P) Ltd; Bathinda, has been taken as the lead case. The relevant portion of the findings of the Tribunal are reproduced as under: ITA No. 107/Asr/2017 DCIT v. New Bharat Rice Mills 6 “31. In view of the above discussion, the decision of Smt. Shakuntla Thukral (supra) as relied upon by the Id. DR is not applicable to the facts and circumstances of the present case. 32. The decisions relied upon by the Id. 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 has not brought on record during the assessment proceedings or before the Id. CIT(A) or even before us that physical verification of the stock has actually been done and accordingly stock statements so submitted before the bank authorities and DP register cannot be relied upon. 33. In the case of CTT 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 cannot 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) CTT vs. Sidhu Rice & General Mills reported in 281 ITR 428 (P&H) (ii) CTT vs. Santosh Box Factory (P) Ltd.., 44 IT Reps. 472 (P&H) (iii) CIT vs. N. Swamy reportede in 241 ITR 363 (Madras) (iv) ITO vs. Devi Dayal Rice Mills reported in 75 TTJ 24 (ITAT, Amritsar Bench) (v) CIT vs. Sirohi Steel Rolling Mills, reported in 200 CTR 595 (All.) (vi) Ashok Kumar vs. ITO, reported in 201 CTR 178 ( J & K) (vii) CIT vs. Das Industries, reported in 303 ITR 199 (All.) (viii) CIT vs. Sri Padmavathi Cotton Mills, reported in 236 ITR 340 (Mad.) (ix) Jai Sharda Rice Mills. Vs ITO reported in 36 TTD 254 (ITAT, Asr.) (x) CIT vs. Riddhi Steel and Tubes (P) Ltd. reported in 220 Taxman 148 (Guj.) (xi) CIT vs. Apcom Computers P. Ltd. reported in (2007) 292 ITR 630 (Mad.). 35. In the facts and circumstances, the arguments made by the Id. DR in his written submissions and counter submissions cannot help the Revenue and accordingly, we find ITA No. 107/Asr/2017 DCIT v. New Bharat Rice Mills 7 no infirmity in the order of the Id. CIT(A) in the case of M/s. Ishar Infrastructure Developers (P) Ltd. in ITA No. 198(Asr)/2013 in the impugned year. ” Keeping in view the above discussion, we do not find any infirmity in the order of the Id. CIT(A) and the same is upheld." Similarly, the same finds support from following judicial pronouncements: - CIT vs. M/s Santosh Box Factory P. Ltd. (P&H HC) (Judgment attached) - CIT vs. Sheena Exports ITA No. 382 of 2011 (P&H HC) Thus, relying on the decision of jurisdictional ITAT and in view of submissions of the appellant the addition in closing stock is deleted and the appeal allowed.” 9. Having heard the ld. CIT-DR, considering the submissions and relevant materials on record, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 9.1. The assessee-firm was unable to explain the valuation of quality wise closing stock of rice. The valuation of assessee-firm was submitted in Bank which was on basis of average rate of rice & paddy. This valuation submitted in bank is not supported in books of accounts. Respectful observation in the case of CIT(Central) Gurgaon v. Sheena Exports 207 Taxman 75 [2012] (P&H) that stock statement submitted in is unverified. The assessee later on through its regular books & day to day stock register had substantiated its claim related valuation of stock. Here is the lack of explanation before the Assessing Authority. The Ld. CIT(A) also failed plug of the lacuna in factual matrix. The ld. CIT-DR pointed out the documents are accepted by the ld CIT(A) without allowing opportunity to the ld AO. The additional evidence was accepted without considering legal provision. He prayed for sending back the matter to the ld Assessing Authority for proper verification of stock. On other hand, the method of valuation was adopted by the ld. AO in closing stock that should be considered to opening stock also. So, both the ITA No. 107/Asr/2017 DCIT v. New Bharat Rice Mills 8 valuation of opening and closing stock will be in the order. The assessee-firm should get proper opportunity to explain its method of valuation before the ld.AO. 9.2. Accordingly, the impugned order is set aside and the matter is restored back to ld. AO for denovo adjudication after considering the assessee’s evidences. The assessee, in turn, is directed to substantiate its case. Needless to add that adequate opportunity of hearing shall be granted to the assessee. 10. In the result, the appeal of the revenue is allowed for statistical purposes. Order pronounced in the open court on 12.05.2022 Sd/- Sd/- (Dr. M. L. Meena) (Anikesh Banerjee) Accountant Member Judicial Member Date: 12.05.2022 *GP/Sr. PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(A), (4) The CIT concerned (5) The Sr. DR, I.T.A.T (6) The Guard File True Copy By Order