M/s. S.V. Patel & Sons, Kheda V. The Income tax Officer,Ward-3, Nadiad

ITA 1101/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0415 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Assessee Lawyers: A C SHAH
• Keywords: Unexplained investment
• Section: 133A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, JM AND SHRI A. MOHA N ALANKAMONY, AM) ITA NO. 1101/AHD/2012 A. Y.: 2006-07 M/S. S. V. PATEL & SONS, NAVAGAM, ATARSUMBA ROAD, TAL. KAPADVANJ, KHEDA P. A. NO. AANFM 5888 M VS THE INCOME TAX OFFICER, WARD - 3, NADIAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI A. C. SHAH, AR RESPONDENT BY SHRI D.K. SINGH, SR.DR DATE OF HEARING: 08-02-2013 DATE OF PRONOUNCEMENT: 22-03-2013 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A)-IV, BARODA DATED 19-03-2012 IN APPEAL NO.CAB/IV-N-71/2010-11, PASSED U/S 250 READ WITH SECTION 271(1) ( C) OF THE ACT, FOR T HE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED TWO GROUNDS IN ITS APPE AL THE CRUX OF WHICH IS THAT THE LEARNED CIT(A) HAS ERRED IN CONFI RMING THE PENALTY LEVIED U/S 271 (1) ( C) OF THE ACT FOR THE ADDITION SUSTAINED BY THE LEARNED CIT(A) FOR RS.4,31,418/- AS AGAINST THE ADD ITION MADE BY THE LEARNED AO FOR RS.10,75,710/- TOWARDS UNACCOUNTED I NVESTMENTS IN STOCK ON ESTIMATE BASIS. ITA NO.1101/AHD/2012 (AY: 2006-07) M/S. S. V. PATEL & SONS VS ITO, WARD-3, NADIAD 2 3. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS O F GINNING OF COTTON SEEDS. THE ASSESSEE FILED ITS RETURN OF INCO ME ON 30-12-2006 DECLARING INCOME AT RS.83,260/-. SUBSEQUENTLY, NOTI CE U/S 148 OF THE ACT WAS ISSUED AND ASSESSMENT WAS COMPLETED U/S 143 (3) OF THE ACT ON 26-12-2008 WHEREIN CERTAIN ADDITIONS ARE MADE AL ONG WITH AN ADDITION OF RS.10,75,710/- TOWARDS UNACCOUNTED INVE STMENTS IN STOCK. THIS ADDITION WAS MADE BY THE LEARNED AO ON ESTIMAT E BASIS BECAUSE IT WAS DIFFICULT TO ASCERTAIN THE STOCK LYI NG IN THE PROCESS OF PRODUCTION IN THE MACHINERY. ON APPEAL, THE LEARNED CIT(A) REDUCED THE ADDITION TO RS.4,31,48/- BY FURTHER ESTIMATION AND APPROXIMATION. HOWEVER, PENALTY PROCEEDINGS WERE INITIATED AND PEN ALTY WAS LEVIED BY THE LEARNED AO WHICH WAS FURTHER CONFIRMED BY TH E LEARNED CIT(A) BY HOLDING AS UNDER:- 12. THE SECOND GROUND OF APPEAL OF THE APPELLANT I S THAT THE AO HAS ERRED IN LAW AND ON FACTS IN LEVYING THE PEN ALTY ON AMOUNT OF RS.4,31,418//- ON ACCOUNT OF UNACCOUNTED INVESTMENT IN STOCKS. IN MY OPINION, THE AO IS JUST IFIED IN LEVYING THE PENALTY ON THIS AMOUNT OF RS.4,31,418/- . IN THE CASE OF APPELLANT A SURVEY U/S 133A OF THE IT ACT, WAS C ONDUCTED ON 23/24 JAN. 2006 AND AS A RESULT OF THE SAME, THE P ARTNER OF THE FIRM SIGNED DECLARATION RECORDED BY THE SURVEY PART Y. SUBSEQUENT TO THE SURVEY, THE PARTNERS OF THE APPEL LANT FIRM DISCLAIMED THE STATEMENT REGARDING DISCLOSURE OF IN COME IN RESPECT OF ALLEGED DIFFERENCE IN STOCK. IN OTHER WO RDS, THE APPELLANT RETRACTED FROM ITS DISCLOSURE AND NOT PAI D THE DUE TAXES. HOWEVER, THE AO MADE ADDITION IN THE CASE OF APPELLANT ON ACCOUNT OF DIFFERENCES IN STOCK FOR THE YEAR UND ER CONSIDERATION. THE APPELLANT PREFERRED APPEAL BEFOR E CIT(A) AND THE LD. CIT(A) CONFIRMED THE UNEXPLAINED PART O F THE ADDITION TO THE EXTENT OF RS.4,31,418/-. THIS FACT HAS BEEN MENTIONED BY THE APPELLANT IN ITS ABOVE SUBMISSION ALSO. THE VERY FACT IS THAT THE CONTENTION OF THE APPELLANT W ITH REGARD TO ITA NO.1101/AHD/2012 (AY: 2006-07) M/S. S. V. PATEL & SONS VS ITO, WARD-3, NADIAD 3 ADDITION DUE TO DIFFERENCES IN STOCK HAS NOT BEEN A CCEPTED BY THE LEARNED CIT(A) FULLY AND HE HAS UPHELD THE ADDI TION THE EXTENT OF RS.4,31,418/- WHICH OTHERWISE WAS NOT ADM ITTED BY THE APPELLANT AND WAS NOT OFFERED FOR TAX. THUS IT CAN BE SAID THAT THE APPELLANT HAS NOT MADE FULL AND TRUE DISCL OSURE OF ITS INCOME IN THE RETURN OF INCOME FILED FOR THE YEAR U NDER CONSIDERATION SUBSEQUENT TO SURVEY ACTION. THIS FAC T IS ACKNOWLEDGED BY THE LEARNED CIT(A) ALSO BY WAY OF C ONFIRMING ADDITION TO THE EXTENT OF RS.4,31,418/-. CONSIDERIN G THIS FACT I HOLD THE AO IS CORRECT IN LEVYING THE PENALTY ON AD DITION OF RS.4,31,418/- U/S 271 (1) (C ) AND THEREFORE, THE S AME IS CONFIRMED. THUS THE GROUND OF APPEAL NO.2 OF THE AP PELLANT IS DISMISSED. 4. AT THE OUTSET, THE LEARNED AR POINTED OUT THAT THE ISSUE IS COVERED BY THE DECISIONS OF (I) VIKRAM PLASTICS V S ITO [2012] 136 ITD 275 (AHD), (II) CIT VS VALIMKBHAI H. PATEL [2006] 280 ITR 487 (GUJ)- AND (III) ADIT(INTERNATIONAL TAX) VS PRECISION DRILLING (CYP RUS) LTD. [2009] 34 SOT 432 (AHD.) AND ARGUED THAT SINCE IN THIS CASE ALSO THE ADDITION IS MADE PURELY ON ESTIMATE BASIS, PENALTY CANNOT BE LEVIED. IT WAS, THEREFORE, PRAYED THAT THE PENALTY LEVIED BY THE REVENUE MAY BE DELETED. 5. THE LEARNED DR STOUTLY OBJECTED TO THE SUBMISSIO N OF THE LEARNED AR AND ARGUED IN SUPPORT OF THE ORDERS OF T HE REVENUE. HE FURTHER STATED THAT DURING THE SURVEY PROCEEDINGS I T WAS REVEALED FROM THE STOCK RECORDS MAINTAINED BY THE ASSESSEE AND THE PHYSICAL VERIFICATION CONDUCTED THERE WERE DISCREPANCIES BA SED ON WHICH THE LEARNED AO HAD MADE ADDITION WHICH WAS JUDICIOUSLY REDUCED BY THE LEARNED CIT(A). HE, THEREFORE, PRAYED THAT THE ORDE R OF THE LEARNED CIT(A) MAY BE SUSTAINED WITH RESPECT TO LEVY OF PEN ALTY. ITA NO.1101/AHD/2012 (AY: 2006-07) M/S. S. V. PATEL & SONS VS ITO, WARD-3, NADIAD 4 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD ALONG WITH THE PAPER BOOK SUBMITTED BY THE A SSESSEE. ON PERUSING THE FACTS OF THE CASE FROM THE ORDER OF TH E LEARNED CIT(A) AND THE LEARNED AO, IT IS OBVIOUS THAT THE ADDITION MADE AGAINST UNACCOUNTED INVESTMENTS IN STOCK WAS ON ESTIMATE B ASIS. THE RELEVANT PORTIONS OF THE RESPECTIVE ORDERS ARE REPR ODUCED HEREIN BELOW: ASSESSMENT ORDER DATED 26-12-2008 (PAGE 4) IN FACT, THERE CANNOT BE SUCH EXCESS STOCK OF BAGR U SINCE THERE IS A MISTAKE IN CALCULATING OF ARRIVING STOCK OF COTTON WASH OIL. THIS CAN BE SEEN FROM THE CERTIFICATE GIVEN BY SHRI KANUBHAI R. SHAH, CHARTERED ENGINEER AND APPROVED GOVERNMENT VALUER OF AHMEDABAD (I.E. TANK NO. 1 TO 6). IN THIS CERTIFICATE HE HAS STATED THE PRICES OF CRUSHING COTTON SEEDS FOR THE PURPOSE OF COTTON WASH OIL AND HOW THE PROCESS PROCEEDS FUR THER AND HOW THE OIL IS STORED IN EACH TANK. FINALLY IN TANK NO.3 THERE IS ALSO ABOUT 25 INCH OF BAGRU AND THEREFORE THE OIL A BOVE BAGRU IS TO BE TAKEN INTO ACCOUNT FOR SALE. FROM THE INVENTO RY PREPARED BY THE SURVEY PARTY, IT APPEARS THAT THE ENTIRE STO CK STORED IN ALL TANKS IS TAKEN AS FINISHED GOODS FOR THE PURPOSE OF SALE. THIS IS A MISTAKE IN CALCULATION. AS PER THE CERTIFICATE TH E STOCK SHOULD BE LESS BY 13,000 KG. CIT (A)S QUANTUM ORDER DATED -19-01-10 (PAGE 4 -6 ) 2.2. I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE AND APPELLANTS SUBMISSIONS. COTTON SEEDS WASH OIL INVE NORISED BY THE SURVEY PARTY WAS FOUND CONTAINED IN TANKS AT VA RIOUS STAGES OF MANUFACTURING. MEASUREMENTS APPEARS TO HAVE BEEN DONE O THE BASIS OF DEPTH OF OIL IN VARIOUS TANKS. THEREFO RE, APPELLANTS CLAIM THAT VARIOUS TANKS CONTAINED WASTAGE/BAGRU OI L AT THE BOTTOM CANNOT BE OUT RIGHTLY DISCARDED. THE CLAIM W AS SUPPORTED BY REPORT OF APPROVED VALUER AND CHARTERE D ENGINEER, KANUBHAI R. SHAH. THOUGH THE REPORT OF SH RI ITA NO.1101/AHD/2012 (AY: 2006-07) M/S. S. V. PATEL & SONS VS ITO, WARD-3, NADIAD 5 KANUBHAI R. SHAH WAS SUBMITTED BEFORE THE ASSESSING OFFICER, IT WAS NOT CONSIDERED ON THE GROUND THAT SHRI RAJES H R. PATEL, PARTNER, AT THE TIME OF SURVEY HAD ACCEPTED THE DIF FERENCE IN STOCK. APPELLANTS SUBMISSION IN THIS REGARD HAS BE EN THAT SHRI RAJESHBHAI RAMANBHAI PATEL WAS IGNORANT ABOUT THE MANUFACTURING PROCESS AND THE OTHER PARTNER, SHRI M AHESHBHAI MAGANBHAI PATEL, WHO WAS CONVERSANT WITH THE BUSINE SS AND ITS ACCOUNTING AFFAIRS WAS BUSY WITH THE SURVEY PRO CEEDINGS SIMULTANEOUSLY GOING ON AT THE PREMISES OF ITS ASSO CIATE CONCERN, M/S. BHAGYODAYA COTTON INDUSTRIES. SWORN A FFIDAVITS DATED 9.2.2006 BY THREE PARTNERS NAMELY, SHRI RAJES HBHAI RAMANBHAI PATEL, SHANABHAI RAMANBHAI PATEL AND SHRI MAHESHBHAI MAGANBHAI PATEL RETRACTING THE DISCLOSUR E MADE AT THE TIME OF SURVEY WERE FILED BEFORE THE ASSESSING OFFICER AFTER THE SURVEY. IN HIS AFFIDAVIT, SHRI MAHESHBHAI MAGAN BHAI PATEL ALSO STATED THAT CALCULATION OF PHYSICAL STOCK WAS NOT MADE BY ACTUAL MEASUREMENT OF WEIGHT BUT WAS DONE BY APPROX IMATE OR ROUGH METHOD AND THUS, THE CALCULATION WAS NOT CORR ECT. IN THIS SITUATION, ADDITION CANNOT BE MADE SOLELY ON THE BA SIS OF RAJESH R. PATELS STATEMENT AND APPELLANTS CONTENTION REG ARDING MISTAKES IN TAKING OF PHYSICAL STOCK OF COTTON SEED S WASH OIL DUE TO WASTAGES AT THE BOTTOM, SUPPORTED BY CERTIFI CATE OF SHRI KANUBHAI R. SHAH, APPROVED VALUER NEEDED TO BE CONS IDERED ON MERITS. IN HIS REPORT/CERTIFICATE, SHRI KANUBHAI R. SHAH, CHARTERED ENGINEER AND APPROVED VALUER EXPLAINED TH E MANUFACTURING PROCESS, I.E. CRUSHING OF COTTON SEED S TO FORM COTTON CAKES, WHICH ARE FURTHER CRUSHED TO FORM COT TON SEED CAKE AND NON EDIBLE WASH OIL THROUGH UNDERGROUND TA NK NO.6, NEUTRALIZER, UNDERGROUND TANK NOS. 1, 4, 5 AND FINA LLY TO TANK NO.3. AS PER APPROVED VALUERS REPORT, OIL IS RETAI NED IN VARIOUS TANKS FOR DIFFERENT DURATIONS, WHERE IT UNDERGOES D IFFERENT PROCESSES AND AT EACH STAGE, THERE IS WASTAGE AT TH E BOTTOM. THE APPROVED VALUER SPECIFIED CAPACITY OF EACH TANK , MINIMUM RESIDUE AT THE BOTTON OF EACH TANK AND COMPONENT OF WASTAGE IN EACH TANK TOTALING TO 13630 KG. CONSIDERING THE PR OCESS FLOW DIAGRAM, APPROVED VALUERS REPORT AND THE FACT THAT STOCK WAS INVENTORISED USING APPROXIMATIONS, IT HAS TO BE ACC EPTED THAT THE PHYSICAL STOCK OF COTTON SEEDS WASH OIL INVENTO RISED AT THE TIME OF SURVEY INCLUDED SOME AMOUNT OF WASTAGE AT B OTTOM OF VARIOUS TANKS. SHORTAGE OF 5235 KG. BETWEEN BOOK ST OCK AND ITA NO.1101/AHD/2012 (AY: 2006-07) M/S. S. V. PATEL & SONS VS ITO, WARD-3, NADIAD 6 PHYSICAL STOCK OF BAGRU OIL WORKED OUT AT THE TIME OF SURVEY ALSO SUPPORTS THE FACT OF INCLUSION OF WASTAGE/BAGRU OIL IN THE STOCK OF COTTON SEEDS WASH OIL. THE APPROVED VALUER HAS A DJUDGED 13630 KG. TO BE WASTAGES CONSIDERED AS COTTON SEEDS WASH OIL, OUT OF WHICH 65% IS ACCEPTED AS WASTE AT BOTTOM. TH E TOTAL EXCESS COTTON SEEDS WASH OIL WOULD THUS WORK OUT TO 35% OF 13630 KG. I.E. 4771 KG. + 1161 KG., I.E. 5932 KG. A PPELLANTS CONTENTION THAT 1161 KG. IS COVERED BY SHORTAGE IN BAGRU OIL, IS NOT TENABLE SINCE THE SHORTAGE IN BAGRU OIL HAS ALR EADY BEEN CONSIDERED ABOVE. 5932 KG. OF COTTON SEEDS WASH OIL , AT THE YIELD OF 11%, WOULD REQUIRE CRUSHING OF 53927 KG. O F COTTON SEEDS, VALUE OF WHICH AT THE RATE OF 8/- PER KG. WO RKS OUT TO RS.4,31,418/-. THUS, ADDITION OF RS.10,75,710/- IS CONFIRMED TO THE EXTENT OF RS.4,31,418/- AND THE BALANCE IS DELE TED. 6.1 FURTHER, THE TRIBUNAL AND THE HONBLE GUJARAT H IGH COURT IN THE FOLLOWING DECISIONS HELD AS UNDER: (I) VIKRAM PLASTICS VS ITO [2012] 136 ITD 275 (AHD) IN FACT, THE ADDITION WAS MADE WAS MADE ON ESTIMATE BA SIS. THE ASSESSING OFFICER HAS COMPUTED THE WASTAGE OF R AW- MATERIAL AT 10 PER CENT AS AGAINST THAT THE TRIBUNA L HAS ALLOWED THE WASTAGE OF RAW-MATERIAL AT 1 PER CENT. IT IS WELL SETTLED THAT THE ADDITION MADE PURELY BY WAY O F ESTIMATE SHOULD NOT BE MADE THE BASIS FOR LEVY OF P ENALTY FOR CONCEALMENT OF INCOME. (I) CIT VS VALIMKBHAI H. PATEL [2006] 280 ITR 487 ( GUJ)- DIFFERENCE IN ESTIMATION OF LOSS BETWEEN THE ASSES SEE AND ASSESSING OFFICER - NO CONCEALMENT OF INCOME PENALTY CANNOT BE IMPOSED. (II) ADIT(INTERNATIONAL TAX) VS PRECISION DRILLING (CYPRUS) LTD. [2009] 34 SOT 432 (AHD.) AS PER THE PROVISIONS OF SECTION 271 (1) (C ) THE PENALTY IS LEVIABLE IF THE ASSESSING OFFICER IS SATISFIED IN THE COURSE OF ANY PROCEEDIN G UNDER THIS ACT THAT ANY PERSON HAS CONCEALED THE PARTICUL ARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF S UCH INCOME. THE PENALTY PROCEEDINGS AND THE ASSESSMENT PROCEEDINGS, BOTH ARE DIFFERENT. EXPLANATION 1 TO S ECTION ITA NO.1101/AHD/2012 (AY: 2006-07) M/S. S. V. PATEL & SONS VS ITO, WARD-3, NADIAD 7 271 (1) (C ) IN RESPECT OF ANY FACT RELATING TO THE COMPUTATION OF TOTAL INCOME STATES THAT IN THE AMOU NT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME O F AN ASSESSEE SHALL BE DEEMED TO BE THE INCOME IN RESPEC T OF WHICH PARTICULARS HAVE BEEN CONCEALED. THIS DEEMING PROVISION FOR CONCEALMENT IS NOT ABSOLUTE ONE. 6.2 CONSIDERING THE DECISIONS CITED BY THE LEARNED AR AND THE FACT THAT THE ADDITION IS MADE PURELY ON ESTIMATE BASIS, SINCE IT WAS NOT POSSIBLE TO CORRECTLY ASCERTAIN THE STOCK BECAUSE T HEY WERE CONTAINED IN THE MACHINERY DURING THE PROCESS OF PRODUCTION, WE ARE OF THE CONSIDERED VIEW THAT PENALTY CANNOT BE LEVIED ON SU CH ADDITION. THEREFORE, WE HEREBY DELETE THE PENALTY SUSTAINED B Y THE LEARNED CIT(A). 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22-03-2013 SD/- SD/- (MUKUL KUMAR SHRAWAT) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANTA DEKA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, AHMEDABAD ITA NO.1101/AHD/2012 (AY: 2006-07) M/S. S. V. PATEL & SONS VS ITO, WARD-3, NADIAD 8 1. DATE OF DICTATION- DIRECT ON COMPUTER 15-03-13 2 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 15-03-13 3 DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./ P.S.: 4 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S.: 6 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER 9 DATE OF DESPATCH OF THE ORDER: