M/s Midwest Gold Limited, Hyderabad V. ACIT,Central Circle-7, Hyderabad

ITA 1294/HYD/2014

• Counselvise Citation: 129422514 RSA 2014
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 03-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Unexplained investment; Search and seizure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1294/HYD/2014 ASSESSMENT YEAR 2009-2010 M/S. MIDWEST GOLD LIMITED, HYDERABAD PAN AAACN4898C VS. ACIT, C.C.7 HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. P. MURALIMOHAN RAO FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 19.11.2014 DATE OF PRONOUNCEMENT : 26.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS AGAINST THE ORDE R OF LD. CIT(A)-VI, HYDERABAD DATED 03.02.2014. ASSESSEE HAS RAISED 10 GROUNDS OUT OF WHICH, GROUND NOS. 1 AND 10 ARE G ENERAL IN NATURE AND THEREFORE, THEY NEED NOT BE ADJUDICATED. GROUND NOS. 7,8,9 ARE NOT PRESSED ON THE REASON THAT LD. C IT(A) DIRECTED THE A.O. TO EXAMINE AND ALLOW. IN VIEW OF THIS, LD. COUNSEL SUBMITTED THAT GROUNDS ARE NOT PRESSED AT T HIS POINT OF TIME. THAT LEAVES US WITH GROUND NOS. 2 TO 6 ON THE ISSUE OF ADDITION MADE BY A.O. AS UNEXPLAINED INVESTMENT OF RS.16,00,060 WHICH WAS PARTLY DELETED BY LD. CIT(A) . 2. BRIEFLY STATED, THERE WERE SEARCH AND SEIZURE OPERATIONS IN THE GROUP AND ASSESSEES BUSINESS PRE MISES AT BANGALORE WAS COVERED UNDER 133A. THE STOCK AVAILAB LE IN THE BANGALORE PREMISES ON 26.07.2008 WAS QUANTIFIED AND EXCESS 2 ITA.NO.1294/HYD/2014 M/S. MIDWEST GOLD LIMITED, HYDERABAD. STOCK OF GRANITE AT 2758.720 SQ.MTS WAS FOUND. IT W AS EXPLAINED BY THE PERSON IN-CHARGE MR. B. DAVID, DIR ECTOR AND GENERAL MANAGER THAT THE DIFFERENCE STOCK AROSE AS THEY WERE ACCOUNTING THE NET NON-DEFECTIVE AREA IN THE STOCK REGISTER WHEREAS, THE STOCK WAS TAKEN OF THE COMPLETE AREA I NCLUDING THE REJECTION OF DEFECTIVE PIECES. IT WAS SUBMITTED THAT THERE IS DIFFERENCE IN THE AREA BECAUSE FOR THE ABOVE REASON , THE A.O. HOWEVER, DID NOT AGREE AND BROUGHT TO TAX AMOUNT OF RS.16,00,060 AT RS.580 PER SQ. METRE AS VALUE OF IN VESTMENT FROM UNEXPLAINED SOURCES. 3. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, L D. CIT(A) GAVE PARTIAL RELIEF BY STATING AS UNDER : 5.3. PERUSED THE OBSERVATIONS OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. AS COULD BE SEEN FROM THE RECORD, THERE WAS A SURVEY PROCEEDINGS AT THE BUSIN ESS PREMISES OF APPELLANT COMPANY, WHEREIN THE STOCKS W ERE INVENTORISED AND THE PHYSICAL QUANTITY OF STOCKS WA S ARRIVED AT 17929.420 SQ. MTRS., AS AGAINST 15170.700 SQ. MT RS, AS SHOWN IN BOOKS. AS PER THE A.O. THE EXCESS STOCK (17929.410-15170.700 MTRS.) OF 2758.200 SQ. MTRS. REPRESENT THE UNEXPLAINED INVESTMENTS, WHOSE VALUE WAS PUT AT RS.16,00,060/-, WHICH WAS VALUED AT THE RATE OF RS.580/- PER SQ. MTR., AS TAKEN FROM THE AVERAGE VA LUE OF CLOSING STOCK. IT IS NOT KNOWN WHETHER THE STOCKS R EPRESENT THE UNIFORM QUALITY AND OF THE SAME COLOUR ETC., OR NOT. FURTHER, THE APPELLANT CLAIMED THAT THE STOCKS IN B OOKS WERE MEASURED BY NET AREA, BY EXCLUDING THE ODD SHAPED A NGLES, DEFECTIVE AREA ETC., WHICH ALMOST CONTRIBUTED TO 15 % TO 18% OF THE TOTAL AREA OF CLOSING STOCK. IT IS A FACT TH E APPELLANT DEALS IN ROUGH GRANITE SLABS AND THERE WOULD BE POS SIBILITY OF DEFECTS THEREIN SUCH AS ODD SIZED SLABS, SLABS W ITH CRACKS ETC. AND THERE WOULD BE POSSIBILITY FOR DIFFERENCE IN MEASUREMENTS, MADE ON EDGE TO EDGE BASIS VIS--VIS THE NET AREA WORKED OUT, WHERE QUANTIFICATION WOULD BE MADE WITHOUT THE ABOVE MENTIONED DEFECTS. THIS FACT WAS MENTIONED BY THE PERSON CONCERNED, AT THE TIME OF S URVEY. FURTHER, THE STOCKS IN BOOKS ARE OF VARIOUS SHAPES/ KINDS, WITH FEW SLABS SHOWN AS FINISHED GOODS, AND OTHERS AS 3 ITA.NO.1294/HYD/2014 M/S. MIDWEST GOLD LIMITED, HYDERABAD. UNFINISHED SLABS AS WELL AS TILES. THERE IS NO CLAS SIFICATION OF GOODS ON THESE LINES IN THE VALUATION MADE BY THE A .O. AS IT APPEAR FROM THE STOCK STATEMENT PREPARED IN SURVEY. CONSIDERING ALL THESE FACTORS, AN ALLOWANCE OF 10% MAY BE ALLOWED ON TOTAL STOCKS INVENTORISED FOR THE PURPOS E OF DEFECTIVE AREA AND EXCESS STOCKS MAY BE COMPUTED AN D VALUED ACCORDINGLY. ON THESE LINES, THE GROUNDS RAI SED MAY BE TREATED AS PARTLY ALLOWED. 4. CONTESTING THE ABOVE, LEARNED A.R. SUBMITTED TH AT ASSESSEES BOOKS OF ACCOUNTS WERE REFERRED TO SPECI AL AUDIT AND THERE WERE NO MISTAKES POINTED OUT BY THE SPECIAL A UDITOR. ONCE SPECIAL AUDIT WAS CONDUCTED, A.O. WAS PREVENTE D IN MAKING ANY OTHER ADDITIONS AND RELIED ON THE COORDI NATE BENCH DECISION IN THE CASE OF BARTRONICS INDIA LTD. , VS. ACIT, CIRCLE 1(3), HYDERABAD (2012) 22 TAXMANN.COM 5 (HYD .) FURTHER, IT WAS ALSO CONTENDED THAT SURVEY WAS COND UCTED ON 26.07.2008 I.E., MIDDLE OF THE ACCOUNTING YEAR AND SO A.O. WAS ALSO PREVENTED IN MAKING ADDITION, MORE SO, WHEN A. O. ACCEPTED THE BOOKS OF ACCOUNTS AT THE END OF THE YE AR. FURTHER, IT WAS SUBMITTED THAT IT WAS THE CONTENTION OF ASSE SSEE THAT 15% TO 18% OF THE ROUGH GRANITE SLABS WOULD BE FOR THE DEFECT AREA BECAUSE OF VARIOUS ROUGH EDGES, CUT PIECES ETC ., THEREFORE, ALLOWANCE OF 15% TO 18% SHOULD BE ALLOWED ON THE ST OCK TAKEN BY DEPARTMENT. IT WAS FURTHER SUBMITTED THAT COORDI NATE BENCH AT BANGALORE IN THE CASE OF HINDUSTAN MARBLE AND GRANITES, BANGALORE VS. ACIT, CENTRAL CIRCLE 1(2), BANGALORE IN ITA.NO.98/BANG/2010 DATED 16.12.2010 HAS CONSIDERED SIMILAR ISSUE AND DELETED THE ADDITION ON THE REASO N THAT THERE IS NO CREDIBLE DOCUMENTARY EVIDENCE BROUGHT ON RECO RD TO NAIL THE ASSESSEE. IT WAS SUBMITTED THAT THERE WAS NO IN CRIMINATING MATERIAL IN THE SEARCH PROCEEDINGS AND THEREFORE, T HE ADDITION MADE BY A.O. WAS NOT JUSTIFIED. 4 ITA.NO.1294/HYD/2014 M/S. MIDWEST GOLD LIMITED, HYDERABAD. 5. LEARNED D.R. HOWEVER, RELIED ON THE ORDERS OF LD . CIT(A). 6. CONSIDERING THE RIVAL CONTENTIONS AND FACTUAL PO SITION AS ARISING FROM THE ORDER, WE DO NOT SEE ANY MERIT IN MAKING ADDITION BY A.O. OR PARTLY BEING CONFIRMED BY LD. C IT(A). FIRST OF ALL, THE STOCK TAKEN WAS DONE IN THE MIDDLE OF T HE YEAR AND ASSESSEE HAS EVERY RIGHT TO RECONCILE THE STOCKS BU T NO SUCH OPPORTUNITY WAS GIVEN. FURTHER, WHEN ASSESSEE EXPLA INED IN THE STATEMENT THAT ACCOUNTING IN THE BOOKS OF ACCOU NTS IS ABOUT NET NON-DEFECTIVE AREA, THE OFFICERS OF SURVE Y COULD HAVE EXAMINED THIS CONTENTION AND ESTABLISH WHETHER STAT EMENT OF ASSESSEE IS CORRECT OR NOT, GIVEN IN THE COURSE OF SURVEY. NOTHING WAS DONE EXCEPT QUANTIFYING THE STOCK. AS S EEN FROM THE ORDER, LD. CIT(A) ACCEPTS THAT THERE COULD BE A DJUSTMENTS FOR THE DEFECTIVE PIECES/SLABS. HOWEVER, IN HIS WIS DOM, HE RESTRICTED THE ALLOWANCE TO 10% WITHOUT ANY BASIS. CONSIDERING THAT BOOKS OF ACCOUNTS WERE NOT REJECTED AND SPECIA L AUDITOR IN HIS REPORT ALSO HAS NOT POINTED OUT ANY DEFECTS, WE ARE OF THE OPINION THAT THE BALANCE OF THE AMOUNT ALSO SHOULD BE DELETED. IN FACT, EXCESS AREA ARRIVED AT IN THE STOCK INVENT ORY IS ABOUT 15% OF THE STOCK ACTUALLY RECORDED BY ASSESSEE IN T HE BOOKS OF ACCOUNTS AND AS SUBMITTED THERE COULD BE VARIATION TO THE EXTENT OF 15% TO 18%. IN VIEW OF THIS, WE DELETE TH E BALANCE OF THE AMOUNT ALSO. ASSESSEE GETS RELIEF ON THESE GROU NDS. 7. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 26 TH NOVEMBER, 2014 VBP/- 5 ITA.NO.1294/HYD/2014 M/S. MIDWEST GOLD LIMITED, HYDERABAD. COPY TO 1. M/S. MIDWEST GOLD LIMITED, HYDERABAD. C/O. P. MURALI & CO. CHARTERED ACCOUNTANTS, 6-3- 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2. ACIT, CENTRAL CIRCLE-7, HYDERABAD 3. CIT(A)-VI, HYDERABAD 4. CIT, (CENTRAL), HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.