M/s Jain Rice Mills, Kurukshetra V. ITO, Kurukshetra

ITA 133/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9982 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 26-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: RAKESH JAIN
• Keywords: Loose papers; Bad and doubtful debts
• Section: 143(3); 54; 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 133/CHD/2016 ASSESSMENT YEAR: 2007-08 M/S JAIN RICE MILL VS. THE ITO, WARD-1 KURUKSHETRA, KURUKSHETRA AMIN ROAD KURUKSHETRA PAN NO. AAEFJ0706E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAKESH JAIN RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 11/05/2016 DATE OF PRONOUNCEMENT :23/05/2016 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAIN ST THE ORDER OF LD. CIT(A), KARNAL DT. 15/12/2015 FOR ASSESSMENT YEAR 2007-08, CHALLENGING THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 2. BRIEFLY THE FACTS OF THE CASE, GIVING RISE TO IN ITIATION OF PENALTY PROCEEDINGS IN THIS CASE ARE THAT WHILE FINALIZING THE ASSESSME NT PROCEEDINGS U/S 143(3) OF THE ACT ON 31/12/2009, THE THEN AO ASSESSED THE INCOME OF THE ASSESSEE AT RS. 1,26,18,500/- AND RS. 1,39,98,193/- UNDER SECTION 1 54 ORDER DATED 10/06/2010. BESIDES OTHER ADDITIONS THE FOLLOWING ADDITIONS WER E MADE BY THE AO AGAINST WHICH PENALTY PROCEEDING FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF INCOME ARE INITIATED. 1. ADDITION ON ACCOUNT OF SUPPRESSION OF PROFIT PAD DY PARMAL RS. 44,28,447/- 2. ADDITION ON ACCOUNT OF BAD DEBT CLAIMED RS. 7,75 ,001/- 3. ADDITION ON ACCOUNT OF SUPPRESSION OF SALE OF RI CE BRAN RS. 33,00,029/- TOTAL INCOME FOR WHICH INACCURATE PARTICULARS FILE D RS. 85,03,477/- 2 3. THE LD. CIT(A) ON QUANTUM CONFIRM THE ADDITION. THE AO VIDE SEPARATE ORDER LEVIED THE PENALTY ON THE ABOVE ADDITION. THE LD. CIT(A) DISMISSED THE PENALTY APPEAL. 4. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMI TTED THAT THE ASSESSEE PREFERRED AN APPEAL BEFORE THE ITAT, CHANDIGARH BEN CH IN ITA NO. 701/CHD/2012 AGAINST THE ABOVE ADDITION WHICH HAVE BEEN DECIDED VIDE ORDER DT. 31/03/2016. THE FINDINGS OF THE TRIBUNAL IN PAR A 17 TO 21 ARE REPRODUCED AS UNDER: 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT ASSESSEE MADE SURRENDER O F RS. 40 LACS DURING THE COURSE OF SURVEY TO COVER UP ALL DISCREPANCIES IN THE BOOKS O F ACCOUNT, LOOSE PAPERS, DOCUMENTS, STOCK, BYPRODUCTS AND OTHER RECORDS. THE ASSESSEE ALSO SURRENDERED THE SAME AMOUNT IN PROFIT & LOSS ACCOUNT AS MISCELL ANEOUS INCOME FOR THE PURPOSE OF TAXATION. THE LD. COUNSEL FOR THE ASSESS EE FROM THE PAPER BOOK-2 POINTED OUT THAT THE OPENING STOCK OF SUPERFINE PAD DY IS VALUED AT RS. 650/- PER QUINTAL AND PURCHASES HAVE ALSO BEEN @ RS. 665/- PE R QTL. THEREFORE, AVERAGE RATE OF THE PURCHASES COMES TO RS. 650/- TO RS. 665/- PE R QUINTAL AND AVERAGE SELLING RATE WAS ALSO RS. 511/- PER QUINTAL. THESE DOCUMENT S FILED IN THE BOOKS OF ACCOUNT HAVE NOT BEEN DISPUTED BY THE LD. DR THROUGH ANY MA TERIAL ON RECORD, THEREFORE, RATES GIVEN BY THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER OF SALE AND PURCHASE OF SUPERFINE PADDY WOULD BE INCORRECT. FURTHER, THE ASSESSING OFFICER REFERRED TO DOCUMENT D-1 AND D-2 WHICH WERE IMPOUNDED DURING TH E COURSE OF SURVEY AND FOUND THAT THERE WERE UNDISCLOSED CASH RECEIVED, TH EREFORE, PEAK OF THE CREDIT OF THE ENTRIES RECORDED IN THESE DOCUMENTS WERE ADDED IN A SUM OF RS. 6,03,692/-, HOWEVER IT WAS DELETED BY LD. CIT(APPEALS) BECAUSE THE SAME WOULD BE COVERED BY THE SURRENDERED AMOUNT ( THE ASSESSING OFFICER I N THE COMPUTATION TOOK THIS FIGURE AT RS. 6,05,090/-). THE ASSESSEE ALSO EXPLAI NED THAT THE PRICE OF THE SUPERFINE PADDY DEPENDS UPON YIELD, PERISHABLE ITEM IN NATURE AND ITS PROCESS AND SINCE PADDY CANNOT BE HELD FOR A LONG TIME THEREFORE, RAT ES WOULD DEPEND ON THE SAME AT THE TIME OF SALE OR PURCHASE. THE ASSESSEE ALSO FILED STUDY BY RICE KNOWLEDGE BANK IN SUPPORT OF THE SAME. THE ASSESSEE MAINTAINED BOOKS OF ACCOUNT AND CONFIRMATION OF THE PARTIES WERE FILED. PAYMENTS ARE STATED TO BE MADE THROUGH BANKING CHANNEL AND STOCK HAVE BEEN MA INTAINED AT THE SAME RATE. THE DISPATCH OF THE GOODS AND PURCHASES BY TH E PARTIES HAVE NOT BEEN DISPUTED. THEREFORE, THESE FACTS WOULD SHOW THAT TH E SURVEY PARTY WAS SATISFIED WITH THE SURRENDER OF RS.40 LACS ON ACCOUNT OF DISC REPANCIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THEREFORE, NO FURTHER ADDI TIONS SHOULD HAVE BEEN MADE AGAINST THE ASSESSEE. THE LD. COUNSEL FOR THE ASSES SEE FURTHER EXPLAINED THAT ON ACCOUNT OF HUGE SUNDRY CREDITS APPEARING IN THE BOO KS OF ACCOUNT OF THE ASSESSEE IN PRECEDING ASSESSMENT YEAR, ASSESSEE SOL D THE SUPERFINE PADDY AT A LOWER RATE TO CLEAR THE DEBTS. THIS FACT IS CLEARLY PROVED FROM THE LIST OF THE SUNDRY CREDITORS OF EARLIER YEARS AND IN ASSESSMENT YEAR U NDER APPEAL. THEREFORE, EXPLANATION OF THE ASSESSEE IS ACCEPTED THAT PADDY WAS SOLD AT SLIGHTLY LOWER RATE BECAUSE OF THE BUSINESS EXIGENCIES. THE LD. COUNSEL FOR THE ASSESSEE ALSO FILED A CHART IN THE PAPER BOOK TO SHOW THAT RATE OF THE PU RCHASES OF SUPERFINE PADDY BEFORE AND AFTER SURVEY WAS AT THE SAME RATE. THERE FORE, EXPLANATION OF THE 3 ASSESSEE SHOULD HAVE BEEN CONSIDERED IN PROPER PERS PECTIVE AND HUGE ADDITIONS SHOULD NOT BE MADE AGAINST THE ASSESSEE. 17(I) FURTHER, AS REGARDS RICE BRAN SOLD BY ASSESSE E, THE ASSESSING OFFICER CONSIDERING THE COMPARABLE CASES IN THE CASE OF M/S GARG RICE MILLS, M/S AGGARWAL RICE MILLS AND M/S SHIV GANESH INDUSTRIES, ADOPTED THE REASONABLE RATE OF RS. 660/- PER QUINTAL FOR THE PURPOSE OF MAKING ADDITION AGAINST THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, RELIED U PON DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE OF SHAKTI RICE & GENER AL MILLS (SUPRA) IN WHICH THE AUTHORITIES BELOW HAVE CONSIDERED ONE OF THE SIMILA R CASE, IN THE CASE OF M/S SHIV GANESH INDUSTRIES, SHAHBAD AND LD. CIT(APPEALS) DIR ECTED TO ADOPT THE REASONABLE RATE OF RS. 450/- PER QUINTAL ON SALE OF RICE BRAN WHICH HAVE BEEN CONFIRMED BY THE TRIBUNAL BY DISMISSING CROSS APPEA LS. THEREFORE, ON THAT ACCOUNT ALSO, IT IS CLEAR THAT ASSESSING OFFICER HAS ADOPTE D VERY HIGHER FIGURE OF SALE OF RICE BRAN. THEREFORE, THIS ADDITION IS ALSO LIABLE TO BE DELETED SUBSTANTIALLY. 18. WE MAY ALSO NOTE HERE THAT ASSESSEE HAS FILED C OMPARATIVE CHART OF GP AND NP OF ASSESSMENT YEAR UNDER APPEAL AS WELL AS OF PR ECEDING AND SUBSEQUENT YEARS TO SHOW THAT NP RATE IS HIGHER AS COMPARED TO EARLIER YEARS BUT THERE IS HUGE FALL IN GP RATE. WHEN BOOKS OF ACCOUNT HAVE BEEN RE JECTED BY THE AUTHORITIES BELOW THEREFORE, INSTEAD OF MAKING HUGE ADDITIONS O F RS. 44,28,447/- AND RS. 33,00,029/-, IT WOULD HAVE BEEN REASONABLE AND APPR OPRIATE FOR THE AUTHORITIES BELOW TO COMPUTE THE INCOME OF THE ASSESSEE REASONA BLY CONSIDERING HISTORY OF THE ASSESSEE. THEREFORE, IN OUR VIEW, IT WOULD HAVE BEEN BETTER FOR THE AUTHORITIES BELOW TO APPLY HIGHER GP RATE TO COMPUTE REASONABLE INCOME OF THE ASSESSEE INSTEAD OF MAKING HUGE ADDITIONS AGAINST THE ASSESS EE, PARTICULARLY IN VIEW OF THE FACT THAT THE EXPLANATION OF THE ASSESSEE, AS NOTED ABOVE, CLEARLY SHOW THAT THE ADDITIONS ON ACCOUNT OF SUPERFINE PADDY AND RICE BR AN WERE NOT WHOLLY JUSTIFIED. WHEN ALL THESE ADDITIONS ARE TAKEN INTO CONSIDERATI ON, IT WOULD GIVE THE PROFIT RATE OF 9.93% AS EXPLAINED BY ASSESSEE WHICH WOULD BE TO TALLY UNJUSTIFIED CONSIDERING HISTORY OF THE ASSESSEE. THE EXPLANATION GIVEN BY T HE ASSESSEE CLEARLY SHOW THAT BOTH THESE ADDITIONS WERE WHOLLY INAPPROPRIATE AND WERE UNJUSTIFIED BECAUSE RATES GIVEN BY THE AUTHORITIES BELOW WERE TOTALLY D IFFERENT AND UNREASONABLE. 19. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCU MSTANCES AND HISTORY OF THE ASSESSEE, WE ARE OF THE VIEW THAT INSTEAD OF MAKING ADDITION OF RS. 44,28,447/- AND RS. 33,00,029/-, IT WOULD BE APPROPRIATE THAT W HEN BOOKS OF ACCOUNT HAVE BEEN REJECTED, THE AUTHORITIES BELOW SHOULD APPLY S LIGHTLY HIGHER GP RATE FOR THE PURPOSE OF COMPUTING INCOME OF THE ASSESSEE IN ORDE R TO MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY, SET ASIDE AND MODIFY THE ORDERS OF AUTHORITIES BELOW DELETING THE ABOVE ADDITIONS AND DIRECT THE ASSESSI NG OFFICER TO ADOPT GP RATE OF 3% AGAINST THE SALES DECLARED BY THE ASSESSEE AND C OMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. THESE GROUNDS ARE, THEREFORE, PARTLY ALLOWED. 19(I) AS REGARDS ADDITION MADE OF RS. 1,98,020/- UN DER SECTION 40A(2) OF THE ACT, ASSESSING OFFICER HAS NOT CITED ANY COMPARABLE CASE FOR THE PURPOSE OF MAKING ADDITION AND FURTHER ADDITION OF RS. 1,47,478/- ON ACCOUNT OF 10% DISALLOWANCE OUT OF WAGES EXPENSES IS ALSO WHOLLY INAPPROPRIATE BECAUSE THE ASSESSEE HAS ALREADY MADE SURRENDER OF RS. 40 LACS. WE MAY ALSO NOTE HERE THAT WHEN WE HAVE DIRECTED THE AUTHORITIES BELOW TO APPLY PROFIT RATE OF 3% FOR THE PURPOSE OF COMPUTING INCOME OF ASSESSEE AFTER REJECTION OF THE BOOKS OF ACCOUNT, THESE ADDITIONS WOULD NOT BE WARRANTED BECAUSE THE APPLIC ATION OF HIGHER GP WOULD TAKE CARE OF THE SAME. WE RELY UPON DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF BANWARI LAL BANSHIDHAR 229 ITR 229 IN WHICH IT WAS HELD THAT WHEN GP RATE IS APPLIED, IT WOULD TAKE CARE OF OTHER DISALL OWANCE OF EXPENSES. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BE LOW AND DELETE THE ADDITION OF RS. 1,98,202/- AND RS. 1,47,478/-. THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE ACCORDINGLY, ALLOWED. 4 19(II) AS REGARDS THE ADDITION MADE ON ACCOUNT OF B AD DEBTS OF RS. 7,75,001/-, THE AUTHORITIES BELOW NOTED THAT ASSESSEE HAS INCURRED BAD DEBTS IN RESPECT OF M/S P.LAL TRADERS RS. 2,28,333/-, M/S RATNA RICE INDUST RIES RS.3,42,898/- AND M/S SOHAL RICE MILLS RS.2,03,770/-. THE AUTHORITIES BELOW NOT ED THAT ASSESSEE HAS NOT PROVED THAT WHAT EFFORTS HAVE BEEN MADE FOR RECOVERY OF TH ESE BAD DEBTS. FURTHER, AS PER INFORMATION RECEIVED BY ASSESSING OFFICER, THER E WERE NO SUCH BALANCES APPEARING IN THEIR CASES. AFTER AMENDMENT IN SECTIO N 36(1)(VII), THE ASSESSEE NEED NOT TO PROVE AS TO WHAT EFFORTS HAVE BEEN MADE FOR RECOVERY OF THE BAD DEBTS. MERE WRITE OFF OF THE BAD DEBTS AS IRRECOVER ABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR IS ENOUGH. WE RELY U PON DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F.LTD. (SUPRA). TH E LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO ASSESSMENT ORDER OF PRECEDING ASSE SSMENT YEAR 2006-07 IN THE PAPER BOOK UNDER SECTION 143(3) IN WHICH ASSESSING OFFICER CONSIDERED THE SAME PARTIES HAVING SAME AMOUNT OUTSTANDING AGAINST THEM AND MADE DISALLOWANCE OF INTEREST @ 12%. THIS ADDITION WAS DELETED BY THE TRIBUNAL. THEREFORE, THERE IS NO QUESTION OF AUTHORITIES BELOW IN NOTING THAT THERE IS NO SUCH BALANCE APPEARING AS OUTSTANDING AGAINST THEM. THEREFORE, THERE WAS N O JUSTIFICATION TO MAKE THIS ADDITION. WE ACCORDINGLY, SET ASIDE ORDERS OF AUTHO RITIES BELOW AND DELETE THE ADDITION OF RS. 7,75,001/-. THIS GROUND OF APPEAL I S THEREFORE, ALLOWED. 20. CONSIDERING ABOVE DISCUSSION, WE DELETE THE ADD ITIONS ON GROUND NOS. 2, 3 AND 5 AND ON GROUND NO. 1(B) AND 4, ADDITIONS MADE BY AUTHORITIES BELOW ARE DELETED. HOWEVER, ASSESSING OFFICER IS DIRECTED TO COMPUTE INCOME ON THESE GROUNDS OF APPEAL BY APPLYING GP RATE OF 3% AS DIRE CTED ABOVE. WE MAKE IT CLEAR THAT THE ULTIMATE INCOME COMPUTED BY THE ASSE SSING OFFICER SHALL NOT BE LESS THAN THE SURRENDERED AMOUNT OF RS. 40 LACS DUR ING THE COURSE OF SURVEY. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINC E THE TRIBUNAL DELETED THE ABOVE ADDITION ON WHICH PENALTY HAVE BEEN IMPOSED A ND DIRECT TO COMPUTE INCOME BY APPLYING GP RATE THEREFORE ON ESTIMATED P ART ADDITION PENALTY NEED NOT BE LEVIED. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASES OF CIT VS. SANGRUR VANASPATI MILLS LTD. [2008] 303 ITR 53, CIT VS. RAV AIL SINGH & CO. [2002] 254 ITR 191 AND CIT VS. DHILLON RICE MILLS [2002] 256 ITR 447. 6. ON THE OTHER HAND LD. DR RELIED UPON THE ORDER O F THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 8. THE AO VIDE SEPARATE ORDER LEVIED THE PENALTY UN DER SECTION 271(1)(C) OF THE ACT ON THE THREE ADDITIONS MENTIONED ABOVE WHIC H HAVE BEEN DELETED BY THE TRIBUNAL ON QUANTUM APPEAL. HOWEVER AS AGAINST THE ADDITION OF 5 SUPPRESSION OF PROFIT PADDY PARMAL AND SUPPRESSION OF SALE OF RICE BRAN, THE TRIBUNAL DIRECTED TO APPLY PROFIT RATE OF 3% AGAINS T THE SALE DECLARED BY ASSESSEE FOR THE PURPOSE OF MAKING THE ADDITION THE REFORE ULTIMATELY INCOME OF THE ASSESSEE COMPUTED BY ESTIMATING THE INCOME OF T HE ASSESSEE ON THE ABOVE ADDITION ON THE BASIS OF WHICH PENALTY PROCEEDING W ERE INITIATED AGAINST THE ASSESSEE. IT IS WELL SETTLED LAW THAT PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT WAS NOT LEVIABLE WHERE THE ADDITION TO ASSE SSEES INCOME WAS MADE ON THE BASIS OF ESTIMATE AND NOT ON ANY CONCRETE EVIDE NCE OF CONCEALMENT OF ANY TRANSACTION OR FURNISHING OF INACCURATE PARTICULARS . THE DECISION CITED BY LD. COUNSEL FOR THE ASSESSEE SQUARELY APPLY TO THE FACT S AND CIRCUMSTANCES OF THIS CASE. 9. WE, THEREFORE, FOLLOWING THE ABOVE DECISION AND CONSIDERING FACTS OF THE CASE, SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND CANCEL THE PENALTY. 10. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- (RANO JAIN) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :23/05/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR