Vishnukumar Bansilal Kalantri, Latur V. ITO, Latur

ITA 1454/PUN/2009

• Counselvise Citation: 145424514 RSA 2009
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset converted into stock in trade
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL PUNE BENCH A , PUNE BEFORE SHRI SHAILENDRAKUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 1454/PN/2009 (ASSESSMENT YEAR: 2006-07) SHRI VISHNUKUMAR B.KALANTRI PROP.KALANTRI PULSES INDUSTRIES MARKET YARD, LATUR-413 512 APPELLANT PAN ABAPK9455G VS. INCOME TAX OFFICER, WARD 3(3), SWTI CHAMBERS, AUSA ROAD, LATUR-413 531 RES PONDENT APPELLAN T BY: SHRI M.K.KULKARNI, SR.ADVOCATE RESPONDENT B Y: SHRI S.K.AMBASTHA, DR ORDER PER G.S. PANNU, A.M .: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), AURANGABA D DATED 01.09.2009 WHICH, IN TURN, HAS ARISEN FROM ORDER DA TED 27-10-2008 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143( 3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAININ G TO THE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ONLY ISSUE RAISED BY THE ASS ESSEE IS WITH RESPECT TO AN ADDITION OF RS.6,87,500/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESSIVE PROCESS LOSS. THE ACTION OF THE ASSESSING OFFICER HAS SINCE BEEN UPHELD BY THE CIT( A), AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN MANUFAC TURE OF DAL AND GENERAL TRADING. THE ASSESSING OFFICER NOTICED THAT IN THE ACTIVITY RELATING TO THE MANUFACTURE OF DAL, THE AS SESSEE HAD SHOWN A PROCESS LOSS @ 3.87%, WHICH WAS CONSIDERED EXCESS IVE IN COMPARISON TO THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005-06, WHEREIN SUCH LOSS WAS @ 1.05%. ON BEING ASKED TO E XPLAIN THE REASONS FOR LOWER YIELD OF THE FINISHED PRODUCT AND HIGHER PROCESS ITA NO 1454/PN/2009 SHRI VISHNUKUMAR B.KALANTRI LOSS, ASSESSEE EXPLAINED THAT THE SAME WAS DUE TO T HE OLD MACHINERY AS ALSO THE UNCLEANED RAW MATERIAL CONTAI NING MUD AND MOISTURE, ETC. THE ASSESSING OFFICER WAS NOT SATIS FIED WITH THE EXPLANATION AND HE INVOKED THE PROVISIONS OF SEC.14 5(3) OF THE ACT AND REJECTED THE BOOK RESULTS. THEREAFTER, THE ASS ESSING OFFICER RESTRICTED THE PROCESS LOSS TO 2% AND ACCORDINGLY T HE DIFFERENCE OF LOSS CLAIMED @ 1.87% ( I.E. 3.87% - 25 ) WAS DISALL OWED AND ACCORDINGLY AN ADDITION OF RS.6,87,500 WAS MADE TO THE RETURNED INCOME. BEFORE THE CIT(A) ALSO THE ASSESSEE REITE RATED THAT THE LOSS DECLARED WAS ACTUAL LOSS AND IT VARIED IN EACH ASSESSMENT YEAR AND, THEREFORE, THERE WAS NO JUSTIFICATION FOR THE ADDITION. THE CIT(A), HOWEVER, OBSERVED THAT THERE WAS NO SPECIFI C REASON ESTABLISHED BY THE ASSESSEE FOR THE HIGHER/ABNORMAL PROCESS LOSS DECLARED DURING THE YEAR AND, THEREFORE, THE ADDITI ON MADE BY THE ASSESSING OFFICER WAS SUSTAINED. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAD VEHEMENTLY SUBMITTED THAT THE PROCESS LOSS INCURRED BY THE ASSESSEE HAS BEEN FAITHFULLY DECLARED BY THE ASSESS EE AND THAT MERELY BECAUSE THE YIELD WAS LOWER IN THIS YEAR, TH E SAME WOULD NOT BE A GROUND TO REJECT THE TRADING RESULTS DECLARED BY THE ASSESSEE. IN THIS CONNECTION, RELIANCE WAS PLACED ON THE FOLL OWING DECISIONS. A) C.ARUMUGASWAMI NADARA V. CIT (1961) 42 ITR 237 (MA D) B) SHANKER RICE CO. V. ITO (2000) 72 ITD 139 (ASR) (SB ) 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE POINTED OUT THAT THE CIT( A) HAS RIGHTLY CONCLUDED THAT THERE WAS NO SPECIFIC REASON ADVANCE D FOR THE EXCESSIVE LOSS CLAIMED DURING THE YEAR, WHICH WAS A BNORMAL CONSIDERING THE PROCESS LOSS DECLARED IN THE EARLIE R YEARS AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEARS. IN THIS CONNEC TION, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO THE OPERATIVE PORTION OF THE ORDER OF THE CIT(A) IN SUPPORT OF TH E CASE OF THE REVENUE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN THIS CASE, THE ASSESSEE IS AN INDIVIDUAL, INTER-ALIA, CA RRYING ON THE BUSINESS OF DAL MANUFACTURE AND GENERAL TRADING. F ROM THE RECORD IT EMERGES THAT THE ASSESSEE FILED HIS RETURN OF INCOM E DECLARING A ITA NO 1454/PN/2009 SHRI VISHNUKUMAR B.KALANTRI TOTAL INCOME OF RS.3,16,026 FROM THE AFORESAID ACTI VITY AN SUCH RETURN WAS ACCOMPANIED BY THE AUDITED FINANCIAL STA TEMENTS AND THE AUDIT REPORT PRESCRIBED U/S 44AB OF THE ACT. IT IS ALSO EMERGING FROM THE ASSESSMENT ORDER THAT THE ASSESSEE PRODUCE D THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS CALLED FOR BY THE AS SESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE A SSESSING OFFICER HAS INVOKED THE PROVISIONS OF SEC.145(3) OF THE ACT AND REJECTED THE TRADING RESULTS DECLARED. PRIMARILY, THE REASON AD VANCED BY THE ASSESSING OFFICER IS THAT THE PROCESS LOSS DECLARED DURING THE YEAR BY THE ASSESSEE @ 3.87% WAS ABNORMALLY HIGH IN RELATIO N TO THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005-06. SEC .145(3) OF THE ACT EMPOWERS AN ASSESSING OFFICER TO DISREGARD THE BOOK RESULTS DECLARED AND MAKE AN ASSESSMENT TO THE BEST OF HIS JUDGEMENT AS PROVIDED IN SEC.144 OF THE ACT. HOWEVER, SUCH POWE R OF THE ASSESSING OFFICER IS CIRCUMSCRIBED BY HIS BEING SAT ISFIED THAT THE ACCOUNTS OF THE ASSESSEE ARE NOT CORRECT OR COMPLET E OR THE METHOD OF ACCOUNTING AS PRESCRIBED IN SEC.145(1) OR THE AC COUNTING STANDARDS NOTIFIED U/S 145(2) OF THE ACT HAVE NOT B EEN REGULARLY FOLLOWED BY THE ASSESSEE. QUITE CLEARLY, THE ONLY REASON PREVAILING WITH THE ASSESSING OFFICER TO DOUBT THE CORRECTNESS OF THE ACCOUNTS IS THE ABNORMAL PROCESS LOSS @ 3.87% DECLARED BY THE A SSESSEE. IN OUR CONSIDERED OPINION, THE FACTOR OF A HIGHER PROC ESS LOSS CAN ONLY BE A TRIGGER TO INVESTIGATE FURTHER THE ACCOUNTS PR EPARED BY THE ASSESSEE BUT THE VARIATION IN YIELD BY ITSELF CANNO T BE A GROUND TO INFER INCORRECTNESS OF THE TRADING RESULTS DECLARED . IT IS ALSO NOTABLE THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC INFIRMITY OR DEFECT IN THE BOOKS OF ACCOUNT OR THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THEREFORE, IN OUR CONSID ERED OPINION, THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SEC .145(3) OF THE ACT ON INSUFFICIENT GROUNDS TO REJECT THE TRADING RESUL TS DECLARED BY THE ASSESSEE. 7. IN SO FAR AS THE EXCESSIVE PROCESS LOSS DECLARED BY THE ASSESSEE, THE ONUS TO JUSTIFY THE SAME IS CLEARLY O N THE ASSESSEE. THE ASSESSING OFFICER WAS WELL WITHIN HIS RIGHT TO SHOW CAUSE THE ASSESSEE TO SUITABLY EXPLAIN THE TRADING RESULTS QU A THE LEVEL OF PROCESS LOSS DECLARED. IN THAT REGARD, WE FIND THA T THE EXPLANATION FURNISHED BY THE ASSESSEE IS NOT SPECIFIC BUT IS ON LY A GENERALIZED EXPLANATION. NO DOUBT, THE SEASONAL NATURE OF THE RAW MATERIAL CAN LEAD TO VARIATION IN QUALITY, WHICH MAY ULTIMATELY AFFECT THE YIELD. ITA NO 1454/PN/2009 SHRI VISHNUKUMAR B.KALANTRI NEVERTHELESS, IN OUR VIEW, THE ENTIRE EXERCISE DOES INVOLVE AN ELEMENT OF SUBJECTIVITY AND CONSIDERING THE ENTIRET Y OF FACTS AND CIRCUMSTANCES CERTAIN AMOUNT OF ADDITION IS MAINTAI NABLE ON THIS SCORE IN THE INSTANT CASE. IN OUR VIEW, HAVING REG ARD TO THE SCALE OF OPERATIONS AND THE HISTORY IN THE ASSESSEES OWN CA SE, IT WOULD MEET THE ENDS OF JUSTICE IF AN ADDITION OF RS.3 LACS IS RETAINED AND THE BALANCE OF RS.3,87,500 IS DELETED SO AS TO COVER TH E LEAKAGE OF REVENUE, IF ANY, ON THIS POINT. 8. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE ASSESSING OFFICER TO RETAIN AN ADDITION OF RS.3 LACS AND DELETE THE BALANCE. 9. THE OTHER GROUND IS RELATING TOS LEVY OF INTERES T U/S 234B OF THE ACT, WHICH IN OUR VIEW IS CONSEQUENTIAL AND NO SPECIFIC ADJUDICATION IS REQUIRED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 24-8-2011. SD/- SD/- (SHAILENDRAKUMAR YADAV) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE, DATED: 24 -8- 2011 COPY TO:- 1) ASSESSEE 2) THE ITO, WARD 3(3), LATUR 3) THE CIT (A) AURANGABAD 4) THE CIT CONCERNED 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T.A.T., PUNE. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., PUNE