MESERS JAWALA RICE MILLS, FEROZPUR V. INCOME TAX OFFICER WARD 3(5) ZIRA, FEROZPUR

ITA 211/ASR/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4777 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence
• Section: 69; 64; 43; 13; 22

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. 211/Asr/2018 Assessment Year: 2010-11 M/s Jawala Rice Mills, Rakhri Road, Ferozepur [PAN: AAAFJ 9607Q] Vs. Income Tax officer, Ward 3(5), Zira at Ferozepur (Appellant) (Respondent) Appellant by : Sh. Ashwani Kalia, CA Respondent by: Smt. Rajinder Kaur, CIT DR Date of Hearing: 05.05.2022 Date of Pronouncement: 22.06.2022 ORDER Per Dr. M. L. Meena, AM: This appeal has been filed by the assessee against the impugned order dated 06.02.2018 passed by the Ld. Commissioner of Income Tax (Appeals), Bathinda in respect of the Assessment Year 2010-11. 2. The assessee has raised the following grounds of appeal: “1. That the Ld. CIT(A)-Bathinda has grossly erred in law and on facts in rejecting assessee's application under rule 46A for the admittance of additional evidences which had arisen after the date of assessment but go to the root of the issues under appeal and extremely vital to the decision. ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 2 2. That the Ld. CIT(A)-Bathinda has erred in law and on facts in holding that even on merits additional evidences sought to be filed are not relevant for the decision of assesee's appeal. 3. That the Ld. CIT(A)- Bathinda has erred in law and on facts In confirming the addition of Rs.51060272 for the alleged embezzlement of stock of paddy belonging to Pungrain ignoring the fact that even as on date the stock of paddy said to have been embezzlement is lying in the factory premises. 4. That while confirming the above addition the Ld. CIT(A)- Bathinda has erred in law in ignoring the fact that physical verification, during which the alleged embezzlement was found, was conducted by Pungrain on 23.8.2010 i.e. after the close of the year hence the embezzlement, if at all any, did not pertain to the year under appeal. 5. That while confirming the addition of Rs. 51060272 the Id. CIT(A) has conveniently ignored the fact that even as per Pungrain's own physical verification on 23.8.2010 shortage of only 17657 Katas of paddy weighing 6180 qtls valued at Rs.70 lacs approx. was found. 6. That the Ld. CIT(A)- Bathinda has erred in law and on facts, in confirming the addition made by the AO u/s 69 by holding that the assesee has not accounted for income alleged to have been generated from embezzlement of paddy completely ignoring the fact that there has neither been any embezzlement on the part of appellant nor any such income had arisen to it. 7. That the Ld. CIT(A)- Bathinda has erred in law and on facts in holding that the stock of paddy was under the exclusive control of assesese firm completely ignoring the fact that the Pungrain had deployed its own watchman for 24 hours round the clock. 8. That the Ld. CIT(A)- Bathinda has erred in law and on facts in conveniently ignoring the fact that FIR lodged by Pungrain was quashed by the Hon'ble Court of Chief Judicial Magistrate Ferozepur. 9. That while confirming the addition of Rs.51060272 the Id.CIT(A) has conveniently ignored the fact that even if, for argument sake, it is accepted ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 3 that there has been embezzlement, there is equivalent amount of liability on the head of the appellant which negates the gain, if any. 10. That the order is bad in law and on facts 11. That the appellant craves leave to add or amend the ground of appeal before the appeal is heard and disposed off.” 3. Briefly, facts as per record are that the Pungrain supplied paddy to the appellant firm for rice milling. The paddy was stored in the business premises of the appellant firm in the joint custody of the appellant and custodian employees of the Pungrain. In the scrutiny proceedings the Assessing Officer (In short “the AO”), based on a FIR, filed by the head office of the Pungrain vide its letter no.RP2CH.2011/425 dated 15.12.2011, wherein it was alleged that Jawala Rice Mills has embezzled paddy of Pungrain for the financial year 2009-10 under consideration, and discussed that rice 111305 bags worth Rs.5,10,60,925/- received from Pungrain for milling purposes by the assessee were embezzled and also noted that Arbitration Award dated 27.5.2014 was passed against the assessee, although by the sole Arbitrator. Accordingly, he made an addition of Rs.5,10,60,925/-, on the basis of FIR lodged by Pungrain for embezzlement of stock of paddy valued at Rs.51060925/- given to the appellant for milling and arbitration award. 4. In appeal, the Ld. CIT(A) has confirmed the addition by concurring the finding of the AO based on registration of FIR against the assesee, by Pungrain and the Arbitrator Award decided against the assessee Firm, ignoring the fact that there was equivalent amount of liability to negate the alleged gain on account of embezzlement to the assessee, if any. ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 4 5. The Ld. Counsel for the assesee submitted that the Ld. CIT(A)- Bathinda had grossly erred in law and on facts in rejecting assessee's application under rule 46A for the admittance of additional evidences which are extremely vital and goes to the root of the matter; that the Ld. CIT(A) had erred on facts in confirming the addition of Rs.51060272/- for the alleged embezzlement of stock of paddy belonging to Pungrain, ignoring the fact that even as on date the disputed stock of paddy, said to have been embezzlement was lying in the factory premises: that he has ignored the fact that physical verification, during which the alleged embezzlement was found, was conducted by Pungrain on 23.8.2010 i.e. after the close of the year, hence the embezzlement, if at all any, did not pertain to the year under appeal and that while confirming the addition of Rs. 51060272, the Id. CIT(A) has conveniently ignored the fact that even as per Pungrain's own physical verification done on 23.8.2010, shortage of only 17657 Katas of paddy weighing 6180 qtls valued at Rs.70 lacs approx. was found. 5.1 The Ld. AR argued that the Ld. CIT(A)- Bathinda has erred in law and on facts, in confirming the addition made by the AO u/s 69 by holding that the assesee has not accounted for income alleged to have been generated from embezzlement of paddy, completely ignoring the fact that there has neither been any embezzlement on the part of appellant nor any such income had arisen to it; that the Ld. CIT(A)- Bathinda has erred in law and on facts in holding that the stock of paddy was under the exclusive control of assesese firm completely ignoring the fact that the Pungrain had deployed its own watchman for 24 hours round the clock; that the Ld. CIT(A)- Bathinda has erred in law and on facts by ignoring the fact that FIR lodged by Pungrain was quashed by the Hon'ble Court of Chief Judicial ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 5 Magistrate, Ferozepur and that while confirming the addition of Rs.5,10,60,272/-, the Id. CIT(A) had ignored the fact that even if, it is accepted that there has been embezzlement, there is equivalent amount of liability on the head of the appellant which negates the gain, if any. He has filed a synopsis in support of the arguments made before us, relevant part is reproduced hereunder: Facts relating to the alleged embezzlement of paddy are as under:- a) The Pungrain supplied paddy to the appellant firm for rice milling. The paddy was stored in the business premises of the appellant firm in the joint custody of the appellant and custodian employees of the Pungrain. This paddy was supplied during the paddy procurement season 2009-10 expiring on 31.3.2010 which was further extended upto 15.7.2010. b) A physical verification of the paddy stock was conducted by Anoop Sharma DFSO & Sukhwant Singh Inspector incharge on 23.8.2010 and a shortage of 17657 bags (6179.95 qtls) of paddy valued at Rs.7000000 approx was reported. Detail of this physical verification is as under:- S.No. Particulars Quantity (In Bags) 1 Total quantity of paddy allotted 235063 2 Less: Shifted Out 6900 3 Balance (1-2) 228163 4 Less: Released for milling 93943 5 Balance (3-4) 134220 6 Paddy available on physical verification on 23.8.2010 53280 7 Rice available on physical verification on 23.8.2010 (29680 bags equivalent to 63283 bags of paddy) 63283 8 Shortage reported on physical ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 6 verification on 23.8.2010(5-6&7) 17657 As per Para 5 of Government of Punjab’s Scheme for Custom Milling of Kharif 2009-2010 paddy stored in the premises of a rice mill was under joint custody of the rice miller and staff of the concerned procurement agency who had joint responsibility for quantity and quality of paddy stored. c) Further, as per the above policy of the Govt staff of the Pungrain was conducting physical verification of the stocks on a fortnightly basis and no shortage of stocks was reported in any of the fortnightly physical verifications prior to 23.8.2010. d) Refer Punjab Government Scheme for Custom Milling of Kharif 2009- 2010 enclosed at Paper Book page 1 to 9 and copy of Agreement with appellant firm at Page 10 to 15 of Paper Book. e) An FIR No.34 dated 26.2.2011 was lodged by the District Controller Food & Civil Supplies, Ferozpur against the appellant against the appellant reporting the shortage of 17657 bags of paddy valued at Rs.7000000 on the date of PV on 23.8.2010 holding that shortfall in the delivery of rice equivalent to 111305 qtls are with the appellant. In the FIR it is mentioned at page 24 of Paper Book that the head office vide its letter no.RP2CH.2011/425 dated 15.12.2011 has directed that Jawala Rice Mills has embezzled paddy of Pungrain for the year 2009-10 in which paddy of more than Rs.1 crore has been embezzled.- S.No. Particulars Quantity (In Bags) 1 Total quantity of paddy allotted 235063 2 Less : Shifted Out 6900 3 Balance (1-2) 228163 4 Less: Released for milling 93943 5 Balance (3-4) 134220 6 Quantity of Rice delivered after ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 7 physical verification on 23.8.2010 (Equivalent to 22915 bags of paddy) 22915 7 Shortfall in quantity of delivery of rice (equivalent to 111305 bags of paddy) 111305 A copy of this FIR No.34 dated 26.2.2011 at Page 16 to 25 of Paper Book. It is pertinent to point out here that the date of occurrence of offences reported by DFSO in FIR is from 23.8.2010 to 24.2.2011 Refer Page 16 of Paper Book f) Investigation of FIR was entrusted to SP(HQ), Fazilka, who after thorough investigation recommended the cancellation of FIR as there was no truth in the said FIR. Copy of Enquiry Report is at page 35 to 43 of Paper Book. g) All these facts are evidenced by the status report dated 23.1.2017 given by SHO Ferozpur City. Copy of the same is at Page 62 to 63 of Paper Book. h) The FIR was cancelled by Chief Judicial Magistrate, Ferozpur vide order dated 27.8.2015, a copy of order is enclosed at page 60 to 61 of Paper Book. i) The AO in Para 7 of the assessment order has wrongly mentioned that FIR No.34 dated 26.2.2011 “has not actually been cancelled rather it has been cancelled for reconsideration of the matter”. This is absolutely incorrect. FIR was cancelled by CJM without any direction to recover the matter. j) That even otherwise no addition can be made merely on the basis of allegations made in an FIR. The allegations made in an FIR have no evidentiary value. An FIR contains only version of the complainant which is required to be investigated by the Police. And after investigation the FIR was quashed by the Magistrate on the basis of Enquiry Report of Police Authority. ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 8 On ARBITRATION AWARD the counsel submitted as under: 1 In the meantime the Pungrain referred the case for Arbitration who give his award on 27.5.2014 against the appellant for a sum of Rs.47124536. Copy of Award is at page 64 to 77 of Paper Book. 2 The AO also considered the Arbitration Award against the appellant for making the addition of rs.51060972. 3 From the perusal of award it will be observed that there is no finding of the Arbitrator holding that the appellant responsible having embezzled any paddy. The award against the appellant is only for short supply of rice due to the damage to the stock of rice and paddy lying with the appellant and not for any embezzlement. In objection to the CIT(A) order, the counsel submitted as under: As regards the filing of FIR and the Award against the assesee given by Arbitrator submissions have already been made above. 2 As regards the accessibility of income earned by resorting to not permitted modes it is submitted that the assessee has not earned any such income. The total stock of paddy is still lying in the mill premises and not even a bag of paddy was embezzled or sold by the assessee. There is ample evidence on record that paddy which got damaged is still lying in the factory premises as per detail given below. a) The FIR filed by the Pungrain, on enquiry by the Police, was found false and bereft of any truth. On recommendation of the police authority. Hon’ble CJM cancelled the FIR which was also accepted by Pungrain as no appeal was filed against the order of CJM. b) Even the Arbitrator has no where stated in the Award that the paddy was embezzled by the assesee. In his order at page 13 from last 5th lines of Arbitrator has held as under :- “The D.M.Office Fzr did not take any step to preserve the paddy nor the respondent mil has taken any step to conserve the same. I find that both the parties were negligent but I find that huge public money was involved ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 9 in this transaction. The respondent miller was equally responsible for any damage to the rice and paddy whatever was left” This shows that paddy got damaged and was not embezzled. c) From the Award of the arbitrator it is clear that the paddy and rice belonging to Pungrain was lying in the mill premises and it was for this reason the assesee was allowed storage charges to tune of Rs.2389521 @50 paisa per bag per month for 41 months and milling charges of Rs.333240 for the milled rice in stock. Both the above claims of the appellant were agreed by the department. This proves that stock was lying in the mill premises even on the date of award. Kindly refer the following order at page 14 of the Award:- “The respondent has claimed counter claim of Rs.3936436 which is in the shape of milling charges to the tune of Rs.613515 as agreed by the department and Rs.333240 as milling charges on the rice available of 29680 bags. Similarly, amount of security to the tune of Rs.6 lac and storage charges for 41 months to the tune of Rs.2389521. As such the total comes to rs.3936436. d) Also refer to the legal notices issued by the UCO Bank to Pungrain Deptt for lifting the damaged stock of paddy lying in mill premises since the land, building and machinery of the appellant firm was taken over by the bank under SURFAESIE ACT. Copy of legal notices are at page 78 to 87 of Paper Book. All the above facts give an ampale evidence that stock of paddy in damaged condition is lying in mill premises. Moreover, it was the sole responsibility of the Pungrain officials to lift the stock of paddy and rice lying with the assessee whenever there was delay in the supply of rice by the assesee. Kindly refer Para 5 of Government of Punjab’s Scheme for Custom Milling of Kharif 2009-2010 at page 4 of Paper Book. The highlights of this scheme regarding storage of paddy is given hereunder:- 5 “Storage of Paddy Stocks” ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 10 “Paddy procured by the agencies shall be, by and large, stored in the premises of the allotted mills in joint custody as per details given in the subsequent paragraphs on the basis of allotment policy. ---------- The paddy stored in the premises of rice mills will be under the joint custody of the rice millers and the staff of the concerned agency for which responsibility for quantity and quality will be of the concerned rice mills and the staff of the agencies. The miller will ensure the storage of paddy stocks of the agencies separately from that of his own purchased paddy stocks by erecting a physical barrier such as a boundary wall or a proper and durable fencing” ---------- “The Agencies staff shall conduct _______ Further, your honor’s kind attention is invited to Agreement between Pungrain and the Appellant firm where in Para 11 it is clearly stated that quantity of paddy milled less by the miller during the month will be shifted to other miller at the risk and cost of the miller, after due notice in this regard. However, the Pungrain failed to take any such action. Further, in Para 22 of the Agreement at page 14 of Paper book it is clear that contract shall come into force with effect from the date of execution of this agreement and shall remain in force upto 30.9.2010 or clearance of dues which is earlier. Thereafter it may be extended at the discretion of Managing Director Pungrain for a further period on same terms and conditions. However, the officials of Pungrain did not take any step to lift the paddy from the assesee mill premises. The above position has amply been clear and accepted by arbitrator in his order where he has held as under:-- PAGE 12 from last 7 lines onward which reads as under :- “So it is a matter of concern that if on 23.8.2010 this was the situation in the respondent mill and when the actual period 31.3.2010 for the delivery of the rice and even the extended period of 15.7.2010 has lapsed then why the D.M. Office Fzr did not taken any concrete steps to shift the paddy lying in the respondent mill to the other mill at the risk and cost of the respondents. Further as per the clause of the agreement no steps were taken to get the paddy milled from other. On going through the agreement there is specific clause no.11 which reads the delivery of ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 11 resultant rice within the regular intervals and if the miller fails to deliver the resultant rice upto March 2010 then the remaining paddy has to be shifted to other mills at the risk and cost of the respondent mill. This clearly shows that negligence of the claimant office that even after knowing that 29680 bags of milled rice is lying in the respondent mill and 53280 bags of paddy is lying in the respondent mill then why action was not taken timely against the mill and even no efforts were made to shift this to other mill as per the Agreement” From the above order of Arbitrator it is clear that office of Pungrain was squarely responsible for letting the stock deteriorate by not lifting the same as per terms of Agreement. In view of the above submissions the questions of unlawful enrichment does not arise when total stock of paddy is lying in the mill premises. The arbitrator has put the total loss due to the damage of stock of paddy on the assesee even after holding the deptt officials responsible for damage on account of negligence as well as for non lifting of stock when the same was not delivered by the assesee in time. Thus rather then any enrichment the assesee has suffered loss due to Award of arbitrator against the assesee is under loss of RS.51060972 award by arbitrator on assesee. Further, rejection of assesee’s submissions by CIT(A) that embezzlement if any pertained to subsequent year on the ground that contract with Pungrain expired on 31.3.2010 is also absolutely wrong. We have already submitted above that the agreement with Pungrain was upto 30.9.2010 as mentioned in clause 22 of Agreement with Pungrain. Even CIT(A) himself at page 14 of his order in opening para has stated that the assesee did not deliver the resultant rice in time therefore the period of delivery was extended to 15.7.2010(Wrongly mentioned as 15.7.2011) Further the arbitrator also in his award has accepted this fact the contact between Pungrain and the appellant was extended upto 15.7.2010. Kindly refer the following pages of the Award:- i) Page 65 of Paper Book 6th line from top ii) Page 66 of Paper Book 4th line from top ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 12 iii) Page 75 of Paper Book 7th line from bottom In view of the above submissions the CIT(A) is absolutely wrong that the contract of appellant with Pungrain expired on 31.3.2010 as a result embezzlement relate to year under assessment even though it was detected in the next year. We have already submitted that the physical verification of stock was done every fortnightly by department and prior to 23.8.2010 there was never any shortage of stock was found on physical verification of stock. Even the shortage pointed out on physical verification on 23.8.2010 was incorrect since as per the Police Enquiry no actual physical verification was done by department. Stock was only seen paraferically by DFSO & Inspector which was admitted by DFSO Ashok Sharma during Police enquiry. Further, it is submitted that even in FIR filed by department the occurrence of offence alleged to be from 23.8.2010 to 24.2.2011 which falls in subsequent year and not in the year under appeal. Hence the addition if at all to be made could only be made in subsequent year and not in the year under appeal. Further CIT(A) in his assertion at page 15 has wrongly stated that stock of paddy was under exclusive control of appellant whereas both in the policy papers issued by Govt as well as Agreement the stock was under the joint custody of Pungrain and appellant. The summary of submissions is given hereunder:- There is neither any embezzlement or unauthorized disposal of the paddy by the appellant as is evident from the following facts: - i) The stock of paddy was under the joint custody of Pungrain and appellant ii) Physical stock taking was done by the Pungrain officials every fortnightly and no shortage was ever found prior to 23.8.2010. iii) For the first time during the P.V conducted by the Pungrain officials on 23.8.2010 shortage of 17657 bags valued at Rs.70 lakhs (approx) of paddy was reported. ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 13 iv) Even this shortage was not there since the DFSO Sh.Anoop Sharma who had conducted the PV admitted during the course of Police enquiry that he had only conducted PV paraferically and no actual physical verification was conducted. Kindly refer statement of DFSO filed page 32 to 34 of Paper Book. Even the security guard had stated that the officials had only taken round of the factory and went back within 10 to 15 minutes. v) Further, FIR was filed as late as on 26.2.2011. In the FIR also the embezzlement alleged is only Rs.1 crore (approx). The amount of RS.51060925 was the total value of stocks lying with the appellant firm. vi) On enquiry by the Police Deptt the cancellation of FIR was recommended as there was no truth in FIR and finally the FIR was cancelled by the Chief Judicial Magistrate vide order dated 27.8.2015. Copy of order filed at page 60 & 61 of Paper Book. vii) As regards the award of Arbitration it is submitted that the Arbitrator has nowhere sated that there has been any embezzlement of paddy by the appellant. The Arbitrator has only mentioned the value of stocks damaged lying with the appellant. viii) The Arbitrator in his Award has accepted the fact that damaged stock of paddy and rice is lying in the factory premises by allowing storage charges amounting to Rs.2389521 to the appellant. ix) The Arbitrator has held the officials of the deptt equally responsible for the damage to the stock for their negligence. The award is for the damage to the stocks and not for any embezzlement. x) The Arbitrator has also confirmed that the stock was under the joint custody of the two parties. xi) The CIT(A) was absolutely wrong in denying the corresponding liability on the head of assesee due to loss or damage as per Arbitration Award. The liability as per the Award is payable by the assesee. xii) Further the CIT(A) is wrong in rejecting the claim of the assesee that the loss if any had occurred in the next year on the ground that contract ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 14 with Pungrain expired on 31.3.2010. The contract was upto 30.9.2010. Refer clause 22 of Agreement at page 14 of Paper Book. 6. Per contra, the Ld. CIT(DR) stands by the impugned order. He contended that the CIT(A) was justified in confirming the addition in view of the FIR lodged by Pungrain for embezzlement of stock of paddy valued at Rs.51060925 being given to the appellant for milling and an arbitration Award dated 27.5.2014 declared against the assessee. 7. We have heard both the sides, perused material on the record, and gone through the submission made before us. It is seen that the Pungrain supplied paddy to the appellant firm for rice milling and the paddy was stored in the business premises of the appellant firm in the joint custody of the appellant and custodian employees of the Pungrain. It is noted that this paddy was supplied during the paddy procurement season 2009-10 expiring on 31.3.2010 which was further extended upto 15.7.2010 and that a physical verification of the paddy stock was conducted by Anoop Sharma DFSO and Sukhwant Singh Inspector incharge on 23.8.2010 wherein a shortage of 17657 bags (6179.95 qtls) of paddy valued at Rs.70,00,000/- approx was reported as above. 8. Thus, the Pungrain supplied paddy to the appellant firm for rice milling and the stock of paddy was maintained under the joint custody of Pungrain and appellant assessee. The Ld. AR argued that physical stock taking was done by the Pungrain officials every fortnightly and no shortage was ever found prior to 23.8.2010 and that it was for the first time, shortage of 17657 bags valued at Rs.70 lakhs (approx) of paddy was reported, during the P.V. conducted by the Pungrain officials on 23.8.2010. The Ld. AR contended that as such, there was no shortage in stock because the ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 15 DFSO Sh. Anoop Sharma who had conducted the PV, has admitted during the course of Police enquiry that he had only conducted PV paraferically and no actual physical verification was done (APB, Pg. 32 to 34) and that even the security guard had stated that the officials had only taken round of the factory and went off within 10 to 15 minutes. 9. We have gone through the FIR No. 34, dated 26.02.2011 (APB, Pg. 16-25) and enquiry/investigation report of the SP(Hq), Fazilka, on the FIR where period of offence is mentioned from 23/08/2010 to 24/02/2011. From the investigation report on FIR furnished by SP(HQ), Fazilka, it is evident that he has recommended the cancellation of FIR after thorough investigation, as there was no truth in the said FIR (APB, Pg 35 to 43). Accordingly, the FIR was cancelled by Chief Judicial Magistrate, Ferozpur vide order dated 27.8.2015 (APB, Pg. 60 to 61). The allegation of the AO in the assessment order that FIR No.34 dated 26.2.2011 “has not actually been cancelled rather it has been cancelled for reconsideration of the matter” is factually incorrect as the FIR was cancelled by CJM without any such observation. In our view, no addition can be made merely on the basis of allegations made in an FIR because the allegations made in an FIR have no evidentiary value until and unless the allegation are substantiated with relevant documentary evidenced brought on record during the enquiry report. Since the FIR contained only version of the complainant which was quashed by the Magistrate on the basis investigated/ Enquiry Report of Police Authority. 10. We find that the authorities below besides FIR, have considered the arbitration award as the basis of additions without appreciating the fact that there was neither observation or finding of the Arbitrator to the effect that ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 16 the appellant Firm was responsible having embezzled any paddy. From the Arbitration Award, it is seen that the Pungrain referred the case for Arbitration and the sole Arbitrator passed the award dated 27.5.2014 against the appellant for a sum of Rs.47124536 (APB, 64 to 77). From the perusal of award it is observed that there is no finding of the Arbitrator holding that the appellant was responsible for having embezzled any paddy. The award against the appellant is only for short supply of rice due to the damage to the stock of rice and paddy lying with the appellant and not for any embezzlement. 11. It is pertinent to mention the facts that the FIR was filed as late as on 26.2.2011 wherein the embezzlement alleged was Rs.1 crore (approximately) as against the amount of Rs.51060925/- the total value of stocks allegedly lying with the appellant firm and as the cancellation of FIR was recommended on enquiry by the Police Deptt, as there was no truth in FIR and finally the FIR was cancelled by the Chief Judicial Magistrate vide order dated 27.8.2015 (APB, Pg. 60 – 61), the charge of embezzlement alleged paddy of Rs.1 crore (approximately) stands disproved. 12. It is evident from the Arbitration award that the Arbitrator has nowhere sated that there has been any embezzlement of paddy by the appellant as the Arbitrator has only mentioned the value of damaged stocks lying with the appellant; that damaged stock of paddy and rice is lying in the factory premises by allowing storage charges amounting to Rs.23,89,521/- to the appellant and that the Arbitrator has held the officials of the department equally responsible for the damage of the stock for their negligence as the stock was under the joint custody of the Pungrain and the appellant Firm and thus the Arbitrator held that the award was declared for the damage to ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 17 the stocks and not for any embezzlement. Accordingly we hold that the CIT(A)’s decision was perverse and wrong on facts in rejecting the claim of the assesee during the year under consideration as the loss if any had occurred was in the next year in view of the fact that the contract with Pungrain expired on 31.3.2010 and it was extended up to 30.9.2010 as per clause 22 of Agreement (APB, Pg.14). We further note that the CIT(A) was not justified in denying the benefit of corresponding liability to the assesee due to loss or damage as per Arbitration Award being held as payable by the assesee. 13. In the above view, we hold that the Ld. CIT(A) is not sustainable on merits because he has not appreciated the facts in the right spirit by ignoring the evidence produced before him during the course of appellate proceedings. Accordingly, the addition of Rs.5,10,60,925/- on account of alleged embezzlement of 111305 bags of paddy by the appellant assessee is hereby deleted. 14. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 22.06.2022. Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member Date: 22.06.2022 *GP/Sr.PS* ITA No. 211/Asr/2018 Jawala Rice Mills v. ITO 18 Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order