ACIT, Central Circle-2(1), Kolkata, Kolkata V. M/s Amrit Hatcheries Pvt. Ltd., Kolkata

ITA 2304/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1567 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 06-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income
• Section: 143(3); 80HHC; 133A; 80IB; 132; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NOS. 2304 & 230 5/KOL/2016 ASSESSMENT YEAR : 2013-1 4 ACIT, CC-2(1), KOLKATA -V S- M/S AMRIT HATCHERIES PVT. LTD. [PAN: AACCA 5987 F] (APPELLANT) (RESPONDE NT) FOR THE APPELLANT : SHRI G. HANGSHING, CIT FOR THE RESPONDENT : SHRI D.S. DAMLE, FCA DATE OF HEARING : 12.02.2018 DATE OF PRONOUNCEMENT : 23.02.2018 ORDER PER BENCH: 1. THE FIRST APPEAL OF THE REVENUE IN I.T.A. NO. 23 04/KOL/2016 FOR THE ASSESSMENT YEAR 2013-14 IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-20, KOLKATA (IN SHORT THE LD. CIT(A)) I N APPEAL NO. 15/CIT(A)-20/CC- 2(1)/15-16 DATED 13.10.2016 AGAINST THE ORDER PASSE D BY THE DCIT, CENTRAL CIRCLE-2(1), KOLKATA, (IN SHORT THE LD. AO) U/S 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) ON 30.03.2015. THE SECOND APPEAL IN I.T.A. NO . 2305/KOL/2016 OF THE REVENUE APPEAL FOR THE ASSESSMENT YEAR 2013-14 IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A)-20, KOLKATA IN APPEAL NO. 1091/CIT(A)-20/CC- 2(1)/15-16 DATED 27.09.2016 AGAINST THE ORDER PASSED BY THE LD. AO LEVYING PENA LTY U/S 271AAB OF THE ACT FOR THE ASSESSMENT YEAR 2013-14 VIDE ORDER DATED 22.09.2015 . 2. LET US TAKE UP ITA NO. 2304/KOL2016 QUANTUM AP PEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL FOR THE ASST YEAR 2013-14 FOR THE QUANTUM APPEAL:- 2 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 2 1. THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING THAT THE TERM MANUFACTURE OCCURRING IN THE CONTEXT OF SECTION 80IB DOES NOT N ECESSARILY REQUIRE THAT THE END PRODUCT OF THE MANUFACTURING PROCESS IS TO BE COMPLETELY DIFFERENT FROM THE INGREDIENTS, AS REGARDS ITS CHEMICAL COMPO SITION, INTEGRAL STRUCTURE OR ITS USE, 2. THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING THAT THE PROCESS OF MANUFACTURING OF POULTRY FEEDS DOES NOT AMOUNT TO M ERE MIXING TOGETHER OF ALL DIFFERENT INGREDIENTS, WITHOUT INVOLVING ANY CHANGE IN THE CHEMICAL COMPOSITION OF THE INGREDIENTS, 3. THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING THAT THE PROCESS OF PREPARATION OF POULTRY FEEDS AMOUNT TO PRODUCTION OF AN ARTICLE WITHIN THE MEANING OF SECTION 80IB, 4. THAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE ENTIR E AMOUNT OF RS. 1,09,01,866/- CLAIMED AS DEDUCTION U/S 80IB. 5. THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO T O NET OFF THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT OF T HE ELIGIBLE UNDERTAKING AGAINST THE INTEREST INCOME DEBITED IN THE SAID PRO FIT AND LOSS ACCOUNT WITHOUT THE APPRECIATING THE FACTS AND CIRCUMSTANCE S OF THE CASE SUPPORTED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LIMITED VS. CIT [2003] 129 TAXMAN 539 (S C) AND THE DECISION OF HIGH COURT OF JAMMU & KASHMIR IN TH E CASE OF ASIAN CEMENT INDUSTRIES VS. INCOME TAX APPELLATE TRIBUNAL , [2012] 28 TAXMAN 290 (JAMMU & KASHMIR). 6. THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO T O RE-COMPUTED THE INCOME OF THE ELIGIBLE UNDERTAKING AND RE-COMPUTE T HE DEDUCTION U/S 80IB AFTER NETTING OFF THE INTEREST INCOME CREDITED IN T HE PROFIT AND LOSS ACCOUNT OF THE ELIGIBLE UNDERTAKING AGAINST THE INTEREST EX PENSE DEBITED IN THE SAID PROFIT AND LOSS ACCOUNT. 7. THAT THE DEPARTMENT CRAVES RIGHT TO ADD, MODIFY OR ABROGATE THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 3 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 3 GROUND NOS. (I) TO (IV) RAISED BY THE REVENUE IS WI TH REGARD TO THE ISSUE AS TO WHETHER THE LD CITA WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB(5) OF THE ACT ON THE PROFITS DERIVED BY THE ASSESSEE FROM MANUFACTURE AND SALE OF POULTRY FEED. 2.1 AT THE TIME OF HEARING IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AFORESAID ISSUE REGARDING THE ELIGIBILITY OF TH E ASSESSEE FOR DEDUCTION U/S 80IB(5) OF THE ACT HAS ALREADY BEEN DECIDED BY THE ITAT KOLKAT A BENCH IN ASSESSEES OWN CASE FOR A.Y 2005-06 IN I.T.A. NO. 748/KOL/2008 ORDER DA TED 07.08.2008 AND THIS TRIBUNAL FOLLOWING THE DECISION RENDERED IN THE CASE OF M/S AMRIT FEEDS IN I.T.A. NO. 1505/KOL/2007 FOR A.Y. 2003-04 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT THE PROFIT DERIVED FROM THE ACTIVITY OF MANUFACTURE OF POULTRY FEED WAS ENTITLED TO DEDUCTION U/S 80IB(5) OF THE ACT. 2.2. IT WAS THE PLEA OF THE ASSESSEE THAT THE PROCE SS OF PRODUCING POULTRY FEED INVOLVED MECHANICAL, CHEMICAL & ELECTRICAL PROCESSES FOR WHI CH THE ASSESSEE USED SOPHISTICATED PLANT & MACHINERY. IN THE COURSE OF PRODUCTION OF P OULTRY FEED RAW MATERIALS WHICH EXCEEDED 30 IN NUMBER, LOST INDIVIDUAL IDENTITY AND THE EMERGING PRODUCT WAS DISTINCT AND SEPARATE IN SHAPE, CHARACTER AND END-USE. THE R AW MATERIALS CONSUMED IN PRODUCTION OF POULTRY FEED COULD BE INDIVIDUALLY USED FOR DIFF ERENT PURPOSES, BUT THE END PRODUCT AT THE END OF INTEGRATED PRODUCTION PROCESS WAS KNOWN TO TRADE BY ITS DISTINCT COMMERCIAL NAME AS POULTRY FEED. IT COULD ONLY BE CONSUMED BY ONLY ONE CLASS OF CONSUMER I.E. POULTRY & NONE ELSE. IT WAS THE CLAIM OF THE ASSESS EE THE END PRODUCT WAS KNOWN AS POULTRY FEED IN THE TRADE, COMMERCE AND INDUSTRY AN D WAS CONSIDERED AS SEPARATE AND DISTINCT FROM VARIOUS MATERIALS CONSUMED IN THE PRO CESS OF ITS PRODUCTION. THE ASSESSEE ALSO PLEADED THAT POULTRY FEED MANUFACTURING INDUST RY WAS NOTIFIED BY THE CENTRAL GOVERNMENT TO BE ELIGIBLE FOR CLAIMING DEDUCTION FO R CONSECUTIVE PERIOD OF 10 YEARS U/S 80IB(4) OF THE ACT WHERE THE UNDERTAKING WAS LOCATE D IN ANY OF THE NORTH EASTERN STATES. IT WAS THE PLEA OF THE ASSESSEE THAT DEDUCT ION BOTH U/S 80IB(4) & (5) COULD BE 4 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 4 ALLOWED ONLY IF NEWLY SET UP INDUSTRIAL UNDERTAKING WAS ENGAGED IN MANUFACTURE AND PRODUCTION OF AN ARTICLE AN DIFFERENT POULTRY FEED INDUSTRY WAS CONSIDERED ELIGIBLE BY THE CENTRAL GOVERNMENT FOR CLAIMING DEDUCTION U/S 8 0IB(4) THEN THE SAME INDUSTRY SHOULD BE CONSIDERED TO BE ELIGIBLE FOR DEDUCTION U/S 80IB(5) OF THE ACT ALSO ON THE GROUND AT IT WAS ENGAGED IN MANUFACTURE OR PRODUCTI ON OF AN ARTICLE. 2.3. THE LD. AO HOWEVER WAS OF THE VIEW THAT IN THE PRODUCTION PROCESS EXPLAINED BY THE ASSESSEE THERE WAS NO CHANGE IN CHEMICAL COMPOS ITION OF THE END PRODUCT AND THEREFORE THERE WAS NO MANUFACTURE. HOWEVER BEFORE RECORDING SUCH AN AUTHENTIC TECHNICAL FINDING, THE LD. AO HOWEVER DID NOT REFER TO ANY SCIENTIFIC DATA OR SCIENTIFIC EXPERIMENTS OR TECHNICAL REPORT TO SUPPORT HIS CONC LUSION. THE LD. AO ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/ S 80IB(5) OF THE ACT. 2.4. ON APPEAL BY THE ASSESSEE, THE LD. CIT(A) HEL D THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80IB(5) OF THE ACT AND IN DOING SO RE LIED ON THE DECISION RENDERED IN ASSESSEES OWN CASE BY THE TRIBUNAL REFERRED TO IN THE EARLIER PART OF THIS ORDER. 2.5 AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 2.6 WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ONLY I SSUE INVOLVED IN THIS GROUND RELATES TO WHETHER THE ASSESSEE IS ENGAGED IN THE MANUFACTU RE OF A PRODUCTION OF AN ARTICLE SO THAT IT MAY BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THIS ISSUE HAS DULY BEEN DECIDED BY THIS BENCH IN ASSESSEES SISTER CONCERN IN I.T.A. NO. 1505/KOL/2007 IN THE CASE OF ACIT VS. AMRIT FEEDS LTD., KOLKATA IN WHICH , THE SIMILAR ISSUE HAS ARISEN. WHILE DECIDING THE SIMILAR ISSUE, THIS TRIBUNAL OBSERVED AS UNDER VIDE PARA 15 TO 18 OF ITS ORDER. 5 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 5 '15. SEC 80IB(2) (III) REQUIRES THE ELIGIBLE INDUST RIAL UNDERTAKING TO BE ENGAGED IN MANUFACTURE OF PRODUCTION OF AN ARTICLE'. THE SA ID SECTION HOWEVER DOES NOT DEFINE THE EXPRESSION 'MANUFACTURE OR PRODUCTION OF ' AN ARTICLE. IN FACT THIS EXPRESSION IS NOT DEFINED .IN THE ACT ALSO. THE LD. CIT (A) EXTENSIVELY ANALYSED MEANING OR THE SAID EXPRESSION WITH REFERENCE TO JU DICIAL DECISION DISCUSSED IN HIS ORDER. THE TEST LAID DOWN BY THE COURTS IS WHET HER THE EMERGING NEW PRODUCT IS KNOWN TO THE TRADE, INDUSTRY AND COMMERCE BY ITS OWN NAME HAVING ITS OWN APPLICATION USE AND HAS A MARKET OF ITS OWN. APPLYI NG THE CRITERIA AS LAID DOWN IN THESE JUDICIAL DECISIONS WE FIND THAT IN PHYSICA L APPEARANCE, COLOUR AND SHAPE THE. POULTRY FEED VASTLY DIFFERS FROM THE INPUT MAT ERIALS. THE POULTRY REED IS MANUFACTURED IN A SCIENTIFIC AND SYSTEMATIC MANNER WITH THE USE AND ASSISTANCE OF SOPHISTICATED PLANT AND MACHINERY ACQUIRED AT A SUBSTANTIAL COST. POULTRY FEED IS RECOGNIZED NOT ONLY BY TRADE AND COMMERCE BUT AL SO BY THE STATUTORY AUTHORITIES UNDER CENTRAL EXCISE, SALES TAX ETC. AS INDEPENDENT PRODUCTS APPLYING THE RATIO LAID DOWN IN JUDICIAL DECISIONS DISCUSSED IN THE ORDER OF CTT(A) WE HAVE NO HESITATION IN- HOLDING THAT THE A SSESSEE IS ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE, CONTEMPLAT ED IN SEC 80IB(2)(III); 16. WE ALSO FIND ON THE IDENTICAL FACTS THE BANGALO RE BENCH OF ITAT IN THE CASE OF KAMRALA FEEDS -- VS- DCIT 74 ITD 65 HELD THAT AC TIVITY OF PRODUCING POULTRY FEED AMOUNTS TO MANUFACTURE AND THEREFORE ELIGIBLE FOR DEDUCTION U/S 80I, SECTION 80I AND SECTION 80IB ARE PARAMETERIA BECAU SE CONDITIONS FOR PART OF DEDUCTION ARE SAME AND THEREFORE THE SAID DECISION IS EQUALLY APPLICABLE IN THE PRESENT CASE. . 17. SECTION 80IB IS AN INCENTIVE PROVISION OR THE I NCOME TAX ACT ENACTED BY THE LEGISLATURE TO PROMOTE ECONOMIC AND INDUSTRIAL GROW TH IN BACKWARD DISTRICTS AND STATES. IN THE CASE OF BAJAJ TEMPO LTD --VS. CI T (196 ITR 188) THE SUPREME COURT HAS OPINED THAT A PROVISION OF TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRU ED LIBERALLY AND SINCE A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE I NTERPRETED LIBERALLY THE RESTRICTION THEREON TOO HAS TO BE CONSTRUED SO AS T O ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. CONDITIONS OF SE C. 80IB(2)(III) SHOULD BE FULFILLED BY EVERY NEW INDUSTRIAL UNDERTAKING CLAIM ING DEDUCTION EITHER/UNDER SUB SEC (3) (4) OR (5) OR SEC 80IB I.E. TO SAY THE UNDERTAKING MUST BE ENGAGED IN MANUFACTURE OR PRODUCTION OR AN ARTICLE. IF THIS CO NDITION IS NOT FULFILLED NO DEDUCTION IS PERMISSIBLE UNDER ANY OR THE SUB SECTI ONS OR SEC 80IB. THE INDUSTRIAL UNDERTAKINGS NOTIFIED AND APPROVED BY TH E CENTRAL GOVT. AND SITUATED IN NORTH EASTERN STATES ARE ELIGIBLE FOR TAX HOLIDA Y FOR PERIOD OF 10 YEARS AS AGAINST PERIOD OF 5 YEARS AVAILABLE TO OTHER BACKWA RDS STATE IN NOTIFICATION NO. SO 627 {E} DATED 04.08.1999 THE CENTRAL GOVERNMENT HAS RECOGNIZED POULTRY AND CATTLE ICED INDUSTRY, TO BE AN ELIGIBLE INDUSTR Y U/S 80IB(4). ONCE THE CENTRAL GOVERNMENT NOTIFIED THE POULTRY 'FEED INDUSTRY U/S 80IB (4) THEN THERE IS A TACIT ADMISSION THAT IT IS ENGAGED IN 'MANUFACTURE OR PRO DUCTION OF AN ARTICLE'. THIS IS SO BECAUSE UNLESS POULTRY FEED INDUSTRY DOES NOT MANUFACTURE AN ARTICLE; NO 6 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 6 DEDUCTION CAN BE PERMISSIBLE U/S 80LB. ONCE THE CEN TRAL GOVT. ACCEPTED IN PRINCIPLE THAT POULTRY FEED IS AN ELIGIBLE INDUSTRY U/S 80LB( 4); THEN THE VERY SAME INDUSTRY CANNOT BE CONSIDERED AS NON MANUFACTU RING INDUSTRY UNDER SUB SECTIONS (3) AND (5) , OF SEC 80IB. WITH REFERENCE TO SAME SET OF FACTS THE REVENUE CANNOT HOLD THE POULTRY FEED INDUSTRY AS MA NUFACTURING INDUSTRY IF SITUATED IN NORTH EASTERN STATES AND A 'PROCESSING INDUSTRY' IF SITUATED IN ANY OTHER STATES SUCH AN INTERPRETATION WILL ONLY LEAD TO AN ABSURD LEGAL POSITION. 18. FOR THE REASONS AS SET OUT HEREIN BEFORE THEREF ORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OR LD. CIT(A) HOLDING THE A SSESSEE TO BE ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE. WE ARE THE REFORE OF THE CONSIDERED OPINION THAT THE ASSESSEE SATISFIES THE CONDITIONS OF SEC 80IB(2) (III) OF THE ACT AND IS THEREFORE ELIGIBLE FOR DEDUCTION U/S 80IB. WE THEREFORE UPHOLD THE ORDER LD. CIT(A) DIRECTING A 0 TO ALLOW DEDUCTION U/S 80 IB TO THE ASSESSEE.' 2.7. IN ASSESSEE'S OWN CASE THIS TRIBUNAL IN ITA NO .748/KOL/2018 FOR AY 2005- 06 BY ORDER DATED 7.8.2008 ALLOWED SIMILAR CLAIM O F THE ASSESSEE. FROM PERUSAL OF THE SAID DECISIONS OF THIS TRIBUNAL. IT IS APPAR ENT THAT THIS TRIBUNAL HAS CATEGORICALLY HELD IN THE CASE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OR POULTRY FEEDS AND THAT THE ASSESSEE IS ENGAGED IN T HE MANUFACTURE OR PRODUCTION OF AN ARTICLE. 2.8. THE LEARNED DR HOWEVER SUBMITTED THAT IN THE DECISIONS RENDERED BY THE TRIBUNAL, THE DECISION RENDERED BY THE HYDERABAD BENCH OF IT AT IN THE CASE OF VENKATASWARA FEEDS VS. ACIT 22 TAXMANN.COM 234(HYD.) WAS NOT PRO PERLY CONSIDERED AND THEREFORE THE DECISION RENDERED IN ASSESSEES OWN CASE REQUIR ES RECONSIDERATION. IN THIS REGARD IT WAS SUBMITTED THAT THE TRIBUNAL IN THE CASE OF VENK ATESWAR FEEDS (SUPRA) FOUND THAT VARIOUS FEED INGREDIENTS SUCH AS MAIZE, RICE BRAN, DE-OILED SOYA ETC. ALONG WITH CERTAIN FEED PREMIXES ARE MIXED IN DIFFERENT PROPORTIONS AN D THEN GROUND TO FORM A COURSE POWDERED MATERIAL WHICH WAS CALLED MASH FEED. SUCH FEED UNDERWENT A CERTAIN KIND OF PHYSICAL CHANGES AND WAS CONVERTED INTO SMALL PELLE TS. THE ACTUAL PROCESS INVOLVED WAS THAT THE MASH FEED WAS CARRIED THROUGH AN ELEVATOR TO A PELLET MAKING MACHINE WHERE IT GOT MIXED WITH STEAM AND THEN FORCED THROUGH A PRES S CONTAINING SMALL HOLES TO CONVERT THE FEED INTO SMALL PELLETS. IT WAS HELD THAT THERE WAS NO CHANGE OF COMPOSITION IN THE MASH FEED AND THE PELLET FEED. HENCE, CONVERSION OF PHYSICAL SHAPE OF THE FEED INVOLVES ONLY PROCESSING AND NOT MANUFACTURE. 7 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 7 2.9 THE LEARNED DR FILED BEFORE US A CHART EXPLAINI NG THE PROCESS CARRIED OUT BY THE ASSESSEE, WHICH IS AS FOLLOWS: IT WAS SUBMITTED BY HIM THAT THE RAW MATERIAL AND E ND PRODUCT WERE THE SAME AND THEREFORE WHAT THE ASSESSEE DOES IS ONLY PROCESSIN G AND NOT MANUFACTURE. FOR AN ACTIVITY TO BE CALLED MANUFACTURE ONE OF THE IMP ORTANT CRITERIA IS THAT THE END PRODUCT OF THE MANUFACTURING PROCESS IS TO BE COMPLETELY DI FFERENT FROM THE INGREDIENTS, AS REGARDS ITS CHEMICAL COMPOSITION, INTEGRAL STRUCTUR E OR ITS USE AND SUCH FACTOR IS MISSING IN THE CASE OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE WAS MERE MIXING TOGETHER OF DIFFERENT INGR EDIENTS, WITHOUT INVOLVING ANY CHANGE IN THE CHEMICAL COMPOSITION OF THE INGREDIEN TS AND THEREFORE, THE DECISIONS RENDERED ON THIS ISSUE HAVE OVERLOOKED THIS ASPECT. IT WAS SUBMITTED THAT THE DECISION RENDERED IN ASSESSEES OWN CASE DID NOT CONSIDER T HE DECISION OF THE HYDERABAD BENCH 8 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 8 OF ITAT IN THE CASE OF VENKATESWARA FEEDS (SUPRA) A ND THEREFORE THE DECISION REQUIRES RECONSIDERATION. 2.10. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RE LYING ON THE ORDER OF THE LD. CIT(A) AND DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2005-06 ALSO SUBMITTED THAT IN THE CASE OF AMRIT FEEDS (SUPRA), THE HONBL E ITAT HAD CONSIDERED AND DISTINGUISHED THE DECISION RENDERED IN THE CASE OF VENKATESWARA FEEDS (SUPRA) BY ITAT HYDERABAD BENCH. 2.11 WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. IN THE CASE OF AMRIT FEEDS (SUPRA), THE TRIBUNAL CONSIDERED THE DE CISION RENDERED IN THE CASE OF VENKATESWARA FEEDS (SUPRA) AND HELD THAT THE ASSESS EE IN THAT CASE HAD CLAIMED DEDUCTION U/S 80IB ON THE ACTIVITY OF MERELY CONVER TING POULTRY MASH FEED INTO PELLET FEED AND THEREFORE THAT BENCH HAS HELD THAT THERE W AS NO CHANGE IN THE BASIC COMPONENT OR NEW OR DIFFERENT ARTICLE CAME INTO EXISTENCE. AS SUCH, CONVERSION WAS PROCESSING ACTIVITY NOT MANUFACTURING. THE TRIBUNAL HELD THAT THE CASE OF THE ASSESSEE AMRIT FEEDS (SUPRA) WAS ENTIRELY DIFFERENT. THE ASSESSEES ELIG IBLE UNDERTAKING ITSELF WAS INDEPENDENTLY CARRYING OUT THE COMPLETE ACTIVITY I. E. FROM MIXING , GRINDING TILL THE PELLETISATION. THE RAW MATERIALS ONCE CONSUMED COUL D NOT BE RECONVERTED INTO THE SAME POSITION. ITS UTILITY GETS CHANGED. THE PRIME RAW M ATERIALS SUCH AS MAIZE, SOYA OIL, RICE BRAN, ETC. CAN NO MORE BE REGARDED TO BE THE RICE B RAN, SOYA OIL, MAIZE. WE ARE OF THE VIEW THAT THE ISSUE IN THE REVENUES APPEAL IS SQUA RELY COVERED AGAINST THE REVENUE BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS WHICH WAS BASED ON THE DECISION RENDE RED IN THE CASE OF AMRIT FEEDS (SUPRA). RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE THE FINDING OF LD. CIT(A) ON TH IS ISSUE STANDS CONFIRMED. 9 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 9 WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE F OR THE ASST YEARS 2008-09 , 2010-11 TO 2012-13 VIDE ORDER DATED 5.4.2017 HAD HELD IN TH E AFORESAID MANNER. IN VIEW OF THE AFORESAID FINDINGS AND RESPECTFULLY FOLLOWING THE J UDICIAL PRECEDENT RELIED UPON HEREINABOVE, WE DISMISS THE GROUNDS (I) TO (IV) RAI SED BY THE REVENUE BEFORE US FOR THE ASST YEAR 2013-14. 3. AS FAR AS GROUND NOS. (V) & (VI) RAISED BY THE R EVENUE FOR THE ASST YEAR 2013-14 ARE CONCERNED, THE FACTS ARE THAT THE ASSESSEE HAD RECE IVED INTEREST ON FIXED DEPOSITS OF RS 5,53,210/-. THE LD. AO HELD THAT DEDUCTION U/S 80IB (5) OF THE ACT IS TO BE ALLOWED ONLY ON PROFITS DERIVED FROM THE ELIGIBLE BUSINESS WHI CH CLEARLY INDICATED THAT THERE SHOULD BE A DIRECT OR IMMEDIATE NEXUS BETWEEN THE INCOME A ND BUSINESS OF THE ASSESSEE. IT WAS THE PLEA OF THE ASSESSEE THAT THE FIXED DEPOSITS IN QUESTION WERE GIVEN AS SECURITY FOR AVAILING CREDIT FACILITIES AND THEREFORE HAD DIRECT NEXUS WITH THE ELIGIBLE BUSINESS. THE LD. AO, HOWEVER, WAS OF THE VIEW THAT THE INTEREST INCOME IN QUESTION HAD NO NEXUS WITH THE ELIGIBLE BUSINESS AND THEREFORE THE SAID INCOME HAS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S 80IB(5) OF THE ACT. 3.1. BEFORE LD. CIT(A) THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS PRINCIPALLY ENGAGED IN THE BUSINESS OF MANUFACTURE AND PRODUCTI ON OF POULTRY FEED, HAVING ITS MANUFACTURING UNIT AT BANKURA, WEST BENGAL. THE SAI D UNIT IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. THE ASSESSEE POINTED OUT THAT IT H AD OBTAINED CREDIT LIMITS AND ARRANGED LOAN FINANCING FOR THE BUSINESS OF MANUFACTURE & SA LE OF POULTRY FEED. THE ASSESSEE PAID INTEREST ON THE LOANS/CREDIT FACILITIES, WHICH AMOU NTED TO RS. 46,60,037/- FOR THE RELEVANT YEAR. FURTHER, IN ORDER TO OBTAIN PACKING FACILITIE S AND/OR OTHER WORKING CAPITAL LIMITS, THE ASSESSEE WAS REQUIRED TO PROVIDE ENCASHABLE FIX ED DEPOSITS AS MARGIN/SECURITY AND FOR THAT PURPOSE FUNDS WERE INVESTED IN FIXED DEPOS ITS AND THOSE DEPOSITS YIELDED INTEREST INCOME IN QUESTION. IT WAS SUBMITTED THAT IN THE GIVEN CIRCUMSTANCES THE FIXED DEPOSITS MAINTAINED BY THE ASSESSEE WAS INEXTRICAB LY LINKED WITH THE BUSINESS OF THE 10 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 10 ASSESSEE. THE AFORESAID INTEREST EARNED FROM THE FI XED DEPOSITS WENT ON TO EFFECTIVELY REDUCE THE OVERALL COST OF BORROWING OF THE ASSESSE E. IN VIEW OF THE ABOVE THE ASSESSEE SUBMITTED THAT THE INTEREST EXPENSE AS WELL AS INTE REST INCOME BOTH HAVE A PROXIMATE RELATIONSHIP WITH THE BUSINESS OF THE ASSESSEE. THE INTEREST INCOME EARNED HAS DIRECT CO- RELATION WITH THE BUSINESS FUNDS OF THE ASSESSEE AN D ACCORDINGLY IT SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB OF THE ACT. 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE FU RTHER SUBMITTED THAT INTEREST INCOME AND INTEREST EXPENSE ARE TWO SIDES OF THE SAME COIN . IT WAS SUBMITTED THAT THE INTEREST EXPENSE AND INTEREST INCOME DESERVES TO BE NETTED O FF AND ONLY THE NET EFFECT AFTER SET OFF SHOULD BE CONSIDERED FOR THE PURPOSE OF SECTION 80I B OF THE ACT. IT WAS ARGUED THAT THE LD. AO ON ONE HAND TREATED THE INTEREST EXPENSE IN ITS ENTIRETY AS EXPENDITURE INCURRED IN CONNECTION WITH THE ELIGIBLE INDUSTRIAL UNIT U/S 80 IB OF THE ACT. HOWEVER, ON THE OTHER HAND HE TREATED THE INTEREST INCOME IN ISOLATION AN D ON GROSS BASIS MAKING IT FULLY CHARGEABLE TO TAX UNDER THE INCOME TAX ACT, 1961. T HE ASSESSEE SUBMITTED THAT SUCH ACTION OF THE LD. AO WAS GROSSLY UNJUSTIFIED IN FAC TS AND ALSO IN LAW. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT (18 TAXMANN.COM 137) . IN THE AFORESAID DECISION, THE QUESTION BEFORE THE HIGH COURT WAS WHETHER NET IN TEREST OR GROSS INTEREST WAS TO BE CONSIDERED FOR THE PURPOSES OF COMPUTING DEDUCTION IN RESPECT OF PROFITS FROM EXPORT BUSINESS UNDER SECTION 80HHC OF THE ACT. IT WAS THE DEPARTMENTS CONTENTION THAT THE GROSS INTEREST INCOME WAS TO BE EXCLUDED FROM PRO FITS OF BUSINESS FOR THE PURPOSES OF CALCULATING DEDUCTION U/S 80HHC. ON ASSESSEES APPE AL, THE HON'BLE SUPREME COURT HELD THAT IT WAS NOT THE GROSS AMOUNT BUT ONLY TH E NET AMOUNT, IF ANY, WHICH WAS TO BE EXCLUDED UNDER EXPLANATION (BAA) TO SECTION 80HH C. THE HON'BLE SUPREME COURT ACCEPTED THE ASSESSEES CONTENTION THAT INTEREST EX PENSE HAD TO BE NETTED OF AGAINST THE INTEREST INCOME AND IT WAS ONLY THE REMAINING NET A MOUNT WHICH WAS TO BE EXCLUDED. IT WAS SUBMITTED THAT APPLYING THE RATIO LAID BY THE A PEX COURT IN THE FOREGOING DECISION 11 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 11 TO THE FACTS OF THE PRESENT CASE, THE INTEREST INCO ME IS REQUIRED TO BE NETTED OFF AGAINST THE INTEREST EXPENSE AND ANY POSITIVE FIGURE REMAIN ING, IF ANY, SHOULD BE EXCLUDED WHILE COMPUTING PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB O F THE ACT. 3.3 THE LD. CIT(A) AGREED WITH THE SUBMISSIONS OF T HE ASSESSEE AND HE ALLOWED THE CLAIM OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIO NS: I HAVE CONSIDERED THE FINDING OF THE LD. AO IN THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION FILED BY THE LD. AR ALONG WITH DIFFERENT CASE LAWS ON THIS ISSUE. I HAVE CONSIDERED THE HON'BLE SUPREME COURTS DECISION IN THE PANDIAN CHEMICALS CASE (SUPRA) AND I HAVE ALSO CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT 3 43 ITR 89. I THINK EVEN THOUGH THE SAID DECISION WAS RENDERED IN THE CONTEXT OF PROVI SIONS OF SECTION 80HHC, YET IN MY OPINION THE PRINCIPLE LAID DOWN IN THAT DECISION HA S EQUAL APPLICATION IN THE ASSESSEES CASE AS WELL. I FURTHER FIND THAT ON SIMILAR FACTS THE ITAT, KOLKATA IN THE CASE OF DCIT VS. BMW INDUSTRIES LIMITED (I.T.A. NO. 2115/KOL/200 7) DATED 29.02.2008 HAD SIMILARLY HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTI ON U/S 80IB THE INTEREST INCOME WAS LIABLE TO BE NETTED OFF AGAINST INTEREST EXPENSES A ND ONLY THE NET INTEREST EXPENDITURE WAS REQUIRED TO BE ALLOWED IN ARRIVING AT QUALIFYIN G PROFITS OF THE ELIGIBLE UNDERTAKING U/S 80IB OF THE ACT. I ALSO FIND THAT THE PRINCIPLE OF NETTING OFF OF INTEREST INCOME AGAINST INTEREST EXPENSE HAS BEEN UPHELD BY JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF WARREN TEA LTD. (374 ITR 6) FOR THE PURPOSES OF INT ERPRETING & COMPUTING BUSINESS INCOME IN THE CONTEXT OF RULE 8 APPLICABLE TO TEA C OMPANIES. FOLLOWING THE RATIO LAID DOWN IN THESE DECISIONS, I HOLD THAT THE LD. AO SHO ULD NET OFF THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT ELIGIBLE AG AINST THE INTEREST EXPENSE DEBITED IN THE SAID PROFIT AND LOSS ACCOUNT. IF NET RESULT THE REOF IS EXPENDITURE, THE SAME SHALL BE CONSIDERED TO BE THE EXPENDITURE RELATABLE TO ELIG IBLE UNDERTAKING. HOWEVER, IF THE NET RESULT, AFTER SET OFF IS INCOME, THEN THE ASSESSEE WILL NOT BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IB IN RESPECT OF SUCH NET INCOME. THE LD. AO SHALL ACCORDINGLY RE-COMPUTE THE INCOME OF THE ELIGIBLE UNDERTAKING AND RE-COMPUTE T HE DEDUCTION U/S 80IB. THUS, ASSESSEES APPEAL ON GROUNDS NO. 3 TO 6 ARE ALLOWED . 3.4. AGGRIEVED, BY THE ORDER OF LD. CIT(A) THE REVE NUE HAS PREFERRED GROUND NOS. (IV) AND (V) BEFORE THE TRIBUNAL. 3.5 THE LD. DR RELIED ON THE ORDER OF THE LD. AO. T HE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE LD. CIT(A) A ND RELIED ON THE ORDER OF THE LD. CIT(A). HE ALSO BROUGHT TO OUR NOTICE THAT THE BANK AS A CONDITION FOR GIVING CREDIT 12 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 12 FACILITY INSISTED THAT THE FDRS SHOULD BE OFFERED A S A SECURITY AND THEREFORE INTEREST EXPENDITURE AND THE INTEREST INCOME HAD A DIRECT NE XUS AND HENCE, NETTING OFF INTEREST INCOME WITH THE INTEREST EXPENSE WAS RIGHTLY ALLOWE D BY THE LD. CIT(A). 3.6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A RE OF THE VIEW THAT THE INTEREST INCOME AND THE INTEREST EXPENSES HAD A DIRECT NEXUS AND THEREFORE NETTING OFF INTEREST INCOME AGAINST THE INTEREST EXPENSES HAD TO BE ALLO WED. SINCE THE INTEREST EXPENSES WAS MUCH MORE THAN THE INTEREST INCOME NO INTEREST INCO ME CAN BE EXCLUDED FROM THE PROFITS ON WHICH DEDUCTION U/S 80IB(5) OF THE ACT OUGHT TO BE ALLOWED. WE THEREFORE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEARS 2008-09 , 2010-11 TO 2012-1 3 VIDE ORDER DATED 5.4.2017 HAD HELD IN THE AFORESAID MANNER. IN VIEW OF THE AFORES AID FINDINGS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT RELIED UPON HEREIN ABOVE, WE DISMISS THE GROUNDS (V) AND (VI) RAISED BY THE REVENUE BEFORE US FOR THE AS ST YEAR 2013-14. 4. LET US TAKE UP ITA NO. 2305/KOL/2016 WITH REGARD TO CANCELLATION OF PENALTY LEVIED U/S 271AAB OF THE ACT. 5. THE REVENUE HAD RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE US :- I) THAT LD. CIT(A) ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE PENALTY IMPOSED ON THE ASSESSEE OF RS. 27,33,800/- U/S 271AAB(1)(A) OF THE I.T. ACT, 1961 ON ACCOUNT OF DISCLOSURE MADE U/S 132(4) AT THE TIME OF SEARCH ON UNDISCLOSED STOCK. II) THAT LD. CIT(A) FAILED TO APPRECIATE THE PROVIS ION OF SECTION 271AAB, AS THE PENALTY WAS IMPOSED @10% OF RS. 2,73,38,000/- WHICH IS DISCLOSED AT THE TIME OF SEARCH. III) THAT THE LD. CIT(A) ERRED IN FACTS AND CIRCUMS TANCES OF THE CASE IN DELETING THE PENALTY IMPOSED ON THE ASSESSEE OF RS. 32,70,56 0/- U/S 271AAB(1)(C) OF THE I.T. ACT, 1961 ON ACCOUNT OF DISALLOWANCE OF DEDUCT ION U/S 80IB, AS THE ASSESSEE DID NOT MANUFACTURING ANY ARTICLES OR THINGS. 13 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 13 IV) THAT THE DEPARTMENT CRAVES THE RIGHT TO ADD, MO DIFY OR ABROGATE THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THE CASE . 5.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE SEAR CH AND SEIZURE OPERATION WAS CONDUCTED IN THE AMRIT GROUP U/S 132 OF THE ACT ON 30 TH / 31 ST AUGUST 2012. THE ASSESSEE IS ONE OF THE COMPANIES IN THE SAID GROUP. THE SEARCH WAS CONDUCTED AT THE OFFICE PREMISES AND RESIDENTIAL PREMISES OF THE PROMOTERS OF THE ASSESS EE. SURVEY OPERATIONS U/S 133A OF THE ACT WERE ALSO CONDUCTED AT THE FACTORIES. THE ASS ESSEE WAS HAVING HUGE STOCK OF POULTRY FEEDS SPREAD ACROSS VARIOUS LOCATIONS AND H ENCE THOUGHT IT FIT TO CARRY OUT STOCK AUDIT FOR THE SAME. THE STOCK AUDITOR SUBMITTED HI S REPORT ON 20.8.2012 PURSUANT TO HIS PHYSICAL VERIFICATION . NEITHER IN THE COURSE OF SEARCH NOR IN THE SURVEY PROCEEDINGS, ANY OF THE AUTHORIZED OFFICERS CONDUCTED PHYSICAL S TOCK VERIFICATION. NO PHYSICAL INVENTORY OF RAW MATERIALS OR FINISHED GOODS WAS TA KEN NOR THE STOCK RECORDS VERIFIED BY THE SEARCH PARTIES AT ANY OF THE MANUFACTURING UNIT S OF AMRIT GROUP AS IS EVIDENT FROM THE PANCHANAMAS DRAWN UP AT THE END OF SEARCH OPERA TIONS AT VARIOUS PREMISES. SINCE THE SEARCH OPERATIONS WERE CONTINUING FOR MOR E THAN 36 HOURS, PROHIBITORY ORDERS U/S 132(3) WERE PLACED AT VARIOUS LOCATIONS/ROOMS W ITH A VIEW TO RESUME THE SEARCH OPERATIONS AT A LATER DATE. THE PROHIBITORY ORDERS INTER ALIA INCLUDED THE SAME CHAMBERS AT THE HEAD OFFICE OF THE AMRIT GROUP AT INFINI TY BENCHMARK BLOCK EP & GP, SECTOR-V, 6 TH FLOOR, SALTLAKE, KOLKATA-700091. THE SEARCH PROCEE DINGS RESUMED ON 29.10.2012; WHEN THE PROHIBITORY ORDER U/S 132(3) W AS REVOKED. IN THE COURSE OF RESUMED SEARCH CONDUCTED AT THE HEAD OFFICE OF THE ASSESSEE ON 29.10.2012 A REPORT OF M/S DAMLE DHANDHANIA & CO. (CHARTERED ACCOUNTANTS) WAS FOUND, WHICH CONTAINED THEIR FINDINGS TO THE MANAGEMENT OF THE APPELLANT I N RESPECT OF PHYSICAL VERIFICATION OF THE STOCK CARRIED OUT AT THE FACTORIES OF THE ASSES SEE AS WELL AS SISTER CONCERNS/GROUP COMPANIES. THE STOCK TAKING EXERCISE WAS CONDUCTED BY THE FIRM OF CHARTERED ACCOUNTANT IN THE ORDINARY COURSE OF APPELLANTS BO OK KEEPING. IN THEIR REPORT THE CHARTERED ACCOUNTANT REPORTED THAT FEW ITEMS OF RAW MATERIALS WERE PHYSICALLY FOUND TO 14 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 14 BE IN EXCESS OF THE QUANTITIES AS PER THE STOCK REC ORDS. ACCORDINGLY, THE CA HAD ADVISED THE COMPANY TO ADJUST THE STOCK RECORDS BY MAKING A PPROPRIATE ADJUSTMENT ENTRIES ONLY IN THE STOCK RECORDS. SINCE THE INVENTORY ACTUALLY FOUND ON PHYSICAL VERIFICATION WAS MORE THAN THE INVENTORY AS PER STOCK RECORDS; THE A DDITIONAL INVENTORY WAS INCORPORATED IN THE STOCK RECORDS AS WELL AS IN THE FINANCIAL BO OKS AT NIL COST. THE ASSESSEE SUBMITTED THE COPIES OF THE ENTRIES PASSED IN THE S TOCK RECORDS ON 31.8.2012 BEFORE THE INCOME TAX DEPARTMENT. 5.2. WHEN CONFRONTED WITH THE ABOVE MENTIONED AUDIT REPORT, SHRI HARISH BAGLA, DIRECTOR OF THE ASSESSEE GAVE A DETAILED EXPLANATI ON IN HIS DECLARATION U/S 132(4) DATED 29.10.2012 WHEREIN HE STATED AS FOLLOWS. ' .. WE HAD ENGAGED SERVICES OF M/ S DAMLE DHANDHAN IA & CO., CHARTERED ACCOUNTANTS TO CONDUCT PHYSICAL INSPECTION OF INVENTORY AT ALL MANUFACTURING LOCATIONS. AFTER THE PHYSICAL INSPECTION WAS CONDUCTED BY M/S DAMLE DHAN DHANIA & CO. IN MID AUGUST. THEY' HAD FORWARDED THEIR REPORT DATED 20.08.2012 F OR TAKING FURTHER ACTION. IN THIS REPORT, THE AUDITOR HAD OBSERVED THAT ON TAKING PHY SICAL INSPECTION OF THE INVENTORIES THEY HAD FOUND EXCESS STOCK OF APPROXIMATELY RS.219 2 LACS, COMPARED WITH STOCK RECORDS. REPORT OF M/S DAMLE DHANDHANIA & CO. WAS F OUND & SEIZED FROM MY OFFICE WHICH IS IDENTIFIED AS PAGES 42 TO 44 IN ID: AF/3. I SUBMIT THAT EXCESS STOCK FOUND IN THE COURSE OF PHYSICAL INSPECTION WILL BE OFFERED AS IN COME O[THE GROUP COMPANIES IN THE CURRENT YEAR AND THE APPROPRIATE TAX ON SUCH INCOME WILL BE PAID IN DUE COURSE. FROM THE ABOVE FACTS, IT SHALL THEREFORE BE OBSERVE D THAT PHYSICAL STOCK TAKING EXERCISE WAS VOLUNTARILY CARRIED OUT BY THE ASSESSEE THROUGH A FIRM OF CHARTERED ACCOUNTANT IN THE REGULAR COURSE OF ITS BUSINESS. THE REPORT CONT AINED FINDINGS WITH REGARD TO EXCESS/SHORTAGE OF STOCK FOUND ON PHYSICAL INSPECTI ON AT THE VARIOUS FACTORIES VIS-A-VIS THE STOCK RECORDS. THE SAID REPORT WAS ISSUED BY TH E CHARTERED ACCOUNTANTS ON 15 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 15 20.08.2012, AND WAS RECEIVED BY THE APPELLANT ON 23 .08.2012. ADMITTEDLY APPROPRIATE ENTRIES IN THE STOCK RECORDS WERE PASSED ON 31ST AU GUST 2012 INCORPORATING THE FINDINGS OF THE CHARTERED ACCOUNTANTS AND BRINGING THE STOCK ON MATERIAL AT PAT WITH PHYSICAL QUANTITIES FOUND ON PHYSICAL INSPECTION. UNDERSTAND ABLY THE VALUATION OF INVENTORY WAS TO BE CARRIED OUT & INCORPORATED IN. THE FINANCIAL BOOKS ONLY AT THE TIME OF CLOSING OF THE ACCOUNTS AS ON 31ST MARCH 2013. ACCORDINGLY THE EXC ESS PHYSICAL STOCK FOUND BY THE CHARTERED ACCOUNTANTS AT THE APPELLANT'S FACTORY PR EMISES WAS INCORPORATED IN THE STOCK RECORDS IN AUGUST 2012 AT 'NIL'. THE EXCESS STOCK I NCORPORATED IN STOCK RECORDS AT ZERO COST WAS CONSIDERED BY THE APPELLANT WHEN THE INVEN TORY VALUATION WAS CARRIED OUT AT THE TIME OF PREPARATION OF ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31.03.2013. IN THE ASSESSMENT ORDER FOR AY 2013-14 PASSED U/S 143(3) T HE AO DID NOT FIND ANY INFIRMITY EITHER WITH THE QUANTITY OR INVENTORY OR WITH ITS V ALUATION. IN FACT IN THE ASSESSMENT ORDER U/S 143(3) THE AO ADMITTED THAT EXCESS STOCK REPORT ED IN THE AUDITORS' REPORT WAS PROPERLY ACCOUNTED IN THE APPELLANT'S BOOKS AND ACC ORDINGLY THE AO HAD ACCEPTED THE ASSESSEE'S DECLARATION BEFORE THE AUTHORIZED OFFICE R. IN ANY BUSINESS ORGANIZATION, THE STOCK RECORDS ARE MAINTAINED SEPARATE AND DISTINCT FROM THE FINANCIAL BOOKS. THE STOCK RECORDS ARE MAI NTAINED AT THE PLANT LEVEL WHEREAS FINANCIAL RECORDS ARE MAINTAINED AT THE ADMINISTRAT IVE OFFICES. AT PERIODIC INTERVALS STOCK RECORDS ARE RECONCILED WITH FINANCIAL BOOKS. IN THE APPELLANT'S LINE OF BUSINESS RAW MATERIALS ARE HANDLED IN BULK. WHEN ITEMS OF RAW MA TERIAL ARE ISSUED FOR PRODUCTION OUT OF THE STOCK, IT IS NOT ALWAYS FEASIBLE TO UNDERTAK E THE EXACT PHYSICAL WEIGHMENT OF THE INDIVIDUAL ITEM DUE TO BULKINESS OF THE MATERIAL. I N THE CIRCUMSTANCES ENTRIES IN STOCK RECORDS ARE MADE BY VISUAL INSPECTION WHICH INVOLVE S SAME DEGREE AND ON APPROXIMATION. HOWEVER AT PERIODIC INTERVALS THE PH YSICAL STOCK TAKING EXERCISE IS CONDUCTED SO AS TO DETERMINE THE EXACT QUANTITIES O F STOCK OF MATERIAL PHYSICALLY AVAILABLE AT THE PLANT LEVEL. THE DISCREPANCIES NOT ED ON PHYSICAL STOCK TAKING ARE ACCOUNTED IN THE STOCK RECORDS BY ALIGNING THE 'BAL ANCES' AS PER BOOKS WITH PHYSICAL 16 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 16 QUANTITIES ACTUALLY FOUND. THE PROCEDURE OF RECONCI LING PHYSICAL STOCK WITH STOCKS RECORDS IS CARRIED OUT ROUTINELY IN ALL LARGE BUSIN ESS ORGANIZATIONS AND. THE APPELLANT'S CASE WAS NOT AN EXCEPTION. MORE PARTICULARLY, DURING THE FY 2012-13, THE 'AMRI T GROUP' TO WHICH THE APPELLANT BELONGS HAD DECIDED TO IMPLEMENT SAP ACCOUNTING SOF TWARE. SAP ACCOUNTING SOFTWARE IS AN ADVANCED VERSION WHERE THE FINANCIAL RECORDS AND STOCK RECORDS ARE ALIGNED WITH EACH OTHER ON REAL TIME BASIS AND THESE ARE UPDATED SIMULTANEOUSLY. IN PARTICULAR THE NEED FOR REAL TIME SUPERVISION AN D CONTROL OF MANUFACTURING OPERATIONS AT DIFFERENT PLANT LOCATIONS WAS FOUND NECESSARY IN VIEW OF THE RAPID GROWTH WHICH AMRIT GROUP WAS WITNESSING SINCE FY 2010-11. FROM P ERUSAL OF THE AUDITED ACCOUNTS OF AMRIT GROUP OF COMPANIES FOR THE YEAR ENDED 31ST MA RCH 2013, YOUR GOODSELF WILL NOTE THAT THE SALES TURNOVER ACHIEVED BY THE MAIN THREE OPERATING COMPANIES VIZ., AMRIT FEEDS LIMITED, AMRIT HATCHERIES LIMITED AND AMRICON AGROVET PVT LTD FOR THE FINANCIAL YEAR 2012-13 WAS RS.1169.13 CRORES, RS.70 4.47 CRORES & RS.240.48 CRORES RESPECTIVELY. THE TOTAL TURNOVER OF THESE THREE OPE RATING COMPANIES FOR THE FY 2012-13 AMOUNTED TO RS.2114.08 CRORES. THE TURNOVER OF THES E THREE COMPANIES FOR THE IMMEDIATE PRECEDING YEAR WAS HOWEVER ONLY RS.1511.6 6 CRORES; MEANING THEREBY IN THE FY 2012-13 THE AMRIT GROUP HAD ACHIEVED SUBSTANTIAL QUANTUM INCREASE IN ITS TURNOVER. MOREOVER THE PRODUCTION ACTIVITIES WERE CARRIED ON BY THE GROUP AT MORE THAN 10 LOCATIONS AND THEREFORE IT WAS ABSOLUTELY ESSENTIAL THAT THE HEAD OFFICE OF THE GROUP AT KOLKATA EXERCISED TIGHTER CONTROL OVER THE INVENTOR IES SINCE THE CONSUMPTION OF MATERIAL CONSTITUTED MORE THAN 85% OF THE COST OF SALES AND THEREFORE MANAGING MATERIAL CONSUMPTION WAS THE MAJOR CHALLENGE FOR ACHIEVING B ETTER PRODUCTIVITY AS WELL AS PROFITABILITY FOR THE GROUP. IN THAT VIEW OF THE MA TTER THE MANAGEMENT OF THE COMPANY HAD DEEMED IT NECESSARY TO IMPLEMENT MORE SOPHISTIC ATED SAP SOFTWARE AT ALL PLANT LEVELS ALIGNING THE PRODUCTION RECORDS WITH FINANCI AL BOOKS. IN PURSUANCE OF THE MANAGEMENT DECISION TAKEN FOR IMPLEMENTING SAP SOFT WARE THE TASK OF STOCK TAKING 17 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 17 WAS ASSIGNED TO MI S DAMLE DHANDHANIA & CO., CHARTE RED ACCOUNTANTS WHO IN THEIR STOCK REPORT REPORTED VARIATION BETWEEN THE BALANCE S AS PER STOCK RECORDS AND PHYSICAL QUANTITIES OF VARIOUS MATERIALS FOUND AT DIFFERENT MANUFACTURING LOCATIONS. AS PER THE STOCK AUDIT REPORT THE AUDITORS REPORTED EXCESS STO CKS VALUED AT RS.17.61 CRORES FOR AMRIT FEEDS LIMITED, RS.1.58 CRORES FOR AMRIT HATCH ERIES LIMITED AND RS.2.73 CRORES FOR AMRICON AGROVET PVT LTD. ALTHOUGH THE QUANTUM O F VARIATION IN ABSOLUTE NUMERIC TERMS MAY AGGREGATE TO RS.21. 92 CRORES AND THE SAM E MAY LOOK VERY SUBSTANTIAL BUT WHEN ONE TAKES INTO ACCOUNT THE FACT THAT THE GROUP TURNOVER OF THE THREE OPERATING COMPANIES FOR THE FY 2012-13 EXCEED RS.2100 CRORES, THEN YOUR GOODSELF WILL APPRECIATE THAT IN COMPARATIVE TERMS SUCH VARIATION WAS ONLY 1% OF THE GROUP TURNOVER AND NOT VERY SIGNIFICANT. THE MANAGEMENT OF AMRIT GROUP HAD DECIDED UPON IMPL EMENTATION OF SAP SOFTWARE WHICH WOULD HAVE ENABLED THE MANAGEMENT SITTING AT HEAD OFFICE GREATER CONTROL OVER THE PRODUCTION AND INVENTORY MANAGEMENT IN REAL TIM E. IN SAP SOFTWARE THE ENTRIES IN THE STOCK RECORDS AUTOMATICALLY UPDATE THE FINANCIA L ACCOUNTS AND VICE VERSA. BEFORE THE SAP SOFTWARE WAS IMPLEMENTED MANAGEMENT OF THE APPE LLANT CONSIDERED IT NECESSARY THAT THE PHYSICAL QUANTITIES OF THE MATERIALS AVAIL ABLE AT THE PLANT LEVELS TALLIED EXACTLY WITH THE INVENTORY RECORDS SO THAT NO DISCREPANCIES REMAINED AT THE TIME OF COMMENCEMENT OF SAP. WITH THIS OBJECTIVE IN MIND TH E APPELLANT HAD SUO MOTO APPOINTED M/S DAMLE &DHANDHANIA & CO.; CHARTERED AC COUNTANTS TO UNDERTAKE PHYSICAL VERIFICATION OF THE STOCKS AT COMPANY'S DI FFERENT PLANTS. THE APPOINTMENT OF THE SAID CHARTERED ACCOUNTANT AND THE PHYSICAL STOCK TA KING EXERCISE WAS CONCLUDED MUCH PRIOR TO THE DATE OF SEARCH. THE SAID FIRM OF CHART ERED ACCOUNTANT HAD SUBMITTED ITS REPORT PRIOR TO THE DATE OF SEARCH IN WHICH THEY HA D REPORTED VARIATIONS BETWEEN THE QUANTITIES OF RAW MATERIAL ITEMS AS PER STOCK RECOR DS AND AS FOUND ON PHYSICAL INSPECTION. THE EXCESSES AND SHORTAGES OF STOCKS NO TED ON PHYSICAL INSPECTION WERE REPORTED BY THE SAID AUDITOR. THE AUDITOR HAD ALSO RECOMMENDED STEPS TO BE TAKEN FOR 18 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 18 CORRECTING THE STOCK RECORDS. ON RECEIPT OF THE STO CK AUDIT REPORT THE MANAGEMENT OF THE APPELLANT HAD ISSUED NECESSARY INSTRUCTIONS TO THE FACTORY MANAGERS TO RECONCILE THE STOCK RECORDS AND INCORPORATE THE CORRECT QUANTITAT IVE DETAILS IN THE STOCK RECORDS IN COMPLIANCE WITH THE FMDINGS OF THE STOCK AUDITOR AS CONTAINED IN THE STOCK AUDIT REPORT. ON 31ST AUGUST 2012, APPROPRIATE ENTRIES WERE ALSO PASSED IN THE STOCK RECORDS AND THE EXCESS QUANTITIES PHYSICALLY FOUND BY THE STOCK AUDITOR WERE SUITABLY INCREASED IN THE STOCK RECORDS AT 'NIL' COST. IN COURSE OF RESUMED SEARCH OPERATION ON 29.10.2012 REPORT OF M/S. DAMLE DHANDHANIA & CO., CHARTERED ACCOUNTANT DATED 20.08.012 IN RESP ECT OF PHYSICAL VERIFICATION OF STOCK UNDERTAKEN AT DIFFERENT PLACES WAS FOUND AND SEIZED [ID MARK AF /3, PAGES 42 TO 441 BY THE INVESTIGATION AUTHORITIES. WITH REFERENC E TO THE SAID AUDIT REPORT SHRI HARISH BAGLA WAS ASKED TO FURNISH HIS EXPLANATIONS. IN RES PONSE IN HIS SWORN STATEMENT U/S 132(4), SHRI HARISH BAGLA, DIRECTOR OF THE APPELLA NT HAD CLARIFIED THAT WITH REFERENCE TO THE FINDINGS OF THE STOCK TAKING REPORT, APPROPRIAT E ENTRIES IN THE STOCK REGISTERS WERE BEING INCORPORATED AND EFFECT THEREOF WOULD BE GIVE N IN THE FINANCIAL ACCOUNTS. FOR THE FY 2012-13 SHRI HARISH BAGLA IN HIS STATEMENT ADMIT TED THAT THE FINDINGS OF THE REPORT PREPARED BY THE CHARTERED ACCOUNTANT WOULD RESULT I N INCREASE IN THE PROFIT FOR THE FY 2012-13 AND THAT THE SAME WAS BEING INCORPORATED IN THE BOOKS OF THE APPELLANT COMPANY. HOWEVER NOWHERE IN HIS STATEMENT THE DIREC TOR OF THE APPELLANT HAD ADMITTED THAT THE EXCESS QUANTITY OF STOCK REPORTED IN THE A UDIT REPORT REPRESENTED APPELLANT'S 'UNDISCLOSED' OR 'UNEXPLAINED' STOCK. SHRI BAGLA H AD ONLY CLARIFIED THAT WITH REFERENCE TO STOCK ADJUSTMENT ACCOUNTED IN THE APPELLANT'S BO OKS AMOUNTING TO RS.2, 73,38,800 / -; INCOME OF AMRIT GROUP WILL STAND INCREASED AND THE SAME WOULD FORM PART OF THE DISCLOSURE OF RS.35 CRS MENTIONED IN HIS INITIAL ST ATEMENT U/S 132(4) OF THE ACT DATED 31.08.2012. IT IS SUBMITTED THAT THE STOCK RECORDS HAD BEEN UPDATED AND APPROPRIATE ENTRIES IN STOCK RECORDS HAD BEEN PASSED AT THE RES PECTIVE FACTORIES MUCH BEFORE 29.10.2012 WHEN THE AUTHORIZED OFFICER HAD FOUND TH E STOCK AUDIT REPORT AND WITH REFERENCE TO WHICH DIRECTOR'S STATEMENT WAS RECORDE D. FURTHER IN COMPLIANCE WITH THE 19 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 19 DECLARATION IX] S 132(4), THE DIFFERENCE IN STOCK W HICH HAD ALREADY BEEN INCORPORATED IN THE STOCK RECORDS. THE SUM OF RS.2,73,38,000/- BEIN G VALUE OF THE EXCESS STOCK FOUND IN PHYSICAL VERIFICATION THEREFORE FORMED PART OF THE REGULAR BOOKS OF THE APPELLANT AND WAS OFFERED TO TAX BY THE APPELLANT IN THE RETURN OF IN COME FILED U/S 139(1). THE ABOVE FACTS AND THE ASSESSEE'S EXPLANATION WERE EXAMINED AND VERIFIED BY THE AO IN THE COURSE OF ASSESSMENT. IN THE COURSE OF PROCEEDI NGS U/S 143(3), THE AO SPECIFICALLY SHOW CAUSED THE APPELLANT TO EXPLAIN AS TO WHETHER THE ABOVE STOCK OF RS.2,73,38,000/- WAS INCORPORATED IN THE BOOKS OF ACCOUNT. IN RESPON SE THE APPELLANT FILED ITS EXPLANATION DATED 09.03.2015 IN WHICH IT WAS STATED THAT THE DI FFERENCE IN QUANTITY AS REPORTED BY THE STOCK AUDITOR HAD BEEN DULY INCORPORATED IN THE STO CK RECORDS ON 31ST AUGUST 2012 ITSELF AND FORMED PART OF THE REGULAR BOOKS OF ACCOUNT. CO PIES OF THE JOURNAL ENTRIES WERE ALSO FURNISHED BEFORE THE AO. AFTER THE STOCK RECORDS WE RE RECONCILED WITH THE REPORT OF THE STOCK AUDITOR; THERE REMAINED NO DISCREPANCY BETWEE N THE TWO. ACCORDINGLY WHEN THE INVENTORY WAS VALUED BY THE COMPANY AS AT 31.03.201 3; THE VALUE OF THE EXCESS QUANTITY REPORTED IN AUDIT REPORT WAS INCLUDED. BEING SATISF IED WITH THE SUBMISSIONS OF THE APPELLANT, THE AO ACCEPTED THE STOCK RECORDS AND TH E VALUATION OF CLOSING STOCK AND NO ADVERSE INFERENCE-WAS DRAWN IN THIS REGARD. 5.3. THE ASSESSEE PLEADED THAT IN VIEW OF THE AFORE SAID FACTS, THE FOLLOWING FACTS EMERGE IN THE ASSESSEES CASE:- NO STOCK TAKING EXERCISE WAS EVER CONDUCTED BY THE DEPARTMENT NOR WAS ANY EXCESS STOCK WAS DETECTED BY THE DEPARTMENT EITHER AT THE TIME OF SEARCH OR AT ANY OTHER POINT OF TIME. STOCK REPORT OF DAMLE DHANDHANIA & CO. WAS OBTAINE D BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS. THE SAID STOCK AUDIT REPORT CON TAINING FINDINGS WITH REGARD TO DIFFERENCE IN STOCK FOUND ON THE PHYSICAL INSPECTIO N VIS--VIS THE STOCK RECORDS WAS OBTAINED PRIOR TO CONDUCTING OF SEARCH U/S 132. THE STOCK REPORT WAS FOUND IN THE COURSE 20 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 20 OF SEARCH OPERATIONS ON OCTOBER, 2012 BY WHICH TIME STOCK RECORDS HAD ALREADY BEEN UPDATED. APPROPRIATE RECONCILIATION ENTRIES PURSUANT TO THE STOCK AUDIT REPORT WERE PASSED IN THE REGULAR STOCK RECORDS INCORPORATING THE DIFFERENCE IN STOCK ON 31 ST AUGUST, 2012 AT NIL COST. IN THE STATEMENT U/S 132(4), NOWHERE DID THE DIRECT OR OF THE APPELLANT ADMITTED THAT THE DIFFERENCE IN PHYSICAL STOCK REPRESENTED UNDISCLO SED STOCK. INSTEAD IT WAS CATEGORICALLY MENTIONED THAT THE DIFFERENCE IN STO CK WAS FOUND ON PHYSICAL INSPECTION VIS--VIS STOCK RECORDS BY STOCK AUDITOR; AND THE F INDINGS REPORTED BY THEM SHALL BE INCORPORATED IN THE REGULAR FINANCIAL BOOKS OF THE ASSESSEE FOR ASSESSMENT YEAR 2012-13. NO UNDISCLOSED INCOME OR UNDISCLOSED STOCK WAS EVER FOUND BY THE DEPARTMENT NOR WAS ANY SUCH ALLEGATION LEVELED BY THE DEPARTMENT A GAINST THE ASSESSEE EITHER IN THE COURSE OF SEARCH OPERATIONS OR ASSESSMENT PROCEEDIN GS. IN THE EXPLANATION DATED 09.03.2015 FILED IN PROCE EDINGS U/S 143(3) THE ASSESSEE REITERATED THAT THE DIFFERENCES REPEATED BY THE STO CK AUDITOR HAD BEEN INCORPORATED IN THE STOCK RECORDS ON 31 ST AUGUST, 2012. AT NO TIME DID THE ASSESSEE STATE TH AT SUCH EXCESS PHYSICAL STOCK REPRESENTED UNDISCLOSED STOCK. THE EXPLANATION OF THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER. 5.4. THE ASSESSEE FURTHER PLEADED THAT WHAT THE AU THORIZED OFFICER FOUND IN THE ASSESSEES OFFICE PREMISES IN THE COURSE OF RESUMED SEARCH WAS THE REPORT OF THE CHARTERED ACCOUNTANT CONCERNING PHYSICAL INSPECTION OF THE INVENTORY. NO DISCREPANCY IN THE PHYSICAL QUANTITIES OF RAW MATERIALS WAS HO WEVER FOUND BY THE DEPARTMENT IN THE COURSE OF SEARCH. IT IS THEREFORE THE SUBMISSION OF THE ASSESSEE THAT NO UNDISCLOSED INCOME WAS FOUND OR UNEARTHED IN THE COURSE OF SEA RCH AND THEREFORE NO PENALTY U/S 271AAB WAS LEVIABLE IN RESPECT OF INCOME WHICH WAS INCLUDED IN THE TOTAL INCOME ON ACCOUNT OF INVENTORY ADJUSTMENT CARRIED OUT IN THE BOOKS OF THE ASSESSEE FOR FINANCIAL YEAR 2012-13. THE LD. AO HOWEVER WITHOUT PROPERLY A PPRECIATING THE FACTS AND 21 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 21 EXPLANATIONS OFFERED BY THE ASSESSEE MECHANICALLY L EVIED PENALTY @ 10% AMOUNTING RS. 27,33,800/- U/S 271AAB(1)(A) OF THE ACT. IT IS SUBMITTED THAT THE PENALTY PROCEEDINGS ARE QU ASI CRIMINAL IN NATURE AND THE SAME ARE DISTINCT AND SEPARATE FROM ASSESSMENT PROCEEDINGS. BEFORE LEVYING PENALTY FOR CONCEALMENT OF INCOME, IT IS NECESSARY FOR THE AUTH ORITY TO PROVE THAT SUM OF RS. 2,73,38,000/- IN FACT CONSTITUTED ASSESSEES UNDIS CLOSED INCOME AND FURTHER SUCH INCOME WAS UNEARTHED OR DETECTED AS A RESULT OF THE SEARCH U/S 132 CONDUCTED AGAINST THE ASSESSEE. IN THE PRESENT CASE ADMITTEDLY NO SUCH IN CRIMINATING MATERIAL WAS UNEARTHED BY THE INVESTIGATION WING IN THE COURSE OF SEARCH N OR WAS ANY EXCESS PHYSICAL STOCK WAS FOUND BY THE IT AUTHORITIES. THE DIFFERENCE IN STOCK HAD BEEN DULY INCORPORATED IN THE REGULAR STOCK RECORDS PRIOR TO THE DATE ON WHIC H THE STOCK AUDIT REPORT WAS FOUND AND DECLARATION U/S 132(4) WAS RECORDED FROM THE DI RECTOR. THE ASSESSEE THUS SUBMITS THAT THE INCOME OF RS. 2,73,38,000/- WHICH IT INCOR PORATED IN ITS BOOKS FOR THE FINANCIAL YEAR 2012-13 DID NOT IN ANY MANNER REPRESENT UNDIS CLOSED INCOME OF THE ASSESSEE AS CONTEMPLATED BY SEC 271AAB OF THE ACT. IN THE PRESE NT CASE THE SUM OF RS. 2,73,38,000/- WAS INCORPORATED BY THE ASSESSEE IN THE REGULAR BOOKS OF ACCOUNTS. THE ASSESSEE HAD ALREADY DECIDED TO INCORPORATE THE DIF FERENCE IN STOCK FOUND ON THE PHYSICAL INSPECTION PRIOR TO THE DATE ON WHICH STOC K AUDIT REPORT WAS SEIZED BY THE AUTHORIZED OFFICER U/S 132 ON 29.10.2012. IN THE ST ATEMENT U/S 132(4) DATED 29.10.2012, THE ASSESSEE HAD MERELY ADMITTED THAT THE INCOME WI TH REFERENCE TO EXCESS QUANTITIES REPORTED IN THE STOCK AUDIT REPORT WOULD BE INCLUDE D IN TAXABLE INCOME FOR THE ASSESSMENT YEAR 2013-14 AND THE SAME WAS TO BE PART OF INCOME DECLARED IN THE STATEMENT RECORDED U/S 132(4) ON 31.08.2012 CANN OT BE CONSTRUED TO BE UNDISCLOSED INCOME OF THE COMPANY FOR THE PURPOSES OF LEVY OF PENALTY U/S 271AAB OF THE ACT. THE ASSESSEE PLEADED THAT THE SUM OF RS 2,73,38,000 /- ASSESSED AS ASSESSEES INCOME FOR THE RELEVANT YEAR DID NOT REPRESENT ANY UNEXPLAINE D MONEY, BULLION, JEWELLERY, VALUABLE ARTICLE OR ANY OTHER ASEST, FOR THE SIMPLE REASON THAT NO SUCH ASSET HAD BEEN IDENTIFIED BY THE LD AO AND NO UNDISCLOSED ASSET CAME TO LIGHT AS A RESULT OF THE SEARCH CONDUCTED 22 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 22 BY THE INVESTIGATION AUTHORITIES. ACCORDINGLY, THE SUM OF RS 2,73,38,000/- DOES NOT COME WITHIN THE FIRST LIMB OF THE DEFINITION OF UN DISCLOSED INCOME AS MENTIONED IN SECTION 271AAB OF THE ACT. SIMILARLY THE ASSESSEE P LEADED THAT ITS CASE DOES NOT FALL UNDER ANY OF THE LIMB OF DEFINITION OF UNDISCLOSED INCOME DEFINED IN SECTION 271AAB OF THE ACT. 5.5. THE LD CITA DULY APPRECIATED THE CONTENTIONS O F THE ASSESSEE AND DELETED THE LEVY OF PENALTY U/S 271AAB OF THE ACT . AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD AO HAD LEVIED PENALTY U/S 271AA B OF THE ACT FOR THE ASST YEAR 2013-14 BEING THE YEAR OF SEARCH. WHAT IS RELEVANT FOR SECTION 271AAB OF THE ACT IS THAT THERE SHOULD BE UNDISCLOSED INCOME WHICH SHOUL D HAVE BEEN DETECTED BY THE SEARCH PARTY AT THE TIME OF SEARCH. THE EXPRESSION UNDIS CLOSED INCOME HAS BEEN DEFINED IN SECTION 271AAB OF THE ACT AS UNDER:- (C) UNDISCLOSED INCOME MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESEN TED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER V ALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNTS OR OTHER DOCU MENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHICH HAS- (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE [PRINCIPAL CHIE F COMMISSIONER OR] CHIEF COMMISSIONER OR [ PRINCIPAL COMMISSIONER OR] COMMISSIONER BEFORE THE DATE OF SEARCH; OR II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED , EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECOR DED IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORM AL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CO NDUCTED. 6.1. WE FIND THAT THE DIRECTOR OF ASSESSEE COMPANY IN HIS STATEMENT U/S 132(4) OF THE ACT HAD EXPLAINED THAT THE STOCK VERIFICATION WAS CARRI ED OUT BY THE INDEPENDENT CHARTERED 23 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 23 ACCOUNTANT SINCE THE COMPANY WAS IN THE PROCESS OF IMPLEMENTING AN INTEGRATED ERP- SAP SYSTEM OF ACCOUNTING. SINCE IN THE RECORDS, IT WAS DEEMED NECESSARY BY THE MANAGEMENT THAT PHYSICAL INVENTORY SHOULD TALLY WIT H STOCK RECORDS AT THE TIME WHEN ERP SYSTEM WAS BEING IMPLEMENTED. ON TAKING PHYSI CAL INVENTORY OF RAW MATERIALS AND FINISHED GOODS, THE AUDITOR HAD REPORTED IN HIS REPORT DISCREPANCIES WHICH HE HAD FOUND BETWEEN THE PHYSICAL QUANTITIES OF MATERIALS AND THEIR CORRESPONDING STOCK RECORDS. THESE DISCREPANCIES WERE PRESENTED TO THE MANAGEMENT IN TABULAR FORM IN THE REPORT SUBMITTED TO THE MANAGEMENT OF THE COMPANY. ACCORDINGLY, THE DIRECTOR WITH REFERENCE TO THE SAID REPORT HAD STATED THAT AS PER THE STOCK AUDIT REPORT THE PHYSICAL STOCK FOUND WAS IN EXCESS OF STOCK AS PER STOCK REC ORDS AND THE VALUE OF EXCESS STOCK IN THE CASE OF THE ASSESSEE WAS RS 2,73,38,000/-. IT IS CRUCIAL AT THIS JUNCTURE TO NOTE THAT THE EXCESS STOCK FOUND IN THE STOCK AUDIT REPORT RE PRESENTS INVESTMENT MADE BY THE ASSESSEE OUT OF THE BOOKS OF THE ASSESSEE WHICH WOU LD TAKE THE COLOUR OF UNDISCLOSED INCOME. WITHOUT MAKING PURCHASES, HOW COULD THERE BE EXCESS PHYSICAL STOCK. HENCE THE ELEMENT OF UNDISCLOSED INCOME ENTERS THE SCENAR IO AT THIS JUNCTURE TOWARDS UNEXPLAINED INVESTMENT MADE TOWARDS PURCHASES. THI S WOULD BE IRRESPECTIVE OF THE FACT THAT THE ASSESSEE WOULD HAVE ENTERED THE EXCESS QUA NTITY IN THE STOCK REGISTER BY INCREASING THE QUANTITY ALONE WITH NIL VALUE ATTACH ED TO IT. THE MOMENT THE EXCESS STOCK IS FOUND PHYSICALLY WHEN COMPARED TO THE QUAN TITY REFLECTED IN THE STOCK REGISTER, THE UNDISCLOSED INCOME THEORY SETS INTO MOTION. THIS WOULD NOT UNDERGO ANY CHANGE EVEN THOUGH THE DIRECTOR OF THE ASSESSEE COMPANY U/ S 132(4) OF THE ACT HAD STATED THAT THE EXCESS STOCK FOUND ON PHYSICAL VERIFICATION WAS INCORPORATED IN THE STOCK RECORDS OF THE ASSESSEE AT NIL COST AND THEREBY THE VALUE OF E XCESS WOULD BE ACCOUNTED AS INCOME AT THE TIME WHEN THE STOCK VALUATION SHALL BE INCORPOR ATED IN THE FINAL ACCOUNTS AS ON 31.3.2013. 6.2. WHAT IS TO BE SEEN IS WHETHER THERE WAS ANY UN DISCLOSED STOCK THAT WERE FOUND IN THE SUM OF RS 2.73 CRORES AT THE TIME OF SEARCH. A DMITTEDLY, THE STOCK AUDIT REPORT 24 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 24 CONTAINING THE EXCESS STOCK WERE FOUND AT THE TIME OF SEARCH BY THE SEARCH TEAM ON 29.10.2012. THE STATEMENT OF THE DIRECTOR OF THE A SSESSEE COMPANY U/S 132(4) OF THE ACT ONLY GOES TO PROVE THAT THE ASSESSEE HAD ENTERE D THE EXCESS STOCK FOUND IN THE STOCK REGISTER ON 31.8.2012 AT NIL COST. NO CORRESPONDIN G ENTRY WAS MADE IN THE FINANCIAL RECORDS WHICH IS VERY CRUCIAL FOR DETERMINATION OF INCOME I.E UNDISCLOSED INCOME. THE DIRECTOR OF THE ASSESSEE COMPANY SHRI HARISH BAGLA, IN EFFECT, ACTUALLY ADMITTED THAT THE SAID DISCREPANCIES IN STOCK (I.E EXCESS STOCK FOUND IN STOCK AUDIT REPORT) WOULD BE TREATED AS PART AND PARCEL OF THE ASSESSEES REGULA R INCOME FOR THE ASST YEAR 2013-14 AND TAXES THEREON WOULD BE PAID IN REGULAR COURSE. BUT THE SAME WOULD STILL PARTAKE THE CHARACTER OF UNDISCLOSED INCOME FOR THE PURPOSE OF SECTION 271AAB OF THE ACT ALONE. 6.3. THE LD AR ARGUED THAT IF THE VERSION OF THE LD AO IS TO BE ACCEPTED, THEN ANY PERSON WHO HAS BEEN SUBJECTED TO SEARCH U/S 132 OF THE ACT IN A YEAR AND WHO HAD NOT PROPERLY UPDATED THE ACCOUNTS PROBABLY DUE TO THE ABSENCE OF HIS ACCOUNTANT FOR FEW DAYS JUST PRIOR TO THE SEARCH, CAN IT BE SAID THAT THE UNUPDA TED TRANSACTIONS IN THE REGULAR BOOKS OF ACCOUNTS OR OTHER DOCUMENTS WOULD BE CONSTRUED AS UNDISCLOSED INCOME FOR THE PURPOSE OF SECTION 271AAB OF THE ACT. IN OUR CONSID ERED OPINION, THE REMEDY IS AVAILABLE TO THE ASSESSEE IN SUCH A SITUATION, TO CLEARLY MENTION IN THE STATEMENT RECORDED U/S 132(4) OF THE ACT BY EXPLAINING THE FA CT OF ABSENCE OF THE ACCOUNTANT AND ALSO ADDUCE EVIDENCES BY SHOWING THE RELEVANT PURCH ASES, SALES, PROOF OF MOVEMENT OF GOODS AND EXPENSES BILLS THAT ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS, WHEREIN FROM THE RELEVANT PAPERS, IT IS POSSIBLE TO ARRIVE AT TH E TRUE PROFITS / LOSSES OF THE ASSESSEE ON THAT DATE FOR THE UNRECORDED PERIOD. WHAT IS REQUIR ED TO BE SEEN IS THAT THE ASSESSEE HAD MAINTAINED THE RELEVANT PAPERS WHICH WOULD ENABLE H IM TO RECORD THE SAME IN THE REGULAR BOOKS OF ACCOUNTS WHICH MIGHT BE RECORDED W ITH SOME TIMING DIFFERENCE. 6.4. IT APPEARS THAT THERE IS NO ESCAPE FROM THE R IGOR OF SEC.271AAB(1) OF THE ACT, IF INCOME OF THE SPECIFIED PREVIOUS YEAR EMANATES FROM THE MATERIAL FOUND IN THE COURSE OF 25 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 25 SEARCH AND SUCH INCOME OR TRANSACTION HAS NOT BEEN RECORDS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. SITUATIONS CONTEMPLATE D IN PARAGRAPH 6.3 OF THIS ORDER WOULD BE DETERMINATIVE IN SUCH CASES AS TO ASCERTAI N WHETHER THE ASSESSEE WOULD HAVE ATTEMPTED NOT TO DISCLOSE INCOME. THE LEGISLATURE HAS GIVEN SANCTITY TO ENTRIES MADE IN THE BOOKS OF ACCOUNTS MAINTAINED IN THE ORDINARY CO URSE OF BUSINESS ON THE PREMISE THAT IT IS MAINTAINED CONTEMPORANEOUSLY. IF THERE IS EX CESS STOCK PHYSICALLY FOUND THAN WHAT IS RECORDED IN THE BOOKS OF ACCOUNTS, THEN SEC.69 O F THE ACT (UNEXPLAINED INVESTMENTS NOT RECORDED IN THE BOOKS), COMES INTO PLAY. THER EFORE SUCH INCOME DOES NOT HAVE ANY SOURCE AS THE SOURCE IS UNEXPLAINED. IT IS ALSO UN DISCLOSED BECAUSE IT IS NOT RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 6.5. HENCE WE HAVE NO HESITATION IN HOLDING THAT T HE EXCESS STOCK IN THE SUM OF RS 2,73,38,000/- DOES FALL UNDER THE DEFINITION OF UN DISCLOSED INCOME AND CONSEQUENTLY PENALTY U/S 271AAB OF THE ACT IS LEVIABLE FOR THE S AME. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE ALLOWED. 7. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IN I TA NO. 2305/KOL/2016 IS AS TO WHETHER THE LEVY OF PENALTY U/S 271AAB OF THE ACT WAS JUSTI FIED ON ACCOUNT OF DENIAL OF DEDUCTION U/S 80IB OF THE ACT, IN THE FACTS AND CIR CUMSTANCES OF THE CASE. 7.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. THIS ISS UE HAS NOW BECOME ACADEMIC. SINCE WE HAVE ALREADY HELD THAT THE ASSESSEE IS INDEED EN TITLED FOR DEDUCTION U/S 80IB OF THE ACT AND ACCORDINGLY DELETED THE DISALLOWANCE IN QUA NTUM APPEAL, THE PENALTY U/S 271AAB OF THE ACT IS ONLY A FALLOUT OF THE SAID ISS UE. SINCE QUANTUM DISALLOWANCE IS DELETED , THE PENALTY THEREON U/S 271AAB OF THE ACT DOES NOT SURVIVE. IN ANY CASE, WE FIND IN THE FACTS OF THE CASE, THAT THERE WAS ABSOL UTELY NO SEIZURE OF ANY MATERIAL OR DOCUMENTS AT THE TIME OF SEARCH TO REACH TO A DIFFE RENT CONCLUSION THAT ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80IB OF THE ACT. HENCE THE SAME DOES NOT FALL WITHIN THE 26 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 26 DEFINITION OF THE EXPRESSION UNDISCLOSED INCOME AND THEREFORE WOULD BE OUTSIDE THE AMBIT OF PENALTY U/S 271AAB OF THE ACT. THE ASSES SEE HAS BEEN CLAIMING DEDUCTION U/S 80IB OF THE ACT CONSISTENTLY FROM EARLIER YEARS. S INCE THE REVENUE HAD DENIED DEDUCTION THEREON IN EARLIER YEARS, IT WAS DENIED FOR THE YEA R UNDER APPEAL ALSO . THIS HAS NOTHING TO DO WITH THE SEARCH PROCEEDINGS SO AS TO FALL WIT HIN THE AMBIT OF UNDISCLOSED INCOME AND CONSEQUENTIAL LEVY OF PENALTY U/S 271AAB OF THE ACT. ACCORDINGLY, WE HOLD THAT THE LD CITA HAD RIGHTLY DELETED THE LEVY OF PENALTY U/S 271AAB OF THE ACT IN RESPECT OF DENIAL OF DEDUCTION U/S 80IB OF THE ACT. ACCORDIN GLY, THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 2304/KOL/2016 IS DISMISSED AND APPEAL OF THE REVENUE IN ITA NO. 2305/KOL/2016 IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 23.02.2018 SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23.02.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ACIT, CC-2(1), 3 RD FLOOR, AAYAKAR BHAWAN, POORVA E.M. BYE PASS, 110, SHANTI PALLY, KOLKATA-700107. 2. M/S AMRIT HATCHERIES PVT. LTD., 158, LENIN SARAN I, 2 ND FLOOR, KOLKATA- 700013. 3. C.I.T(A)- , KOLKATA 4. C.I.T.- K OLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 27 ITA NOS.2304&2305/KOL/2016 M/S AMRIT HATCHERIES PVT. LTD. A.YR.2013-14 27