ACIT Cir -9 Pune, Pune V. Ritesh Mehta, Pune

ITA 269/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 66987 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 09-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K BHASKAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI .G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO. 269/PN/2012 : (ASSTT. YEAR : 2006-07) DY. CIT CIR. 9 PUNE ... APPELLAN T VS. RITESH MEHTA PROP. LEELA STEEL TRADING CO. TILAK CHOWK, NIGDI PUNE-411 044 PAN AHUPM 7258 H RESP ONDENT APPELLANT BY : SHRI Y.K. BHASKAR RESPONDENT BY : SHRI KISHOR PHADKE DATE OF HEARING : 14-05-2013 DATE OF PRONOUNCEMENT : 30-5-2013 ORDER PER R.S. PADVEKAR, JM IN THIS APPEAL, THE REVENUE HAS CHALLENGED IMPUGN ED ORDER OF THE LD. CIT(A)-V PUNE DATED 25-11-2011 FOR THE A.Y. 2006-07 . THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ADOPT T HE QUANTITY OF WASTE SCRAP AT 400 MT INSTEAD OF 160 MT ADOPTED BY THE AS SESSING OFFICER WITHOUT CONSIDERING THAT THERE WAS NO REGULAR STOCK REGISTER MAINTAINED BY THE ASSESSEE. 2. N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ADOPT T HE RATE OF RS. 4,000/- PER MT IN RESPECT OF STOCK OF 53 MT CLAIMED AS GARB AGE STOCK AS AGAINST THE RATE OF RS. 14,188/- ADOPTED BY THE ASS ESSING OFFICER IN VIEW OF THE FACT THAT THERE WAS NO EVIDENCE REGARDI NG EXISTENCE OF GARBAGE STOCK. 2. FACTS PERTAINING TO THE ISSUES IN CONTROVERSY AR E AS UNDER. THE ASSESSEE IS IN THE BUSINESS OF PROCESSING AND TRADING OF M.S. C S SCRAPS AND ALLIED PRODUCTS. IN THE A.Y. 2006-07 THE ASSESSEE FILED RETURN OF INCO ME DECLARING TOTAL INCOME AT RS. 97,05,926/-. THE ASSESSEE PURCHASES SCRAP AND SELL S IT TO VARIOUS CUSTOMERS AFTER SORTING AND BAILING THE SAME. SO FAR AS THE ISSUE OF QUANTITY OF STOCK IS CONCERNED, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSE E DO NOT MAINTAIN A STOCK REGISTER EXCEPT A REGISTER IN RESPECT OF EXCISABLE SCRAP WHEREIN THE ENTRIES REGARDING THE INVOICES OF PURCHASES AND SALES ARE MADE FOR TH E PURPOSE OF EXCISE PURPOSE. TO ITA . NO. 269//PN/2012 RITESH MEHTA A.Y. 2006-07 PAGE OF 6 2 A QUERY RAISED BY THE ASSESSING OFFICER THE ASSESSE E SUBMITTED THE ITEM-WISE DETAILS OF THE CLOSING STOCK AS FOLLOWS:- CLOSING STOCK PARTICULARS QUANTITY IN MT RATE EXCISE STOCK 2870 14188 42721377 NON-EXCISE STOCK 341 12117 4131897 WASTE SCRAP, RUSTED MATERIAL ETC. 643 6120 39351 60 WASTE GARBAGE, TIN ETC. 1000 3907 OPENING STOCK PARTICULARS QUANTITY IN MT RATE EXCISE STOCK 2032 12085 24556279 NON-EXCISE STOCK 258 10422 2688876 WASTE SCRAP, RUSTED MATERIAL ETC. 384 4200 16128 00 WASTE GARBAGE, TIN ETC. - - - 2674 3. FROM THE ABOVE DETAILS, THE ASSESSING OFFICER OB SERVED THAT THE ASSESSEE HAS SHOWN NEARLY DOUBLE QUANTITY OF WASTE SCRAP (RU STED) AS ON 31-3-2006 AS COMPARED TO THE QUANTITIES AS ON 31-3-2005 THOUGH T HERE IS NOT SIGNIFICANT INCREASE IN THE TOTAL QUANTITY OF THE TURNOVER AND CLOSING S TOCK. AS FAR AS THE GARBAGE WASTE IS CONCERNED THE ASSESSING OFFICER FURTHER OBSERVED TH AT SUCH ITEM OF STOCK WAS NOT AT ALL THERE IN EARLIER YEAR. THEREFORE, THE ASSESSEE WAS REQUESTED TO EXPLAIN THE BASIS AND MECHANISM ADOPTED BY HIM FOR ARRIVING THE CLOSI NG STOCK. THE EXPLANATION OF THE ASSESSEE IS THAT THE BASIS FOR VALUATION IS THE PHYSICAL VERIFICATION MADE BY HIM ON 31-3-2006. THE ASSESSEE ALSO SUBMITTED A DETAIL ED SUMMARY OF PHYSICAL STOCK VERIFICATION WHERE THE QUANTITY OF THE ITEMS OF CLO SING STOCK IS MENTIONED ALONG WITH THE NAMES OF THE PARTY FROM WHOM THE ITEMS WERE PUR CHASED. THE WASTE SCRAP OF 642 MT WAS FOUND TO HAVE BEEN BIFURCATED INTO WAST AGE, RUSTED SMALL BUR, THIN BITS ETC. AT 312.52 MT AND OTHER WASTE OF 330 MT. DURI NG THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD S OLD 82 MT OF WASTE SCRAP IN F.Y. 2005-06. THE ASSESSING OFFICER ALSO OBSERVED THAT THE THOUGH THE ASSESSEE HAS SHOWN STOCK OF WASTE SCRAP OF 384 MT AND 643 MT AS ON 31-3-2005 AND 31-3- 2006 RESPECTIVELY, THE QUANTITIES OF SUCH STOCK SOL D FOR THREE YEARS 2005-06, 2006-07 AND 2007-08 TOTALED UPTO 480 MT ONLY. ACCORDING TO THE ASSESSING OFFICER IF THE ITA . NO. 269//PN/2012 RITESH MEHTA A.Y. 2006-07 PAGE OF 6 3 PERCENTAGE OF WASTE SCRAP TO THE TOTAL TURNOVER IS STUDIED THEN FOLLOWING FIGURES EMERGE. F.Y. TURNOVER WASTE SCRAP PERCENTAGE 2004-05 28000 MT 384 MT 1.371 2005-06 30000 MT 643 MT 2.143 4. IT IS THUS OBSERVED THAT THE PERCENTAGE OF WASTE SCRAP IS NEARLY DOUBLED IN THE YEAR UNDER CONSIDERATION FOR WHICH THE ASSESSEE DID NOT FURNISH ANY EXPLANATION. IF THE FACTS ABOUT VERY LOW PROPORTIONATE SALES OF WAS TE SCRAP ARE TAKEN INTO CONSIDERATION TOGETHER WITH THE FACT OF NON-MAINTEN ANCE OF STOCK REGISTER TO THE SUBSTANTIATE THE CLAIM, THE HIGHER QUANTITY OF WAST E SCRAP IN THE YEAR UNDER CONSIDERATION IS DOUBTFUL. THEREFORE THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE CLAIM OF QUANTITIES OF WASTE SCRAP SHOULD NOT B E RESTRICTED TO THE AVERAGE OF SALES OF WASTE SCRAP FOR THE YEARS 2005-06 TO 2006-07. TH E ASSESSEE SUBMITTED DETAILED REPLY VIDE LETTER DATED 10-12-2008, THE RELEVANT PO RTION OF WHICH HAS BEE EXTRACTED BY THE ASSESSING OFFICER ON PAGE 7 OF THE ASSESSMEN T ORDER. AFTER TAKING INTO CONSIDERATION THE REPLY SUBMITTED BY THE ASSESSEE A ND CONSIDERING THE ARGUMENTS PUT FORTH BY THE ASSESSEE, THE ASSESSING OFFICER CO NCLUDED THAT THE ASSESSEE DID NOT MAINTAIN ANY REGISTER AND THERE IS NO MENTION OF SU CH MAINTENANCE OF REGISTER EVEN IN THE AUDIT REPORT. ACCORDING TO THE ASSESSING OF FICER THE ASSESSEE HAS MAINTAINED THE ONLY REGISTERS WHICH GIVE THE DETAILS OF INVOIC ES OF PURCHASE AND SALE FOR EXCISABLE STOCK AND NOTHING ELSE. IT IS A MATTER O F FACT THAT SOME QUANTITY OF WASTE SCRAP GETS GENERATED. HOWEVER THE ASSESSEE FAILED TO PROVE THE CORRECTNESS OF THE QUANTITIES OF THE WASTE SCRAP AND EXISTENCE OF GARB AGE SCRAP. UNDER THE CIRCUMSTANCES, THE ASSESSING OFFICER LEFT WITH NO O THER OPTION BUT TO ESTIMATE THE CORRECT PROBABLE QUANTITIES OF WASTE SCRAP. SINCE THE INFORMATION REGARDING WASTE SCRAP IS IN THE FORM OF SALES THE ASSESSING OFFICER ESTIMATED THE QUANTITIES OF SCRAP AT AN AVERAGE OF QUANTITIES OF WASTE SCRAP SOLD IN THE YEARS 2005-06 2006-07 AND 2007-08 AS FOLLOWS:- 2005-06 82 MT 2006-07 167 MT 2007-08 231 MT 480 MT AVERAGE = 480/3 = 160 MT ITA . NO. 269//PN/2012 RITESH MEHTA A.Y. 2006-07 PAGE OF 6 4 5. THE QUANTITY OF WASTE SCRAP SHOWN BY THE ASSESSE E IN THE CLOSING STOCK IS 643 MT AND THAT OF THE SCRAP AS WASTE 483 MT (643 160). THUS ACCORDING TO THE ASSESSING OFFICER THE QUANTITY OF SCRAP OF 483 MT I S REQUIRED TO BE VALUED AT A REGULAR RATE ADOPTED BY THE ASSESSEE I.E. OF RS. 14 ,188/- MT INSTEAD OF THE RATE OF RS. 6,120/- M.T. THEREFORE, ACCORDING TO THE ASSES SING OFFICER THERE WAS UNDERVALUATION OF STOCK BY TREATING THE REGULAR STO CK AS WASTE SCRAP AS FOLLOWS: = 483 X (14288 6120) = 38,96,844. 6. IN THE ABSENCE OF EVIDENCE REGARDING EXISTENCE O F GARBAGE STOCK OF 53 MT AND ALSO EXISTENCE OF SUCH STOCK IN THE CLOSING STO CK FOR F.Y. 2004-05 THE ASSESSING OFFICER TREATED AS REGULAR STOCK AND VALUED THE SAM E AT RS. 14,188/- PER MT INSTEAD OF RS. 1,000/- PER MT ADOPTED BY THE ASSESSEE AND ARRIVED AT THE AMOUNT OF UNDERVALUATION OF STOCK TO RS. 45,95,808/- AND COMP UTED THE CLOSING STOCK AT RS. 5,34,37,242/- INSTEAD OF RS. 4,88,41,434/- RESULTIN G INCREASE IN THE PROFIT OF BUSINESS BY AN AMOUNT OF RS. 45,95,808/-. HE ACCORDINGLY, A DDED BACK THIS AMOUNT AS INCOME OF THE ASSESSEE FROM BUSINESS. 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A ), WHO PARTLY ALLOWED THE ASSESSEES APPEAL BY RESTRICTING THE QUANTITY OF CL OSING STOCK TO 400 M.T. AND TREATED THE BALANCE 243 M.T. AS REGULAR SCRAP STOCK. IN TH E SAME WAY, THE RATE FOR SALE OF THE WASTE SCRAP WAS ADOPTED AT RS. 7,000/- PER M.T. IN PLACE OF RS. 6,120/- PER M.T. BY MAKING AN OBSERVATION THAT THERE IS NO BASIS FOR THE ASSESSING OFFICER TO ADOPT THE SAID RATE AND HE ACCORDINGLY ADOPTED THE RATE O F RS. 7,000/- PER M.T. HE ALSO HELD THAT THE RATE FOR GARBAGE IS TO BE RESTRICTED TO BE TAKEN AT RS. 4,000/-. THE OPERATIVE PART OF THE ORDER OF THE LEARNED CIT(A) I S AS FOLLOWS:- 12. CONSIDERING THE APPELLANTS EXPLANATION VIS-- VIS THE ESTIMATION MADE BY THE ASSESSING OFFICER, IT IS NOTICED THAT THERE WAS SOME ADHOCISM REGARDING QUANTITATIVE AND QUALITATIVE WORKING OF T HE CLOSING STOCK BY THE ASSESSING OFFICER AND ITS VALUATION TREATING ALMOST THE ENTIRE STOCK TO BE OF GOOD QUALITY SCRAP. HOWEVER, SINCE THERE IS NO REG ULAR STOCK REGISTER MAINTAINED AS STATED BY THE ASSESSING OFFICER, AND THE QUANTITY OF THE CLOSING STOCK IS STATED TO BE SHOWN BY TAKING THE PHYSICAL INVENTORY AT THE END OF THE YEAR, WHICH WAS NOT VERIFIABLE; THERE WAS ALWAYS A POSSIBILITY OF SOME ADHOCISM ON THE PART OF THE APPELLANT ALSO. THE AP PELLANT HAS TAKEN THE RATE OF ONLY RS.1,000/- PER M.T. FOR GARBAGE STOCK WITHO UT GIVING ANY BASIS THEREOF, WHILE IT WAS TAKEN AT RS. 14,188/- BY THE ASSESSING OFFICER I.E. AT THE FULL VALUE OF THE SCRAP. HAVING CAREFULLY CONSIDERED THE VALUA TION AS WELL AS THE QUANTITY ITA . NO. 269//PN/2012 RITESH MEHTA A.Y. 2006-07 PAGE OF 6 5 OF GARBAGE STOCK; THE ASSESSING OFFICER IS DIRECTED TO ADOPT THE VALUATION OF THE GARBAGE SCRAP AT RS. 4000/- PER MT INSTEAD OF R S. 1000 PER MT TAKEN BY THE APPELLANT WHILE RETAINING THE QUANTITY OF 53 MT AS SHOWN BY THE APPELLANT. THIS WILL RESULT IN SUSTAINING THE ADDITION OF RS. 1,59,000/- FOR THIS CLOSING STOCK OF GARBAGE INSTEAD OF RS. 6,98,964/- MADE BY THE ASSESSING OFFICER GIVING A PARTIAL RELIEF TO THE APPELLANT. FOR THE Q UANTITY OF 643 M.T. OF WASTE SCRAP, THE APPELLANT ADOPTED THE RATE OF RS. 6,120/ - M.T. OF WASTE SCRAP, THE APPELLANT ADOPTED THE RATE OF RS. 6,120/- PER MT. OUT OF THIS, THE ASSESSING OFFICER CONSIDERED ONLY 160 M.T. TO BE ACTUAL WASTE SCRAP AND FOR THE DIFFERENCE OF 483 M.T. FULL RATE OF RS. 14,188/- PE R M.T. WAS TAKEN INSTEAD OF THE RATE ADOPTED BY THE ASSESSEE OF RS. 6,120/- PER M.T. THE BASIS OF QUANTIFICATION OF 160 M.T. FOR THE WASTE SCRAP WAS THE AVERAGE SALE QUANTITY OF 3 YEARS WHICH THE ASSESSING OFFICER HAD ADOPTED. THOUGH THE SALE OF WASTE SCRAP FROM YEAR TO YEAR MAY GIVE SOME INDICAT ION OF THE QUANTITY IN THE CLOSING STOCK, IT CANNOT BE AN EXACT INDICATION. H OWEVER, CONSIDERING THE ASSESSING OFFICERS OBSERVATIONS AND THE METHOD OF SHOWING THE CLOSING STOCK QUANTITY BY THE APPELLANT; THE SAME IS RESTRICTED T O 400 M.T. AND THE BALANCE 243 M.T. WOULD BE TREATED TO BE AS OF THE REGULAR S CRAP STOCK, FOR WHICH THE FULL VALUE WOULD HAVE TO BE ADOPTED. MOREOVER NO B ASIS HAS BEEN GIVEN FOR TAKING RS. 6,120/- PER M.T. AS THE SALE FOR WASTE S CRAP; THEREFORE THE SAME MAY BE TAKEN AT A RATE OF RS. 7,000/- PER M.T. SINC E THE RATE OF GARBAGE SCRAP HAS BEEN RESTRICTED TO BE TAKEN @ RS. 4,000/- ABOVE . THIS WILL RESULT IN A CONSEQUENTIAL RELIEF TO THE APPELLANT. THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLOWED. 8. THE REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. ADMITTEDLY, THERE IS NO MATERIAL BEFORE THE ASSESSING OFFICER E XCEPT COMPARATIVE FIGURES OF THE PAST YEARS. THE ASSESSING OFFICER HAS MADE AN EXER CISE OF ARITHMETICAL CALCULATION AND ACCORDINGLY CAME TO THE CONCLUSION THAT THERE I S INSUFFICIENT OF THE CLOSING STOCK. THE LEARNED COUNSEL SUBMITS THAT EVEN ASSUMING THE VALUATION MADE BY THE ASSESSING OFFICER IS ADOPTED IN THIS YEAR, THERE IS NO REVENUE LOSS AS THE CLOSING STOCK WORKED OUT BY THE ASSESSING OFFICER WILL BE O PENING STOCK OF THE NEXT YEAR. WE FIND THAT THERE IS FORCE IN THE ARGUMENT OF THE LEARNED COUNSEL. AFTER EXAMINING THE REASONS GIVEN BY THE LEARNED CIT(A), WE FIND TH AT HE HAS ALSO MADE AN ESTIMATION ONLY TO PUT TO END THE CONTROVERSY. IN OUR OPINION, THE ESTIMATION MADE BY THE LEARNED CIT(A) IS REASONABLE AND NO INTERFERENC E IS CALLED FOR. ACCORDINGLY THE SAME IS CONFIRMED. ACCORDINGLY, THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY 2013 SD/- SD/- (G.S. PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 30 TH MAY 2013 ANKAM ITA . NO. 269//PN/2012 RITESH MEHTA A.Y. 2006-07 PAGE OF 6 6 COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT V PUNE 4. THE CIT(A)- V PUNE 4. THE D.R. B BENCH, PUNE 5. GUARD FILE -TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE