M/s. H. Hero Agro Export Pvt. Ltd, Distt.Ferozepur V. The Income-tax Officer, Ferozepur

ITA 325/ASR/2014

• Counselvise Citation: 32520914 RSA 2014
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: JAGJIWAN LAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.325(ASR)/2014 ASSESSMENT YEAR:2009-10 PAN :AAACH5301E M/S. H.HERO AGRO INDUSTRIES PVT. LTD. VS. THE INCOM E TAX OFFICER, VPO MAKHU, DISTT. FEROZEPUR. WARD III(1), FEROZEP UR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.ASHWANI KUMAR CA & SH.JAGJIWAN LAL RESPONDENT BY:SH. TARSEM LAL, DR DATE OF HEARING:02/02/2015 DATE OF PRONOUNCEMENT:17/03/2015 ORDER PER B.P.JAIN, AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), BHATINDA, DATED 21.02.104 FOR THE ASSESSMENT YEAR 2009-10 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ORDER PASSED U/S 250(6) OF THE I.T.ACT,196 1 BY THE LD. CIT(A), BATHINDA, IS AGAINST LAW AND FACTS ON THE F ILE IN AS MUCH HE FAILED TO ADJUDICATE ON THE ISSUE OF DIRECT IONS GIVEN BY THE LD. JCIT U/S 144A WHICH WERE PREJUDICIAL TO THE INTEREST OF THE APPELLANT, WITHOUT AFFORDING ANY OPPORTUNITY OF HEARING. 2. THAT THE LD. CIT(A) WAS FURTHER NOT JUSTIFIED TO ARBITRARILY UPHOLD AN ADDITION OF RS.17,46,300/- MADE BY THE AO IN THE VALUATION OF CLOSING OF PADDY. ITA NO.325(ASR)/2014 2 3. THAT THE LD. CIT(A) FURTHER GRAVELY ERRED IN UPH OLDING: (A) THE DISALLOWANCE OF SALARY OF RS.84,000/- PAID TO MANAGER, MRS. NAVREET SANDHU. (B) THE DISALLOWANCE OF RS.25,000/- OUT OF VARIOUS EXPENSES SUCH AS BARDANA REPAIR, MISCELLANEOUS EXPENSES AND TRACTOR EXPENSES ON ESTIMATED BASIS IGNORING THE FA CT THAT THE EXPENDITURE WAS FULL VOUCHED. 2. AS REGARDS GROUND NO.1, THE BRIEF FACTS OF THE C ASE ARE THAT THE ASSESSEE MADE AN APPLICATION U/S 144A BEFORE THE JC IT, WHICH WAS NOT DECIDED BY THE JCIT. 3. BEFORE THE LD. CIT(A), THE ASSESSEE RAISED GROUN D THAT NO OPPORTUNITY OF PERSONAL HEARING WAS GIVEN TO THE ASSESSEE PURSU ANT TO THE APPLICATION FILED U/S 144A OF THE ACT. THE SAID GROUND OF THE ASSESSEE WAS DISMISSED FOR THE REASON THAT THE LEGISLATURE HAS USED THE WORD JCIT MAY ISSUE DIRECTIONS AND IT IS THE DISCRETION OF THE JCIT TO ISSUE SUCH DIRECTIONS OR NOT. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE DID NOT PURSUE THIS GROUND SERIOUSLY AND ALSO WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT THE LEGISLATURE HAS USED THE WORD THAT JCIT MAY ISSUE DIRECTIONS AND IN THE PRESENT CASE JCIT DID NOT USE THE DISCRETION TO IS SUE DIRECTIONS AND ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF T HE LD. CIT(A) IN THIS REGARD AND DISMISS GROUND NO.1 RAISED BEFORE US. ITA NO.325(ASR)/2014 3 5. AS REGARDS GROUND NO.2, THE BRIEF FACTS OF THE C ASE ARE AS PER AOS ORDER, WHICH FOR THE SAKE OF CONVENIENCE IS REPRODU CED AS UNDER: 2.1. THE ASSESSEE COULD NOT JUSTIFY THE NATURE OF JOB BEING PERFORMED BY HER AS MANAGER IN THE ASSESSEE COMPANY ALONGWITH DUTIES PERFORMED BY HER AS DENTIST. THEREFORE, THE SALARY DEBITED OF RS.84,000/- TO MRS. NAVREET SANDHU IS NOT ALLOWED A ND ADDITION OF RS. 84,000/- IS MADE TO BE RETURNED INCOME OF THE ASSES SEE. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE INCOME T AX ACT, 1961 ARE INITIATED FOR FURNISHING INACCURATE PARTICULARS AND CONCEALING THE PARTICULARS OF INCOME ARE INITIATED. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAS BEEN NOTICED THAT THE ASSESSEE HAS MADE THE VALUATION OF CLOSING STOCK OF PADDY OF 12127.50 QUINTALS AT RS.1,37,64,713 @ RS. 1135/- PER QUINTAL. PURCHASE BILLS OF THE LAST FEW PURCHASES M ADE BY THE ASSESSEE HAVE ALSO BEEN OBTAINED WHICH ARE PLACED ON RECORD. COPY OF PURCHASE ACCOUNT HAS BEEN OBTAINED WHICH SHOWS THAT THE ASSESSEE HAS MADE LAST PURCHASE OF PADDY @ RS. 1279/- PER QU INTAL. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE CLOSING STOCK VALUATION SHOULD NOT BE DONE AT RS.1279/- INSTEAD OF RS.1135/-. REPL Y SUBMITTED BY THE ASSESSEE IN THIS REGARDS IS REPRODUCED AS UNDER: JUSTIFICATION OF VALUATION OF PADDY: (A) COMPANY HAVE PURCHASES TWO TYPE OF PADDY I) BAS MATI II) NON- BASMATI AND ONLY STOCK OF NON-BASMATI PADDY IS HAND AS ON 31-03- 2009. THE NON BASMATI IS ALSO OF TWO VERITIES I) PA RMAL II) SHARBATI. B) BOTH VARIETIES OF NON-BASMATI ARE MIXED ACCORDIN G TO THEIR QUALITY ARE PROCESSED TO GET ACCEPTABLE QUALITY OF NON-BASM ATI RICE. C) THE TOTAL COST OF NON BASMATI IS RS. 4,89,14,502 OF 43545.60 QT. WHICH INCLUDES MARKET FEE OF BASMATI PADDY RS.2,38, 411. D) THE NET COST OF 43545.60 QTL. OF PADDY COMES TO RS. 4,86,76,091 AFTER DEDUCTION THE MARKET FEE OF BASMATI PADDY. TH E AVERAGE COST OF NON-BASMATI IS RS. 1118 PER QTL. E) THE DETAILS OF PADDY PURCHASES ARE ENCLOSED HERE WITH WHICH SHOWS THAT COST OF PADDY IN SOME CASES IS EVEN LESS THAN RS.900 PER QTL. THE PURCHASES PRICE RANGE FROM RS.878 PER QTL. TO RS. 1 279 PER QTL. E) AS THE CLOSING STOCK OF NON BASMATI PADDY AS ON 31-03-2009 WAS OF MIXED VARIETIES OF BOTH THE QUALITY, SO THE CLOSING STOCK WAS VALUED @ RS.1135 PER QTL. ITA NO.325(ASR)/2014 4 3.1. REPLY OF THE ASSESSEE HAS BEEN CONSIDERED. DUR ING THE YEAR, THE ASSESSEE HAS MADE PURCHASES OF 43545.60 QUINTALS OF NON-BASMATI PADY WHICH CONSISTS OF 12019 QUINTAL PADDY P0ERMAL AND 31526.60 QUINTALS OF PADDY SHARBATI. THE ASSESSEER WAS ALSO HAVING OPENING STOCK OF PADDY OF 17939.72 QUINTALS. VALUE OF THIS OPENING STOCK HAS BEEN SHOWN AT RS.1,62,35,447/- WHICH GIVES RATE OF RS. 905/- PER QUINTAL. 3.2 DURING THE YEAR, THE ASSESSEE HAS CONSUMED 4935 7.82 QUINTALS OF PADDY. GENERALLY, THE PADDY IS MILLED ON FIRST IN F IRST OUT (FIFO) AND ALSO ASSESSEE HAS MADE THE VALUATION OF CLOSING STO CK AT RS.1135/- WHICH GIVES CLEAR INDICATION THAT THE PADDY LYING I N THE OPENING STOCK OF 17939.72 QUINTAL HAS BEEN MILLED AND REST OF THE PADDY OF 31418.10 QUINTAL HAS BEEN MILLED OUT OF PADDY PURCHASED BY THE ASSESSEE DURING THE YEAR. IF WE GO BY THE ASSESSEES OWN VER SION THAT BOTH VARIETY OF NON-BASMATI ARE MIXED ACCORDING TO THEIR QUALITY ARE PROCESSED TO GET ACCEPTABLE QUALITY OF NON-BASMATI RICE, IT IS TREATED THAT THE ASSESSEE HAS MIXED THE PERMAL PADDY AND SH ARBATI PADDY IN 50:50 PROPORTION. THE ASSESSEE HAS MADE PURCHASES O F PADDY PERMAL OF 12019 QUINTALS AND IF WE MIX 12019 QUINTALS OF S HARBATI PADDY WHICH GIVES THE FIGURE OF 24038 QUINTALS. FROM THIS CALCULATION, IT IS CLEAR THAT THE ASSESSEE MILLED WHOLE OF THE STOCK O F PERMAL PADDY OF 12019 QUINTALS AND ALSO MILLED 19399.10 QUINTALS OF PADDY SHARBATI DURING THE YEAR. AT THE CLOSE OF THE YEAR THE ASSES SE HAS BEEN LEFT ONLY WITH THE CLOSING STOCK OF PADY SHARBATI OF 12127.50 QUINTAL. THE LAST OF THE PURCHASES OF WHICH HAVE BEEN MADE BY THE ASSESS EE AT RS. 1279/-. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT CLOS ING STOCK OF NON- BASMATI PADDY WAS OF MIXED VARIETIES IS WRONG. THE CLOSING STOCK LYING WITH THE ASSESSEE AT THE CLOSE OF THE YEAR WA S ONLY OF SHARBATI PADDY. IT IS THEREFORE, ESTABLISHED THAT THE ASSESS EE HAS UNDERVALUED THE CLOSING STOCK OF PADDY. VALUATION OF THE CLOSIN G STOCK OF PADDY IS TAKEN AT RS.1279/- INSTEAD OF RS.1135/- APPLIED BY THE ASSESSEE. ACCORDINGLY, ADDITION OF RS.17,46,360/-(RS.144X1212 7.50 QUINTAL) IS MADE TO THE RETURNED INCOME. PENALTY PROCEEDINGS UN DER SECTION 271(1)( C ) OF THE INCOME TAX ACT, 1961 ARE INITIAT ED FOR FURNISHING INACCURATE PARTICULARS AND CONCEALING THE PARTICULA RS OF INCOME. 6. THE LD. CIT(A) DISMISSED THE GROUND OF THE ASSES SEE AND RELEVANT FINDINGS ARE REPRODUCED FOR THE SAKE OF CONVENIENCE HEREINBELOW: ITA NO.325(ASR)/2014 5 THE APPELLANT IN THE WRITTEN SUBMISSIONS HAS TRIED TO REBUT THE THEORY OF VALUATION OF CLOSING STOCK BY THE AO BY GIVING T HE PURCHASE RATE ON VARIOUS DATES BUT HE HAS FAILED TO BRING ON RECORD THE MOST IMPORTANT FACT THAT HOW AND BY ADOPTING WHICH METHOD THE CLO SING STOCK HAS BEEN VALUED BY THE APPELLANT AS ON 31.03.2009. BY R ELYING ON THE AS2 TO ISSUE BY ICAI REGARDING FIFO THE A/R OF THE APPE LLANT HAS HELPED THE AO AS HE HAS ALSO RELIED N THE THEORY OF FIFO F OR MAKING THE VALUATION OF CLOSING STOCK. THE AR OF THE APPELLANT HAS GONE ONE STEP FURTHER AND HAS ADMITTED THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK BUT HAS ASKED FOR ALLOWING THE SET OF F OF THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK IN AY 2010-11 . THE RELEVANT PART OF THE WRITTEN SUBMISSION IS REPRODUCED AS UNDER: II) A CONSISTENT PRACTICE OF FIXING THE VALUE OF T HE STOCK ON THE BASIS OF THE WEIGHTED AVERAGE PRICE HAS BEEN ADOPTED BY T HE COMPANY FOR LAST 12 YEARS AND HAS BEEN ACCEPTED BY THE REVENUE. BY MAKING ADDITION OF RS.16,46,360/- IN THE VALUE OF THE STOC K IN HAND, NO CORRESPONDING BENEFIT WAS GIVEN BY THE REVENUE TO T HE ASSESSEE FOR THE ASST. YR 2010-11. THE VALUE OF CLOSING STOCK OF A.Y.2009-10 HAS BEEN CARRIED FORWARD AS OPENING STOCK OF ASSESSMENT YEAR 2010-11. IF THE REVENUE ALTER THE VALUE OF CLOSING IT HAS TO AF TER THE VALUE OF OPENING STOCK OF SUBSEQUENT YEAR AND THEN THERE SHA LL NOT ANY LOSS OR GAIN TO EITHER OF PARTY. III) IT IS ACCOUNTING PRINCIPAL THAT CLOSING STOCK OF 1 ST YEAR SHALL BE OPENING STOCK OF NEXT YEAR AND THIS PROCESS SHALL G O ON YEAR AND NOTHING IS GAIN OR LOSS BY APPELLANT AND REVENUE. THE CASE LAW RELIED UPON BY THE A/R OF THE APPELLAN T ARE ALL APPLICATION ON THE FACTS OF THE CASES WHICH WERE BE FORE THE RELEVANT BENCHES OF THE ITAT AND THE VARIOUS HIGH COURTS AND THE SAME ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT. IT IS SETTLED LAW THAT THE CASE LAW CAN ALWAYS BE APPLIED TO A CASE HAVING IDE NTICAL FACTS. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITION OF RS.1746360/- IS CONFIRMED ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK BUT ALSO KEEPING IN VIEW THE REQUE ST OF THE A/R OF THE APPELLANT AND THE SETTLED LAW THE AO IS DIRECTED TO ALLOW THE SET OFF ADDITION OF RS.1746360/- IN A.Y.2010-11. THE GROUND OF APPEAL NO.3 IS DISMISSED. ITA NO.325(ASR)/2014 6 7. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT CON SISTENT PRACTICE OF FIXING THE VALUE OF STOCK ON THE BASIS OF THE WEI GHTED AVERAGE PRICE HAS BEEN ADOPTED BY THE COMPANY FOR THE LAST 12 YEARS A ND CLOSING STOCK OF THIS YEAR SHALL BE OPENING STOCK OF THE NEXT YEAR AND TH ERE IS NO LOSS TO THE REVENUE IN THIS REGARD. ACCORDINGLY, THE LD. COUNSE L FOR THE ASSESSEE PRAYED TO DIRECT THE DELETION OF THE SAID ADDITION. 8. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF BOTH THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. BEFORE THE AO, THE LD. COUNSEL FOR THE ASSESSEE HAS MADE THE SUBMISSIONS WHICH ARE REPRODUCED IN LD. CIT(A)S ORDER REPRODUC ED HEREINABOVE AND THE LD. COUNSEL FOR THE ASSESSEE HAS ADMITTED THE ADDIT ION ON ACCOUNT OF VALUATION OF CLOSING STOCK BUT HAD ASKED FOR ALLOWI NG SET OFF ON ACCOUNT OF VALUATION OF CLOSING STOCK IN THE FOLLOWING YEAR I. E. ASSESSMENT YEAR 2010-11 AND ACCORDINGLY THE AO COMPLETED THE ASSESSMENT AND THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. WITH THIS ACTION OF THE AUTHORITIES BELOW, ULTIMATELY THERE IS NO GAIN OR LOSS TO THE ASSESSEE OR THE REVENUE AND IN FACT, THE SAME HAS BEEN ADMITTED BY THE ASSESSEE IS PART OF RECORD. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE DOES NOT HA VE ANY CASE AND GROUND IS MISCONCEIVED AND THUS, DISMISSED. ITA NO.325(ASR)/2014 7 10. AS REGARDS GROUND NO.3(A), THE BRIEF FACTS AS PER AOS ORDER ARE REPRODICED AS UNDER: 2. THE ASSESSEE COMPANY IS A RICE MILLER. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE A SSESSEE HAS PAID SALARY OF RS.84,000/- TO MRS. NAVREET SANDHU AND IT WAS ALSO REVEALED DURING ORAL DISCUSSIONS THAT MRS. NAVREET SANDHU IS A DENTIST BY PROFESSION. THE ASSESSEE WAS ASKED TO GIVE THE JUST IFICATION OF THE SALARY PAID TO MRS. NAVREET SANDHU. IN RESPONSE TO THE QUERY RAISED, THE ASSESSEE HAS FILED A COPY OF ITR-V FOR THE ASSE SSMENT YEAR 2009- 10 ALONGWITH THE CONFIRMATION FROM MRS. NAVREET SAN DHU. THE CONFIRMATION READ AS UNDER: RESPECTFULLY, IT IS SUBMITTED THAT I WAS WORKING A S MANAGER IN M/S. H. HERO AGRO INDUSTRIES PVT. LTD. DURING FINANCIAL YEAR AND DRAWN SALARY OF RS.84,000/- PER ANNUM. 11. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO S INCE THE ASSESSEE COULD NOT JUSTIFY THE NATURE OF JOB PERFORMED BY M RS. NAVREET SANDHU, WHO IS DENTIST BY PROFESSION. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT TH E LADY MANAGER MRS. NAVREET SANDHU WAS NOT IN A POSITION TO EXPLAIN THE NATURE OF WORK CARRIED OUT BY HER AND ALSO THE ASSESSEE FAILED TO PROVE TH E NATURE OF JOB CARRIED OUT BY MRS. NAVREET SANDHU AND MOREOVER A LADY HAVING DEGREE OF BDS CANNOT DO JOB IN A RICE MILLING UNIT UNLESS IT IS PROVED B Y THE ASSESSEE THAT SHE ACTUALLY WORKED AS AN EMPLOYEE. IN THE FACTS AND CI RCUMSTANCES, WE DO NOT ITA NO.325(ASR)/2014 8 FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) A ND THE SAME IS UPHELD. THUS, GROUND NO.3(A) OF THE ASSESSEE IS DISMISSED. 13. AS REGARDS GROUND 3(B), THE AO MADE DISALLOWANC E OF RS.25,000 OUT OF BARDANA REPAIR, MISC. EXPENSES AND TRACTOR EXPEN SES FOR THE REASONS VOUCHERS WERE NOT VERIFIABLE. 14. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE CONCUR WITH THE VIEWS OF TH E LD. CIT(A) THAT THE DISALLOWANCE IS NOT EXCESSIVE FOR THE REASON THAT T HE EXPENSES WERE NOT FULLY VERIFIABLE, IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HA S RIGHTLY CONFIRMED THE ACTION OF THE A.O. THUS, GROUND NO.3(B) OF THE ASSE SSEE IS DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.325(ASR)/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17TH MARCH, 2015. SD/- SD/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17TH MARCH, 2015 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. H.HERO AGRO INDUSTRIES PVT. LTD. MAKHU 2. THE ITO WQARD-III(2), FEROZEPUR. 3. THE CIT(A), BATHINDA. 4. THE CIT, BATHINDA. 5.THE SR DR, ITAT, AMRITSAR.