ACIT, Circle - 1, Hooghly, Hooghly V. M/s. Kedarnath Cold Storage, Hooghly

ITA 34/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54629 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2011
• Court: TRIBUNAL
• Department Lawyers: A S MONDAL LD
• Assessee Lawyers: V N DUTTA LD
• Keywords: Unexplained investment; Depreciation; Principle of natural justice; Reasonable cause; Fair market value; Valuation report; Assessment record
• Section: 69; 145

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA () . ., !' !' !' !' ! #' , BEFORE SRI S.V MEHROTRA, AM & SRI MAHAVIR SINGH, JM '$ / I.T.A NO. 34/KOL/2011 #%& !'(/ ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX VS. M/S. KEDA RNATH COLD STORAGE CIRCLE-1, HOOGHLY PAN : AADFK 4554E (*+ /APPELLANT ) (,-*+/ RESPONDENT ) *+ / FOR THE APPELLANT : . / SHRI A.S. MONDAL, LD.DR ,-*+ / FOR THE RESPONDENT : . / SHRI V.N.DUTTA, LD.AR /%!0 1 2 /DATE OF HEARING : 29/9/11 3' 1 2 /DATE OF PRONOUNCEMENT : 04/11/2011 4 / ORDER . ., SHRI S.V MEHROTRA, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS),XXXVI, KOLKATA DATED 18/10/2010 FOR THE ASSESSMENT YEAR 2007-08.. 2. THE APPEAL FILED BY THE REVENUE IS TIME BARRED B Y 09 DAYS. SHRI SANJAY MALLICK, ASSTT. CIT, CIRCLE- 1, HOOGHLY HAS FILED AN AFFIDAVIT EXPLAINING THE DELAY. IT HAS BEEN STATED AS UNDER:- 1. THAT THE DATE OF COMMUNICATION OF THE FIRST APP ELLATE ORDER IN THE OFFICE OF THE LD. COMMISSIONER OF INCOME TAX, KOLKA TA-XX, KOLKATA WAS 02.11.2010 AND THAT THE LAST DATE FOR FILING SE COND APPEAL EXPIRED ON 31.12.2010 RECKONING THE PERIOD OF 60(SI XTY) DAYS FROM 02.11.2010; 2 THAT 01.01.2011 WAS SATURDAY; 3. THAT 02.01.2011 WAS SUNDAY, 4. THAT THIS IS A MOFUSSIL OFFICE LOCATED ABOUT 4O KMS. FROM KOLKATA; 5. THAT DUE TO TECHNICAL/MECHANICAL FAULTS THE DEC ISION OF THE LD. COMMISSIONER OF INCOME TAX,KOL-XX,KOLKATA TO FILE 2 ND APPEAL COULD BE VERBALLY RECEIVED ONLY ON 03.01.2011 AT AB OUT 3.30 PM WITHOUT THE RELEVANT ASSESSMENT RECORDS FROM HIS OF FICE; 6. THAT THE RECORDS WERE COLLECTED FROM THE OFFICE OF THE LD. COMMISSIONER OF INCOME TAX,KOL-XX,KOLKATA ON 04.01. 2011 BY SENDING A MESSENGER AND BROUGHT BACK TO THE OFFICE AT 1 .OOPM. 7. THAT THE FORM 35 AND OTHER PAPERS COLLECTED FRO M LD. CIT(A)- XXXVL/KOLKATA ON 05.01.2011. ITA NO.34/KOL/2011-C-SVM 2 8. THAT NECESSARY WORK OF PREPARING RELEVANT PAPER S STARTED & CONTINUED ON 05.01.2011 AND 06.01.2011. 9. THAT NECESSARY PAPERS CONTAINED ON 06.01.2011. 10. THAT AL FORMALITIES WERE COMPLETED EARLY ON 07 .01.2011 FOR SUBMISSION OF THE SAME DULY. IN VIEW OF THIS, I WOULD FERVENTLY PRAY THAT THE UN INTENTIONAL DELAY HAVING THUS OCCURRED IN FILING THE INSTANT APPEAL M AY KINDLY BE CONDONED. 2.1 AFTER CONSIDERING THE AVERMENTS MADE IN THE AF FIDAVIT, AND HEARING BOTH THE PARTIES, WE ARE OF TH E OPINION THAT THE REVENUE/DEPARTMENT WAS PREVENTED BY REASONABLE CAUSE FROM PREFERRING THE APPEAL WITHIN THE STIPULATED PERIOD. WE, ACCORDINGLY, CON DONE THE DELAY IN FILING THE APPEAL AND ADMIT THE SAME VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WEST BENGAL INFRASTRUCTURAL & FINANCIAL CORPORATION LTD REPORTED IN (2011) 196 TA XMAN 321(SC) AND PROCEED TO DECIDE THE APPEAL ON MERITS. 3. THE ASSESSEE, A PARTNERSHIP FIRM, IN THE RELEVA NT ASSESSMENT YEAR, WAS RUNNING/OPERATING A COLD STORAGE. IT HAD FILED ITS RETURN OF INCOME DISCLOS ING TOTAL INCOME OF RS. 7,05,305/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT ASSESSE E CLAIMED INSURANCE PREMIUM OF RS.5,02,122/-. AS PER TAX AUDIT REPORT, WDV OF MACHINERY WAS RS.6,83, 858/-. HOWEVER, AS PER COVER NOTE, THE PLANT AND MACHINERY WAS INSURED FOR RS.32,10,900/-. THUS, TH ERE WAS DIFFERENCE RS.25,27,042/-. HE OBSERVED THAT REPLACEMENT OF OLD PLANT AND MACHINERIES WITH NEW O NES, OVER A REASONABLE PERIOD OF TIME, WAS INEVITABLE. HOWEVER, THE ASSESSEE HAD NOT SHOWN AN Y FRESH INVESTMENT. HE FURTHER OBSERVED THAT NORMALLY INSURANCE COVER WAS TAKEN BY ANY PERSON F OR THE SAFEGUARD OF FRESH AND ALMOST EQUAL INVESTMENT TO PURCHASE/PRODUCTION/MANUFACTURING TH E ASSET IN QUESTION. HE, INTER-ALIA, OBSERVED AS UNDER:- UNLESS THE MARKET PRICE EXPECTATION FOR THE EXI STING PLANT AND MACHINERIES STANDS TO THAT LEVEL, ASSESSEE MUST NOT HAVE INSUR ED THE MACHINERIES FOR SUCH HUGE AMOUNT. FURTHERMORE, THE INSURANCE COMPANY DID NOT STAND TO BENEFIT FROM INSURING THE OLD PLANT & MACHINERIES, VALUE OF WHICH IS CL AIMED AT RS. 6,83,858/--. INSURANCE COMPANIES HAVE THEIR OWN INFRASTRUCTURE FOR EVALU ATION OF ASSETS/PROPERTIES, INSURANCE PROPOSAL FOR WHICH ARE SUBMITTED BEFORE THEM. THEREFORE, IT CANNOT BE ACCEPTED THAT THE TRUE VALUATION OF PLANT & MACHINE RIES OF THE ASSESSEE STOOD AT RS. 6,83,858/-- ONLY. THE LOGICAL CONCLUSION OF THE F ACT & CIRCUMSTANCES IS THAT ASSESSEE MUST HAVE MADE FRESH INVESTMENTS WHICH WERE NOT DIS CLOSED IN THE BOOKS FULLY. THEREFORE, THE DIFFERENCE AMOUNT OF RS. 25,27,042/- IS CONSIDERED AS UNDISCLOSED INVESTMENT. HE ACCORDINGLY MADE ADDITION OF RS. 25,27,042/- U/S .69 OF THE ACT. ITA NO.34/KOL/2011-C-SVM 3 4. BEFORE LD.CIT(A), IT WAS, INTER-ALIA, SUBMITTED AS UNDER:- SECTION 69 OF THE ACT SPECIFICALLY SPEAKS THAT IN ORDER TO INVOKE THIS PROVISION, THE TWO CONDITIONS SHALL HAVE TO BE FUL FILLED:- (I) THE ASSESSEES INVESTMENT IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS FOR ANY SOURC E OF INCOME; AND (II) THE ASSESSEE FAILED TO OFFER REASONABLE EXPLA NATION ABOUT THE NATURE AND SOURCE OF SUCH INVESTMENT OR THE EXPLANATION AD DUCED IS NOT SATISFACTORY IN THE OPINION OF THE ASSESSING OFFICER. THE ASSESSEE WAS NOT GIVEN AN OPPORTUNITY TO STATE HIS CASE IN TERMS OF SECTION 142(3) OF THE I.T.ACT, THE VALUATION REPORT USED FOR THE PURPOSE OF INSURANCE POLICY CANNOT CONSTITUTE ANY MATERIAL EVI DENCE, WHICH COULD BE LEGITIMATELY BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF ARRIVING AT THE FINDING OF UNEXPLAINED INVESTMENT TOWARDS PLANT AND MACHINE RY. DURING THE YEAR, THE ASSESSEES INVESTMENT IN THE P LANT AND MACHINERIES WAS RS.5,84,190/-. ALL COPIES OF INVOICES, BILLS AND VO UCHERS EVIDENCING INVESTMENT ON THE ACCOUNT WERE FURNISHED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER DID NOT REJECT THE ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145 OF THE I.T. ACT61, RATHER ACCEPTED SUCH EXPENDITURE HAVING ACTUALLY BEEN INCURRED AND ALLOWED DEPRECIATION ON SUCH ADDITIONAL PLANT AND MACHINERY. THE PLANTS AND MACHINERIES PURCHASE D DURING THE YEAR FOR RS.5,84,190/- WAS CONDENSER PIPE AND OTHER FITTINGS FOR INSTALLATION IN THE COMPRESSORS, THE VALUATION OF WHICH INCLUDED IN SL. NO.1 TO 6 OF THE VALUATION REPORT FOR RS.7,64,300/- IN THE EARLIER SUBMISSION. THE VALUATION OF REMAINING ITEMS IN SL. NO. 7 TO 65 WAS DONE AT RS.2 4,46,600/- AGAINST WDV OF RS. 99,668/- AS ON 1-4-2006. THEREFORE, IT IS EV IDENT THAT THE CURRENT YEARS INVESTMENT IN THE PLANTS AND MACHINERIES, WHICH WA S RECORDED IN THE BOOKS OF ACCOUNT HAD BEEN FULLY EXPLAINED WITH SOURCE TO THE SATISFACTION OF THE ASSESSING OFFICER. THE VALUATION OF ITEMS COMPRISIN G OF OLD PLANTS AND MACHINERIES WITH WDV OF RS.99,668/- WAS RS.24,46,6 00/-. IT WAS, THEREFORE, TO BE HELD THAT THE ASSESSING OFFICER HAD MADE ADDI TION OF RS.23,46,932/- IN RESPECT OF PLANT AND MACHINERIES ACQUIRED BEFORE THE RELEVANT YEAR AND RS. 1,80,110/- IN RESPECT OF NEW PLANTS AND MACHINERIE S WITHOUT ANY COGENT MATERIAL IN HAND AND ON THE BASIS OF SURMISE AND CO NJECTURE. IF VALUATION REPORT WAS ELIMINATED FROM CONSIDERATION, THERE WAS NO MATERIAL EVIDENCE AT ALL BEFORE THE ASSESSING OFFICER TO THINK SUCH ISS UE WILL BE GOVERNED BY SECTION 69 OF THE I.T.ACT. THOUGH THE PROVISIONS WA S AIMED AT, TO DETERMINE THE CURRENT YEARS INVESTMENT NOT RECORDED IN THE B OOKS OF ACCOUNTS AND REMAINED UNEXPLAINED AS TO ITS SOURCE. . THE ASSESSING OFFICER HAD ALSO ERRED IN CONSIDERING THE FAIR MARKET VALUE TO WORK OUT UNEXPLAINED INVESTMENT U/S.69 OF THE I.T A CT. INVESTMENT MENTIONED THEREIN UNDOUBTEDLY MEANT TO REFER TO THE ACTUAL C OST OF ACQUISITION/INVESTMENT AS CONTRAST TO THE FAIR MARK ET VALUE. WHERE THE COST REMAINS CONSTANT ETERNALLY, THE FAIR MARKET VALUE IS SUBJECT TO FLUCTUATION OVER PERIOD OF TIME. THE ASSESSING OFFICER DID NOT GATHER ANY MATERIAL E VIDENCE TO INDICATE THAT THE ASSESSEE HAD INVESTED MONEY OUTSIDE THE BOOKS O F ACCOUNT FOR ACQUIRING ITA NO.34/KOL/2011-C-SVM 4 NEW PLANTS AND MACHINERIES OF EXPENDED FOR THE PURP OSE OF SUBSTANTIAL RENOVATION WHICH HAD ENHANCED ITS FAIR MARKET VALUE . AS THE FAIR MARKET VALUE IS LIKELY TO SHOW UPWARDS TREND, IT WILL BE FUTILE TO CONSIDER THE DIFFERENCE BETWEEN SUCH FMV & THE WDV OF PLANTS AND MACHINERIES (OBVIOUSLY REDUCED FURTHER) AFTER LAPS OF SOME YEA RS AS UNEXPLAINED INVESTMENT U/S.69 ON THE GROUND THAT THE WDV OF SUC H PLANTS AND MACHINERIES ARE APPRECIABLY LESS IN COMPARISON TO THE INSURED VALUE. 5. THE LD. CIT(A) DELETED THE ADDITION, INTER-ALIA, OBSERVING VIDE PARAS 6.2 AND 6.3 AS UNDER:- 6.2 I HAVE DULY CONSIDERED THE SUBMISSION OF THE A R AND THE NECESSARY DETAILS FILED. DURING THE PREVIOUS YEAR RELEVANT TO THE ASS ESSMENT YEAR, APPELLANT HAD ADDED P & M TO THE TUNE OF RS.5,84,190/- WITH THE E XISTING MACHINERIES, W.D.V OF WHICH WAS OF RS.99,668/-. THE AO DID NOT FIND ANY D ISCREPANCY ON THAT AND ALLOWED DEPRECIATION CLAIMED BY THE APPELLANT. HOWE VER, FROM THE COVER NOTE OF THE INSURANCE POLICY AO FOUND THAT THE APPELLANT HA D GOT THE P & M VALUED AT RS.32,10,900/- BY A GOVT. APPROVED VALUER FOR INSUR ANCE PURPOSE AND ARRIVED AT THE CONCLUSION THAT THE APPELLANT WAS HAVING UNDISCLOSE D INVESTMENTS IN P & M FOR THE DIFFERENCE AMOUNT OF RS.25,27,042/- AND ADDED THE SAME U/S. 69 OF THE ACT. THIS ACTION OF AO IS NOT SUSTAINABLE. THE PROVISIONS OF SECTION 69 CAN ONLY BE INVOKED AFTER ESTABLISHING A REAL DIFFERENCE BETWEEN MACHIN ERIES EXISTED IN APPELLANTS PREMISES AND MACHINERIES DECLARED IN THE BOOKS. 6.3 FROM THE DETAILS FILED IT IS OBSERVED THAT THE NEW MACHINERIES PURCHASED DURING THE PREVIOUS YEAR WERE NOT CONSIDERED BY T HE VALUER AS THE VALUATION WAS DONE ON 20/03/2006., WHEREAS NEW MACHINERIES WERE P URCHASED IN THE MONTH OF SEPTEMBER, 2006 AND THEREAFTER. THEREFORE, THE CLAI M OF THE APPELLANT THAT THE NEW MACHINERIES WHICH WERE PURCHASED FOR RS.5,84,190/-, WAS VALUED BY THE VALUER AT RS.7,64,300/- CANNOT BE CORRECT. THIS SUGGESTS THAT THE BROUGHT FORWARD OLD MACHINERIES, W.D.V AT RS.99,668/- WAS VALUED AT RS. 32,10,900/- BY THE VALUER. TAKING LEAD FROM THIS HUGE DIFFERENCE BETWEEN BOOKS VALUE OF LD MACHINERIES VIS-- VIS VALUATION DONE BY THE GOVT. APPROVED VALUER FOR INSURANCE COVERAGE, THE AO SHOULD HAVE UNDERGONE A DETAILED YEAR-WISE, ITEM-WI SE AND VALUE-WISE COMPARATIVE STUDY FOR EACH MACHINERY AS WELL AS REFERRED THE C ASE TO THE REGISTERED VALUER FOR FRESH VALUATION AND THEREAFTER SHOULD HAVE TRIED TO FIND OUT YEAR-WISE DISCREPANCIES. INSTEAD OF THAT, HE MADE THE ADDITION ON SURMISES, WHICH IS AGAINST THE LAW. 6.3 IN VIEW OF THE DISCUSSIONS MADE ABOVE, IT IS CL EAR THAT SINCE THERE WAS NO SCOPE FOR ADDITION IN THE CURRENT YEAR FOR UNDISCL OSED INVESTMENT IN MACHINERIES AS THE AO DID NOT POINTED OUT ANY DISCREPANCIES TOWARD S ADDITION TO P &M AND THE VALUER ALSO DID NOT CONSIDER THE NEW PURCHASES FOR VALUATION PURPOSES. I, THEREFORE, INCLINED TO AGREE WITH THE APPELLANT THAT THE ADDIT ION OF RS.25,27,042/- WAS UNCALLED FOR AND ACCORDINGLY, DELETED. 6. BEING AGGRIEVED THE DEPARTMENT IS IN APPEAL BEF ORE US AND HAS TAKEN FOLLOWING GROUND OF APPEAL:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD.CI T(A) HAD ERRED IN NOT ASKING FOR A REMAND REPORT FROM THE ASSESSING OFFIC ER ON THE VALUATION SUBMITTED ITA NO.34/KOL/2011-C-SVM 5 BY THE ASSESSEE. NOT GIVING AN OPPORTUNITY TO THE A SSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 7. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ASSESSMENT ORDER AND SUBMITTED THAT THE AO HAS RIGHTLY CONCLUDED THAT THERE WAS UNDISCLOSED IN VESTMENT TO THE EXTENT OF DIFFERENCE BETWEEN SUM INSURED IN RESPECT OF PLANT AND MACHINERY AND WDV A S PER TAX AUDIT REPORT. 8. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE S UBMISSIONS MADE BEFORE THE LD.CIT(A), WHICH HAVE BEEN REPRODUCED EARLIER AND SUBMITTED THAT SI NCE THERE WAS NO ADDITION IN RESPECT OF PLANT AND MACHINERY, SECTION 69 WAS WRONGLY INVOKED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD OF THE CASE. SECTION 69 DEALING WITH UNEXPLAINED INVESTMENTS READS AS UNDER :- UNEXPLAINED INVESTMENTS. 69. WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING T HE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMENTS WHICH ARE NOT RECORDE D IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF INCOME, AN D THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVE STMENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE 32 [ASSESSING] OFFICER, SATISFACTORY, THE VALUE OF THE INVESTMENTS MAY BE DEEMED TO BE THE IN COME OF THE ASSESSEE OF SUCH FINANCIAL YEAR. 9.1 FROM BARE PERUSAL OF THE ABOVE SECTION, IT IS CLEAR THAT BEFORE INVOKING OF SECTION 59, THERE HA S TO BE A POSITIVE FINDING THAT THE ASSESSEE HAS MADE IN VESTMENTS, WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. IN THE PRESENT CASE, IT IS EVIDENT FROM TH E FINDINGS OF THE AO, NOTED ABOVE, THAT THERE IS NO POSITIVE FINDING REGARDING INVESTMENTS BEING MADE B Y THE ASSESSEE, WHICH ARE NOT RECORDED IN THE BOOK S OF ACCOUNT. THE AO HAS NOT REJECTED THE ACCOUNTS O F THE ASSESSEE. HE HAS PROCEEDED SOLELY ON THE BASI S OF SUM INSURED IN RESPECT OF PLANT AND MACHINERY. IN T HE GROUND OF APPEAL THE DEPARTMENT, INTER-ALIA, HAS STATED THAT THE LD. CIT(A) HAS ERRED NOT ASKING FO R A REMAND REPORT FROM THE AO ON THE VALUATION SUBMITTED BY THE ASSESSEE. HOWEVER, NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT ON ACCOUNT OF SOME FRESH INVESTMENTS BEING MADE BY THE ASSESSEE IN THE FINANCIAL YEAR, THE VALUATION REPORT COULD N OT BE RELIED UPON. THE LD.CIT(A)S OBSERVATION IN THIS REGARD NOTED ABOVE, HAVE NOT BEEN CONTROVERTED BY THE DEPARTMENT BY ANY EVIDENCE. IN VIEW OF ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). THEREFORE, THE ORDER OF THE LD.CIT(A) O N THIS COUNT IS CONFIRMED. . ITA NO.34/KOL/2011-C-SVM 6 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. 4 / 5 /% 6 7 2 . -2011 ORDER PRONOUNCED IN THE OPEN COURT ON 04/112011 SD/- SD/- [ ! #' , ] [ . . , ] MAHAVIR SINGH, JUDICIAL MEMBER (S.V. MEHROTRA, ACCOUNTANT MEMBER ) (2) DATED : 04/11/2011 *PP !89 #%:; #='?- COPY OF THE ORDER FORWARDED TO: 1. *+ /APPELLANT- ACIT,CIR-1, AAYKAR BHAWAN, KHADINAMOR E, CHINSURAH, HOOGHLY-712 102. 2 ,-*+ / RESPONDENT : M/S. KEDARNATH COLD STORAGE, GAJAR MORE, DALAPATIPUR, HOOGHLY, PIN-71243. 3. #4%/ THE CIT, 4. #4% ()/ THE CIT(A), KOLKATA. 5. !#6 ,#%/ DR, KOLKATA BENCHES, KOLKATA -= ,#/ TRUE COPY , 4%// BY ORDER , '; /ASSTT. REGISTRAR