The Income Tax Officer, Ferozepur V. M/s Shiv Shankar Rice Mills, Guruharsahai

ITA 453/ASR/2016

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5755 (ITAT-AMRITSAR)
• Duration Of Justice: 5 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 05-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment
• Section: 69; 143(3); 69B; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. MAHAVIR PRASAD, JUDICIAL MEMBER AND DR. M. L. MEENA, ACCOUNTANT MEMBER I.T.A. No. 453/Asr/2016 Assessment Year: 2012-13 Income Tax Officer, Ward 3(1), Ferozepur. (Appellant) Vs. M/s Shiv Shankar Rice Mills, Guruharsahai [PAN: AAGFS 9126D] (Respondent) C. O. No. 19/Asr/2017 (In ITA No. 453/Asr/2016) Assessment Year: 2012-13 M/s Shiv Shankar Rice Mills, Guruharsahai [PAN: AAGFS 9126D] (Appellant) Vs. Income Tax Officer, Ward 3(1), Ferozepur (Respendent) Appellant by Sh. S. M. Surendranath, D.R Respondent by Sh. Ashray Sarna, C.A. Date of Hearing 10.12.2021 Date of Pronouncement 23.12.2021 2 I.T.A. No. 453 & CO 19/Asr/2016&2017 ORDER Per Bench: This appeal of the Revenue is directed against the order of Ld. CIT(A), Bathinda dated 13.06.2016 for AY 2012-13 and the assessee has filed the CO in support of the CIT(A) order. 2. The Revenue has raised the following grounds of appeal: “1. The Ld. CIT(A) has erred in not taking into consideration, the judgments of Punjab & Haryana High Court in the case of M/s B.T. Steels Ltd. Vs. C1T, 1TA No.186 of 2004 and failing to appreciate the ratio of the judgment of the jurisdictional High Court in the case of Shakuntla Thukral vs. C1T (366 ITR 644). 2. The Ld. CIT(A) has erred in ignoring that stock statements duly signed by the assessee were submitted by the assessee to the bank and the bank as per its procedure got the stock verified. 3. The Ld. CIT(A) has erred by failing to appreciate that the stock statement given by the assessee to the bank is an admission and binding on the assessee as per section 34 of the Evidence Act in view of the judgment of the Hon'ble Supreme Court in the case of Chuharmal Vs. CIT( 1998) 172 ITR 250(SC) wherein it was held that salutary principle of common law jurisprudence imbedded in section 110 of Evidence Act could be applied to the taxation proceedings. 4. The Ld. C1T(AJ has erred by failing to appreciate that the onus was on the assessee to prove the difference on stock and rebut the presumption of undisclosed stock as submitted to the Bank and that assessee had failed to discharge this onus. 5. The Ld. C1T(A) has erred by failing to appreciate that the assessee was not at liberty to supply two different sets of information at the same time to the bank and the l.T. Department and such conduct would compel an inference that assessee was not showing his correct income something he was legally bound to do.” 3 I.T.A. No. 453 & CO 19/Asr/2016&2017 3. The brief facts of the case as per record are that the assessee firm running a rice sheller and it has filed return of income declaring a taxable income of Rs. 473670/- on 29-12-2012. The case of assessee firm was selected under scrutiny and during the assessment proceedings, the AO has noticed that there was a difference in valuation of stock as hypothecated to the bank and as per the books of accounts audited by the Chartered Accountant. Therefore, the AO made addition of an amount of Rs. Rs. 2,43,95,219/- on account of excess stock for such difference in value of stock. 4. The Ld. CIT(A) has deleted the addition by dealing the issue in comprehensive manner by observing as under: “ 2. Contesting the aforesaid addition of the amount representing the difference between the quantity and value of stock declared to the financing Bank and that recorded in the Books, it was laboriously canvassed that there was only a marginal and ignorable difference in the quantitative tally and the difference in valuation of the said stock was only on account of estimation for the purposes of submitting the statement with regard to value of hypothecated stock to the bank. It was contended that higher estimates were given keeping in view the future expected price of the stock as the Agro-products market is highly volatile with range of fluctuation, whereas valuation of the closing stock for the Books was made as per the regularly and consistently followed method of accountancy a) M/s Sidhu Rice and General Mills [2006] 281 ITR 428 (P & H); b) M/s Santosh Box Factory[2011] 12 taxmann.com 411 (P & H); c) Abdul Rashid Dar, Srinagar[2012] ITA No. 513 (Asr)/2011; (d) M/s Devi Dayal Rice Mills[2001] 75 TTJ 24 (Asr); 4 I.T.A. No. 453 & CO 19/Asr/2016&2017 (e) Jai Sharda Rice Mills[1991 ] 36 ITD 254 (Asr); (f) Axia Engineering Com pany[1996] 54 TTJ 410 (Chandigarh); (g) Lakshmi Printing Co.[1993] 46 TTJ 177 (Chandigarh); (h) N. Swamy[2000] 241 ITR 363 (Madras); (i) Khan & Sirohi Steel Rolling Mills[2006] 200 CTR 595 (All); (j) Ashok Kumar[2006] 201 CTR 178 (J & K); (k) Das lndustries[2008] 393 ITR 199 (All); (I) Sri Padmavathi Cotton Mills[1999] 236 ITR 340 (Madras); (m) Riddhi Steel and Tubes[2014 to 20 taxmann 148 (Guj); (n) Apcom Computers[2007] 292 ITR 630 (Madras); (o) Balaji Wire (P) Ltd[2008] 304 ITR 393 (Delhi); (p) Veerdip Rollers (P) Ltd[2010] 323 ITR 341 (Guj); (q) M/s Ishar Developers P Limited[2015] ITA No. 198/Asr/2013; and (r) Synfab Sales Vs. Central Excise[2015] 57 taxmann.com 338 (SC). 3. The submissions of the appellant have been considered with reference to the assessment order and the cited judicial precedents have been respectfully perused It is an admitted fact in the instant case that there is only a marginal difference in the quantity of stock in the statement submitted to the bank and the s:oe ant’s Books. There is only difference in the value of the stock in respect of various items like Paddy, Rice, Bardana etc., which difference has been worked out to Rs. 2,43,95,219/-. It is also an admitted fact that the appellant’s stock was hypothecated and not pledged with the Bank in as much as the stock was in the possession of the appellant and not of the Bank. In hypothecation statements only approximate figures are furnished for the stock to be shown to cover the hypothecation loans. The said figures cannot be considered to be sacrosanct or be taken at their face value to be true and correct as they are neither counted, nor verified or actually measured by the financing Bank. Bankers normally do not take objection to the estimated ballpark figures as the loans taken are otherwise secured by other securities offered by the loan takers. It is also not in dispute that when estimated figures are submitted to the 5 I.T.A. No. 453 & CO 19/Asr/2016&2017 Bank for hypothecation purposes only, they are generally inflated to get accommodation. It must be kept in mind that when the credit limit is sanctioned to any loan taker, the audited balance sheet figures are made the basis and not provisionally estimated figures without actual measurement. 4. It is seen from the assessment order, in which the appellant’s submissions at the assessment stage have been re-produced, that the complete books of accounts of the appellant firm were produced for the AO’s verification. However the AO has not given any finding in the order regarding any shortcoming or inadequacy books of accounts including the stock and purchase registers. This leads to the presumption that there being no difference in the quantitative tally of stock, its valuation in the books as per the stated practice of either the market price or the cost price whichever is lower, was not found faulty or incorrect in terms of under- reporting of the value to reduce the taxable profits. The AO’s allegation, thus, remains merely speculative and unproved. 5. On this impugned issue, there is a convergence of judicial opinion that addition cannot be made on the basis of difference between the closing stock declared in the trading account and the stock shown in the statement submitted to the financing Bank. The case laws relied upon by the appellant and mentioned supra are squarely applicable in the appellant’s case. In fact, addition to the returned income has not been approved even in cases where there was a considerable difference in the quantitative tally of stock in the statement given to Bank when there was compared with that of the Books, leave aside the difference only in valuation. The said judicial opinion is predicated on the fact that hypothecation statement is only an estimated figure, which is entirely unmeasured and un-counted and is of interest to only the Bankers and the assessee. These statements are not available to any other authority, whereas the stock position, as reflected in the stock register is a matter of interest to many other Government Authorities like Civil Supplies, Sales Tax etc. They have a statutory access to the stock register and have a right to be satisfied that these registers disclose correct state of affairs. Civil Supplies Department checks Paddy registers and Rice registers. Sales tax Authorities are interested in purchase tax arising from Paddy and sale of rice. Besides, the appellant's accounts were also subjected to tax audit under the Income Tax Act, were the auditor did not qualify his report in any manner whatsoever. The appellant is stated to have been filing regular returns since last many years and has been consistently following the method of accounting as prescribed under section 145A and valuing closing stock inventory as 6 I.T.A. No. 453 & CO 19/Asr/2016&2017 prescribed under section 145A. Neither such practices have been questioned or doubted or found to be erroneous by the AO nor the books of accounts of the appellant were found to be defective or non-genuine. 6. There is another angle which is required to be considered while deciding this issue and that is the effect on the financial statements qua the addition made by the Assessing Officer. As noticed, the appellant had declared GP and NP at 11.50% and 0.15% respectively. In the immediately preceding year, the GP and NP rate were in the same vicinity i.e 11.24% and 0.15% respectively. After including the addition made by the AO, the financial statement would get completely distorted and will not show the correct, true and fair view, which is one more factor which substantiates the finding that the figure of stock was inflated, ad-hoc and estimated only for the purposes of hypothecation without there being any actual difference in valuation. 7. On a conspectus of the decisions of the jurisdictional High Court of Punjab and Haryana on the kindred issue in cases like: (i) Sidhu Rice & General Mills [2006] 281 ITR 428; (ii) M/s Santosh Box Factory Private Limited [2011] 12 taxmann.com 411; and (iii) M/s Sheena Exports, ITA No. 382 of 2011, there is a clear unanimity of opinion to the effect that estimated statement made before the rank for hypothecation purposes cannot be held against the assessee. It would be instructive to quote the penultimate paragraph of the decision in the case of M/s. Santosh Box Factory Private Limited: 5. The stock statement furnished to the bank may be material which may be required to be gone into during assessment but cannot be treated as conclusive. Whether in a given case the stock statement could be accepted as basis for computing the value of the stock depends upon the circumstances of each case. If the assessee is able to show that the statement was given only on estimate basis and value reflected in the books of accounts was correct, there is no absolute bar to such explanation being accepted. In the present case, the CIT(A) and the Tribunal have recorded concurrent finding of fact which is not shown to : e perverse. No substantial question of law arises". Similarly in the Sheena Exports case, the Hon’ble Punjab and Haryana High Court held: "....... The mere fact that the value furnished to the bank is without any detail or verification by the bank may not constitute the basis to make additions in face of other evidence to the contrary. There are categorical finding that the assessee- respondent had maintained broad details of the stock, its consumption, production 7 I.T.A. No. 453 & CO 19/Asr/2016&2017 and closing balance. The accounts have been maintained on day to day basis which have been accepted by the Excise and VAT Authorities. The AO did not point out any discrepancy in the books with reference to purchase, sale or closing stock. The findings raised by the Tribunal is that greater weight has to be attached with the regular books of accounts maintained than the statement given to the bank. These are pure findings of fact. No question of law much less a substantive question of law would emerge warranting admission of the appeal on the above question." [emphasis supplied] The jurisdictional Tribunal at Amritsar has also, in a number of cases, taken the same stand on the impugned issue : a) Jai Sharda Rice Mills 36 ITD 254; b) Devi Dayal Rice Mills 75 TTJ 24; c) Abdul Rashid Dar, Srinagar; order dated 08/05/2012 d) M/s Ishar Infrastructure Developers (Pvt) Ltd. ITA No. 198/ASR/ 2013; order dated 26/03/2016 However, the AO in making the impugned addition, relied upon the decisions of the Hon’ble Punjab and Haryana High Court in the cases of M/s Devgon Rice and General Mills [2003] 263 ITR 391 and Srimati Shakuntala Thakral reported in [2014] 366 ITR 644. On a perusal of Smt. Thakral’s case, it is apparent that the facts of the said case are clearly distinguishable and the said decision stands on its own footing, having no applicability in the instant case. The Hon’ble Jurisdictional Tribunal at Amritsar, when called upon to adjudicate on similar issue a dutch of cases, the lead case being Ishar Infrastructure [ITA No. 198/Asr/2013: A.Y. 2009-10 dated 26/03/2015] elaborated upon the distinguishable facts of Smt Shakuntla Thakral's case after going in detail of the case from the stage assessment order to CIT (A)'s order and further escalation before the Tribunal the High Court. It was stated that books in Shakuntla Thakral's case were found to be accurate by the AO because of specific defects of non-recording sales. The stock statement filed on 04/07/2007 in the said case was replaced by another stock statement which established that no stock inventory was prepared at the close of the Financial Year. The plea of higher stock as on 31/03/2005 for the purposes of making payment for import of machinery was not accepted in the appellate proceedings as payment for purchase of machinery already been released in February, 2005. Reports of physical inspection carried out by the 8 I.T.A. No. 453 & CO 19/Asr/2016&2017 bank authorities in respect of Smt. Thakral's stock at quarterly intervals was available for the perusal of the AO and the appellate authorities. Smt. Thakral herself did not dispute that the stock whose value was submitted to the Bank was actually lying in the business premises as on 31/03/2005. None of the aforesaid differentiating factors are available in the instant case to have any applicability of the Thakral's case. The Hon’ble Tribunal also, in the said cases of Ishar infrastructure and others, chose to rely on the decisions of the Hon’ble Punjab and Haryana High Court in the cases of (i) Santosh Box Factory; (ii) M/s. Sidhu Rice Mills: and (iii) M/s Devi Dayal Rice Mills to disapprove the addition made to the returned income on the basis of variation in the quantity and value of stock in the statement declared before the bank for hypothecation purposes and quantity and value of closing stock as per the audited books of accounts. Explaining the import of Devgan Rice and General Mills case on the impugned issue, the Hon’ble Tribunal at Amritsar in the said case of Ishar Infrastructure Developer (P) Ltd stated the following in para 27 therein : 27. The AO has much relied on the decision in the case of Devgan Rice & General Mills (supra). The issue before the Hon’ble Punjab & Haryana High Court, in the case of Devgan Rice & General Mills (supra) was with regard to the proceedings u/s 148 of the Act and whether the said proceedings u/s 148 of the Act could be initiated on the basis of information regarding inflating the value of the stock in the bank statement was received from the bank after completion of assessment u/s. 143(3) of the Act. The Hon’ble High Court has held that the reopening in such cases can be done. However, the decision of Hon’ble Punjab & Haryana High Court in the case of Devgan Rice & General Mills (supra) was with regard to a different context and did not prove that the assessee had made unexplained investment u/s. 69 of the Act. In view of the aforesaid, the impugned addition of Rs. 2,43,95,219/- made to the income of the appellant is held to be unjustified and ordered to be deleted. The grounds of appeal pertaining to the said issue is, thus, treated as allowed.” 5. The Ld. DR submitted that the Ld. CIT(A) has erred in ignoring the stock statements duly signed by the assessee were submitted by the assessee to the bank and the bank as per its procedure got the stock verified; 9 I.T.A. No. 453 & CO 19/Asr/2016&2017 that that the onus was on the assessee to prove the difference on stock and rebut the presumption of undisclosed stock as submitted to the Bank and that assessee had failed to discharge this onus and that the Ld. C1T(A) has failed to appreciate that the assessee was not at liberty to supply two different sets of information at the same time to the bank and the l.T. Department and such conduct would compel an inference that assessee was not showing his correct income something he was legally bound to do. The Ld. DR alleged that the Ld. CIT(A) has erred in not taking into consideration, the judgments of Punjab & Haryana High Court in the case of M/s B.T. Steels Ltd. Vs. C1T, 1TA No.186 of 2004 and failing to appreciate the ratio of the judgment of the jurisdictional High Court in the case of Shakuntla Thukral vs. C1T (366 ITR 644). The ld. DR contended that the Ld. CIT(A) has erred by failing to appreciate that the stock statement given by the assessee to the bank is an admission and binding on the assessee as per section 34 of the Evidence Act in view of the judgment of the Hon'ble Supreme Court in the case of Chuharmal Vs. CIT (1998) 172 ITR 250(SC) wherein it was held that salutary principle of common law jurisprudence imbedded in section 110 of Evidence Act could be applied to the taxation proceedings. Thus, he requested that Assessment order be restored. 10 I.T.A. No. 453 & CO 19/Asr/2016&2017 6. Per contra, the Ld. Counsel for the assessee supported the Ld. CIT(A)’s order. He explained that as per bank statement and as per books of accounts, there was no difference so far quantity of stock is concerned. He attempted to explain and clarify the disputed difference in the value of the stock hypothecated to the bank and as per books of account, the appellant with support of the comparative chart as under: Information as per bank as on 31-03-2012 Information as per books of accounts (as on 31-03-2012) S. No. Item Quantity (Qtls.) Rate (Rs.) Amount Rs. Quantity (Qtls.) Rate (Rs.) Value Rs. 1 Paddy Permal 1105 1300 19,56,500 1505 1198 18,04,047 2. Paddy 1121 10515 2700 2,83,90,500 10515 1385 1,45,60,634 3 Rice Permal 15763 2000 3,15,26,000 14243 3000 2008 2,25,79,556 42,01,879 4. Rice 1121 2856 4600 1,31,37,600 2751 3500 96,30,566 5. Rice broken 1121 1750 2700 47,25,000 1750 2202 38,54,163 6. D/B 474 3500 16,59,000 546 2418 13,20,072 7. Bardana (No. of bags) 370152 20 74,03,040 4,03,219 16 64,51,504 11 I.T.A. No. 453 & CO 19/Asr/2016&2017 Total 32863 8,87,97,640 31310 6,44,02,421 7. We have heard both the sides and carefully considered the argument of the DR and the Ld. Counsel and perused the impugned order. We find that there was a difference between the value of stock declared to the state Bank of India which had extended overdraft facility against hypothecation of stock and those shown in the stock registered and in the trading account with minor difference in quantity of two items. The said difference in the value of various items of stock was worked out by the AO to the tune of Rs.2,43,95,219/-, which was held as unexplained investment. The said amount was, thus, added to the returned income citing the decisions of the Hon’ble High Court of Punjab and Haryana in the cases of M/s. Devgon Rice & General Mills, [2003] 263 ITR 391; and Srimati Shakuntala Thakral, [2014] 366 ITR 644. 8. The issue under dispute before us is the valuation of stock given to the bank and the valuation as shown in the regular books of accounts as closing stock. According to the method of accountancy the valuation of closing stock is either market or cost price whichever is less. The assessee firm has been valuing his closing stock by adopting this method regularly and consistently and the method so adopted by him is in accordance with the books of 12 I.T.A. No. 453 & CO 19/Asr/2016&2017 accounts maintained in the regular course of business. It is noted that the AO has not pointed out any defect in the audited books that the value of closing stock as taken by the assessee is more or less and it was not in accordance with the regular method of accounting adopted by the assessee firm as per its past history. In our view, therefore, there is no justification by taking the value merely on the basis of one paper given to the bank for obtaining higher banking facilities by completely ignoring the regular books of accounts. The bank statement so furnished has not been supported by any document whereas the value shown as per books of accounts is supported by the books of accounts maintained by the assessee in the regular course of business. 9. It is evident from the from the comparative chart that as per bank statement and as per books of accounts, there is no difference so far quantity of stock of Paddy Permal, Paddy 1121, Rice broken 1121 mentioned at Sr. No. 1, 2 & 5 as above. The stock of D/B and Bardana is more in the books of accounts against as shown to the bank mentioned at Sr. No. 6 & 7 as above. There is a petty difference less than 10% in stock statement given to the bank of Rice Permal and Rice 1121. The rice permal to the bank has been given of 15763 Qtls. against 14243 as per books of accounts. The difference is ignorable being the statement given is of hypothecated stock not under the 13 I.T.A. No. 453 & CO 19/Asr/2016&2017 key and lock of the bank given on estimated basis which is less than 10%. Similarly, there is difference of 105 Qtls of stock of Rice-1121 as per stock of 2856 shown to the bank against 2751 as per books of accounts. Thus, the difference is less than 5%. Even If, we compute the % of overall difference to that of total stock quantity, it comes to 3.91% (i.e.1121+105)/31310 X 100). 10. Under the facts and such circumstances, no addition could be made merely on the basis of such statement as held by the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Vapi vs. Synfab Sales (2015) 57 Taxmann 338 (SC). Similar view has been taken by the Hon’ble ITAT, Amritsar Bench, Amritsar in the case of Ishar Infrastructure and Developers Pvt. Ltd., in ITA No.198(Asr)/2013 for the AY 2009-10, vide its order dated 26.03.2015 where it has decided the issue in favour of the assessee by holding as follows: “32. The decisions relied upon by the ld. CIT(A) of the Hon’ble Punjab & Haryana High Court, in the cases of M/s.Santosh Box Factory, M/s. Sidhu Rice Mills and in the case of M/s. Devi Dayal Rice Mills are squarely applicable to the facts of the present case as the Revenue as the Revenue has not brought on record during the assessment proceedings or before the ld. CIT(A) or even before us that physical verification of the stock has actually been done and accordingly stock statements so submitted before the bank authorities and DP register cannot be relied upon. 33. In the case of CIT vs. Veerdip Roller (P) Ltd. (2010) 323 ITR 341 (Guj), the facts are that the AO made addition on account of difference in the value of closing stock furnished to the bank and the value of the stock found in the books of account 14 I.T.A. No. 453 & CO 19/Asr/2016&2017 furnished to the Income Tax Authorities – inflated stock was hypothetical and not pledged and the bank officials had not verified the statement showing inflated stock so produced by the assessee. The addition on account of difference furnished to the bank as per books of account u/s 69B of the Act can not be sustained. Consequently, the appeal was dismissed by the Hon’ble Gujrat High Court against the said decision, the Revenue went in appeal before the Hon’ble Supreme Court and the Hon’ble Supreme Court vide its order dated 13.12.2008 dismissed the SLP filed by the department. 11. It is rightly observed by the ld. CIT (A) that the AO has much relied on the decision in the case of Devgan Rice & General Mills (supra). The issue before the Hon’ble Punjab & Haryana High Court, in the case of Devgan Rice & General Mills (supra) was with regard to the proceedings u/s 148 of the Act and whether the said proceedings u/s 148 of the Act could be initiated on the basis of information regarding inflating the value of the stock in the bank statement was received from the bank after completion of assessment u/s. 143(3) of the Act. The Hon’ble High Court has held that the reopening in such cases can be done. However, the decision of Hon’ble Punjab & Haryana High Court in the case of Devgan Rice & General Mills (supra) was with regard to a different context and did not prove that the assessee had made unexplained investment u/s. 69 of the Act. 12. Considering the factual matrix of the case and the Judicial precedents, we find no infirmity in the order of the Ld. CIT(A). The Ld. CIT(A) was justified 15 I.T.A. No. 453 & CO 19/Asr/2016&2017 in deleting the addition made to the income of the appellant as being held to be unjustified. Accordingly, the ground of Revenue is rejected. 13. The Cross Objection No. 19/ASR/ 17 filed by the assessee is dismissed as not pressed. 14. In the result, the appeal of the Revenue and the Cross Objection of the assessee are dismissed. Order pronounced U/R 34(4) on 23.12.2021 Sd/- Sd/- (Mahavir Prasad) (Dr. M. L. Meena) Judicial Member Accountant Member Dated: 23/12/2021 *GP/Sr./P.S.* Copy of the order forwarded to: (1) The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. By Order