M/s. Saraswati Rice & Gen. Mills, Taraori, Haryana V. ITO, Karnal

ITA 4883/DEL/2012

• Counselvise Citation: 488320114 RSA 2012
• Duration Of Justice: 2 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 13-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S MINHAS ACIT
• Keywords: Opportunity of being heard; Principle of natural justice; Assessment record

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL IN (DELHI BENCH G NEW DELHI) BEFORE SHRI D. MANMOHAN , VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 4883/DEL/2012, A.Y. : 2009-10 SARASWATI RICE & GEN. MILLS, TARAORI NADANA ROAD, TARAORI, DISTT. KARNAL HARYANA VS. ITO WARD NO. 3, AAYAKAR BHAWAN, SEC-12 KARNAL PAN : AACFS6940D (APPELLANT) (RESPONDENT) APPELLANT BY : SH. GURJET SINGH, ADV., SH. RAK ESH JAIN, ADV. RESPONDENT BY : SH. J.S.MINHAS, ACIT DR DATE OF HEARING : 02/07/2015 DATE OF PRONOUNCEMENT :07/08/2015 ORDER PER N.K.SAINI, A. M. : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 14.06.2012 OF CIT(A), KARNAL. 2. ONLY EFFIECTIVE GROUND RAISED IN THIS APPEAL R EAD AS UNDER : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE WORTHY CIT(A), KARNAL HAS ERRED IN LAW IN CONFIRMIN G ITA NO. 4883 / DEL/2012 2 THE ADDITION OF RS. 34,59,017/- MADE BY LD. AO ON ACCOUNT OF ALLEGED UNDER VALUATION OF CLOSING STOCK OF RICE WITHOUT ANY BASIS AND AS SUCH NOT TEN ABLE IN THE EYES OF LAW AS WELL AS ON FACTS. HENCE, THE ADDITIO N CONFIRMED BY THE WORTHY CIT(A) BE KINDLY DELETED. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE FILED THE RETURN OF INCOME ON 22.09.2009 DECLARING AN INCOME OF RS. 1,0 4,341/- WHICH WAS PROCESSED U/S 143(1) OF THE IT ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ON 26.10.2010. LATER ON, TH E CASE WAS SELECTED FOR SCRUTINY. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT AS PER COLUMN 12(A) OF THE AUDIT REPORT, THE V ALUATION OF CLOSING STOCK SHALL BE TAKEN AT MARKET PRICE AND T HE AVERAGE SALE PRICE SHOULD HAVE BEEN THE MARKET PRICE WHICH WAS R S. 3562.63 PER QTL. WHEREAS THE ASSESSEE HAD TAKEN THE VALUATI ON OF CLOSING STOCK AT RS. 2208.80 PER QTL. THE AO ASKED THE ASSE SSEE FOR THE EXPLANATION OF THE SAME. IN RESPONSE THE ASSESSEE HAS STATED THAT CLOSING STOCK HAD BEEN VALUED AT THE MARKET OR COST PRICE WHICHEVER IS LESS, WHICH IS BEING ADOPTED SINCE INC EPTION AND THERE IS NO CHANGE IN THE METHOD OF VALUATION. THE ASSESS EE ALSO FURNISHED COPIES OF SALES BILLS. THE AO GAVE THE S UMMARY OF SALES BILLS AS UNDER :- ITA NO. 4883 / DEL/2012 3 SR. NO. NAME OF THE PURCHASER BILL NO. / DATED QUALITY MENTIONED WEIGHT RATE 1. (A) NAME NOT VISIBLE FROM THE BILL (B)-DO- 451/ 07.04.2009 BS/S RICE SELLA BS/S RICE SELLA (BROKEN 57 247.30 1500 1265 2. BEST FOOD INDRI 453/ -4.-.2009 RICE SELLA BASMATI 226.30 2865 3. NEW BHARAT RICE MILLS DELHI 456 / -4. - .2009 RICE SELLA BASMATI 275.50 3291 5. THE AO POINTED OUT THAT THE AFORESAID BILLS PE RTAINED TO F.Y. 2009-10 AND NOT TO THE F.Y. 2008-09. HE ALSO STATED THAT BILL OF RICE SELLA (BROKEN) COULD NOT BE CONSIDERED BECAUSE ALL THE RICE IN THE STOCK CANNOT BE OF BROKEN QUALITY. THE A.O. AL SO POINTED OUT THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE TRADI NG ACCOUNT FOR THE SALE OF BROKEN RICE. ACCORDING TO THE AO THE CL OSING STOCK SHOULD HAVE BEEN SHOWN AT THE MARKET RATE I.E. RS. 3562/- PER QUINTAL. HE ALSO MENTIONED THAT THE COMPARABLE CASE S WERE SHOWING THE RATE OF CLOSING STOCK OF BASMATI RICE A T RS. 3150/- IN THE CASE OF M/S SIDHIVINAYAK RICE MILLS, AND RS. 3 518/- IN THE CASE OF M/S SHRI KRISHNA OVERSEAS, TARAORI. THE AO ADOPTED THE CLOSING RATE AT RS. 3150/- PER QUINTAL AND WORKED OUT THE VALUE AT RS. 1,15,76,628/- AS AGAINST THE VALUATION OF RS. 8 1,17,611/- SHOWN ITA NO. 4883 / DEL/2012 4 BY THE ASSESSEE AND THE DIFFERENCE OF RS. 34,59,017 /- WAS ADDED TO THE INCOME OF THE ASSESSEE. 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND SUBMITTED AS UNDER :- THAT THE LEARNED AO GROSSLY ERRED IN MAKING THE AD DITION OF RS. 34,59,017/- IN THE VALUATION OF CLOSING STOCK O F RICE, ON PRESUMPTION BY PROPOUNDING HIS OWN FORMULA AND AGAI NST LAW, FACTS AND PRINCIPALS OF NATURAL JUSTICE. THAT THE LD. AO HAS REPEATEDLY COMMENDED THAT THE A SSESSEE HAS NOT FURNISHED ANY BILLS FOR THE MONTH OF MARCH IS TOTALLY AGAINST THE FACT AS THE COMPLETE ACCOUNT BOOKS ALON GWITH COMPLETE VOUCHERS I.E. PURCHASE BILLS, SALE BILL ET C. HAS BEEN PRODUCED IN ORIGINAL AND TEST CHECKED BY THE AO SEV ERAL TIMES DURING THE ASSESSMENT PROCEEDING. THAT DURING THE ASSESSMENT PROCEEDING ASSESSEE HAS SUBMITTED QUALITY WISE DETAIL OF CLOSING STOCK LEFT WITH HIM ALONGWITH BILLS PROVING THE VALUE OF THESE QUALITIE S, WHEREAS THE LD. AO TOTALLY IGNORED THESE EVIDENCE AND MADE THE ADDITION WHIMSICALLY ON CONJECTURE AND SURMISES. TH AT THE LD. AO ALSO FAILED TO APPRECIATE THAT THE ASSESSEE HAS ONLY 550.12 QT. OF BROKEN RICE AT THE END OF THE YEAR IN THE CLOSING STOCK OF DIFFERENT QUALITY AS WELL AS OF DIFFERENT RATE WAS ALSO GOT PROVED FROM THE PERUSAL OF NEXT YEAR SALE FROM APRIL TO JUNE DURING WHICH ALL THE CLOSING STOCK WEIGHING 36 75.12 QT. ALONGWITH 848.70 QT. OF RICE PURCHASED & MANUFACTUR ED IN APRIL 2009 BY THE ASSESSEE HAS BEEN SOLD ON THE SIM ILAR RATES AT WHICH CLOSING STOCK HAS BEEN VALUED AND ONLY 50Q T. HAS BEEN LEFT WITH THE ASSESSEE ON 10.06.2009. FURTHER, THE LD. AO QUOTED RATE OF CLOSING STOCK OF TWO FIRMS TO ARRIVE AT THE MARKET RATE AT WHICH ADDITION HAS BEEN MADE WHILE BOTH THE FIRMS HAS NO SIMILARITY WITH THE ASS ESSEE AS ITA NO. 4883 / DEL/2012 5 M/S SHREE KRISHNA OVERSEAS, TARAORI DEALS IN JOB WO RK THROUGH SORTEX AND TRADING IN RICE AND THE OTHER M/ S SIDHIVINAYAK RICE MILLS, TARAORI IS A EXPORTER WHER EAS THE ASSESSEE HAS ONLY DOMESTIC SALE. MOREOVER, THE LD. AO VALUED THE CLOSING STOCK BY PROPOUNDING ITS OWN THEORY REGARDING THE MARKET RAT E THAT THE MARKET PRICE IN THIS CASE SHOULD HAVE BEEN THE AVERAGE SALE PRICE OF THE RICE WHEREAS IT IS SETTLED LAW T HAT THE MARKET RATE MAY BE PURCHASE PRICE OR SALE PRICE. IN THIS CASE MARKET RATE SHOULD BE RS. 1,350/- PER QUINTAL AS LA ST TRANSACTION I.E. SALE MADE BY THE ASSESSEE WAS ON 2 4.03.2009 OF 200 QT. @ RS. 1,350/-, WHICH IS ALSO SUPPORTED B Y THE LATEST DECISION IN THE CASE M/S SHIV SHAKTI RICE MI LLS, TARAORI VS.ADD.C.I.T.,KARNALAPPEALNO. T/59/KNL/CIT(A)/KNL/2 009- 10/A.Y. 2007-08 IN WHICH WORTHY CIT(A), KARNAL UPHE LD THE ADDITION MADE BY THE LD. AO ON ACCOUNT OF UNDERVALU ATION OF CLOSING STOCK BY ADOPTING THE RATE OF LAST PURCHASE BILL OF ONLY 117.5 QUINTALS WHEREAS APPELLANT HAS LEFT WITH 1359 8.88 QUINTALS OF CLOSING STOCK. FROM THE ABOVE FACTS AND DISCUSSION IT IS CLEAR THA T THE LD. AO HAS FAILED TO DETECT ANY DISCREPANCY IN THE ACCO UNT BOOKS AND MADE THE ADDITION ONLY ON THE CONJECTURE AND SU RMISES AGAINST THE LAW AND FACT. IT IS THEREFORE MOST HUMBLY REQUESTED THAT THE ADDI TION IN VALUATION OF CLOSING STOCK MADE BY THE AO BE KINDLY DELETED. 7. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, OBSERVING THAT THE ASSESSEE HAD NOT MAINTAINED QUAL ITY WISE STOCK REGISTER AND EVEN THE DETAILS OF BROKEN RICE HAD NO T BEEN GIVEN IN THE STOCK REGISTER, THOUGH THE ASSESSEE CLAIMED TO HAV E TWO QUALITY OF BROKEN RICE AND 3 QUALITIES OF BASMATI RICE IN THE CLOSING STOCK. HE ITA NO. 4883 / DEL/2012 6 FURTHER OBSERVED THAT THE RICE MANUFACTURING ACCOUN T REVEALED THAT THE RICE WAS PURCHASED AT THE AVERAGE RATE OF RS. 3 466 PER QUINTAL AND SOLD AT THE AVERAGE SALE RATE OF RS. 3562/- WHE REAS AVERAGE SALE RATE FOR MARCH, 2009 WORKED OUT TO RS. 3747.62 PER QTL. BUT THE VALUATION OF CLOSING STOCK WAS CARRIED OUT AT AN AV ERAGE RATE OF RS. 2208/- PER QTL. ONLY. ACCORDING TO THE LD. CIT(A) T HE ASSESSEE TRIED TO JUSTIFY THE VALUATION OF CLOSING STOCK ON THE GR OUND THAT SAME INCLUDED BROKEN RICE WEIGHING 550.12 QTL. AND THE O THER RICE INCLUDED RICE OF INFERIOR QUALITY BUT THERE WAS NO EVIDENCE IN SUPPORT OF ITS CLAIM. THE LD. CIT ALSO POINTED OUT THAT THE ASSESSEE OBJECTED TO THE INSTANCES OF TWO RICE MILLS COMPARED BY THE AO ON THE GROUND THAT THEIR NATURE OF BUSINESS WAS DIFFERENT BUT THE ASSESSMENT RECORD OF THOSE COMPARABLE CASES REVEALED THAT THE VERSIO N OF THE ASSESSEE WAS NOT CORRECT. THE LD. CIT(A) UPHELD THE VALUATIO N OF CLOSING STOCK AT THE RATE OF RS. 3150 /- PER QTL. MADE BY T HE AO AND ACCORDINGLY CONFIRMED THE ADDITION. NOW THE ASSESSEE IS IN APPEAL. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT IN THE CLOSING STOCK THERE WERE DIFFERENT VARIETIES OF THE RICE HAVING THE DIFFERENT RATES AND SALE BILLS OF VARIOUS DATES WHI CH WERE FURNISHED ITA NO. 4883 / DEL/2012 7 TO THE AO ON 15.07.2011 ALSO SUPPORTED THE SAME. IT WAS FURTHER STATED THAT THE AO WAS WRONG IN STATING THAT ALL TH E RICE WAS BASMATI WHEREAS AFORESAID BILLS FURNISHED TO THE A.O. REVE ALED THAT THE CLOSING STOCK CONTAINED DIFFERENT VERITIES OF RICE HAVING DIFFERENT RATES. IT WAS FURTHER STATED THAT THE ASSESSEE MAIN TAINED STOCK REGISTER QUALITY WISE I.E. BASMATI AND NON BASMATI AS PER RE QUIREMENT OF DISTT. FOOD & SUPPLY DEPARTMENT. IT WAS ALSO STATE D THAT THE COMPARABLE CASES CONSIDERED BY THE AO WERE DISTINGU ISHABLE ON FACTS BECAUSE THOSE WERE DOING JOB WORK THROUGH SO RTEX AND EXPORT RICE TRADING WHILE THE ASSESSEE WAS CONDUCTING DOME STIC SALES ONLY. IT WAS STATED THAT NEITHER THE AO NOR THE LD. CIT(A ) CONSIDERED THIS FACT THAT THE CLOSING STOCK CONTAINED VARIOUS VERI TIES OF RICE HAVING DIFFERENT RATES BUT ADOPTED UNIFORM RATE OF RS. 315 0/- PER QTL. THE LD. COUNSEL FOR THE ASSESSEE PRODUCED THE COPIES OF THE STOCK REGISTER OF THE YEAR CONSIDERATION AND THE SALES BILLS OF SU CCEEDING YEAR IN SUPPORT OF HIS CLAIM THAT THE DIFFERENT VERITIES OF RICE WERE SOLD AT DIFFERENT RATES. IT WAS ALSO CLAIMED THAT THOSE DOC UMENTS WERE PRODUCED BEFORE THE AUTHORITIES BELOW BUT THEY HAVE NOT TAKEN ANY COGNIZANCE OF THE SAME. HE REQUESTED TO SEND BACK T HE CASE TO THE AO FOR VERIFICATION FROM THE SALES BILLS OF NEXT YE AR. 9. IN HIS RIVAL SUBMISSIONS, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITT ED THAT THE AO ITA NO. 4883 / DEL/2012 8 AFTER PROPER VERIFICATION FROM THE SALES BILLS PROD UCED BY THE ASSESSEE AND THE STOCK REGISTER, CAME TO THE CONCL USION THAT MARKET RATE OF THE RICE WAS AT RS. 3150/- PER QTL. AND ACC ORDINGLY WORKED OUT THE VALUE OF CLOSING STOCK AND SINCE THE VALUE SHOWN BY THE ASSESSEE WAS LOWER THAN THE VALUATION WORKED OUT BY HIM, THE AO MADE THE ADDITION AND THE LD. CIT(A) RIGHTLY CONFIR MED THE SAME. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH T HE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE AO CONSIDERED THE STOCK OF RICE OF ONE VARIETY ONLY I.E. BASMATI INSTEAD OF DIFFERENT TYPE OF RICE I.E. BASMATI, INFERIOR RICE, BROKEN RICE ETC. THE AO AL SO ADOPTED THE RATE OF RS. 3150/- PER QTL. ON THE BASIS OF THE AVE RAGE RATE SHOWN BY M/S. SIDHIVINAYAK RICE MILLS, TARAORI WHO WAS ENGAG ED IN EXPORT AS WELL AS DOMESTIC TRADING BY THE ASSESSEE WAS DOI NG THE DOMESTIC TRADING ONLY. THEREFORE THE VALUATION ADOPTED BY TH E AO WAS NOT JUSTIFIED. MOREOVER, THE AO CONSIDERED ONLY 3 SALES BILLS INSTEAD OF NUMBER OF SALE BILLS FURNISHED BY THE ASSESSEE. IN THE PRESENT CASE, THE LD. C.I.T.(A) ALSO CONFIRMED THE ACTION OF THE A.O. IN SLIPSHOD MANNER. IN OUR OPINION, THIS CASE REQUIRES FRESH E XAMINATION AND VERIFICATION, WE THEREFORE SET ASIDE THE IMPUGNED O RDER ON THIS LIMITED ISSUE AND REMAND THE SAME TO THE FILE OF TH E AO TO BE ADJUDICATED AFRESH, INACCORDANCE WITH LAW AFTER PRO VIDING DUE AND ITA NO. 4883 / DEL/2012 9 REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE AO IS ALSO DIRECTED TO CONSIDER THE STOCK REGISTER AND TH E SALES BILLS OF THE SUCCEEDING YEAR WHICH THE ASSESSEE CLAIMED TO BE TH E SALES BILLS OF THE CLOSING STOCK OF THE YEAR UNDER CONSIDERATION. IN THE RESULT APPEAL IS ALLOWED FOR STATISTICAL PU RPOSES. (ORDER PRONOUNCED IN OPEN COURT ON 07.08. 2015.) SD/- SD/- (D.MANMOHAN) (N.K. SAINI) VICE PRESIDENT ACCO UNTANT MEMBER DATED 07.08. 2015 BINITA COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), NEW DELHI. AR, I TAT N. DELHI ITA NO. 4883 / DEL/2012 10