ACIT, Cuttack V. M/s Kalinga Mining Corporation, Cuttack

ITA 521/CTK/2011

• Counselvise Citation: 52122114 RSA 2011
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 22-12-2011
• Court: TRIBUNAL
• Department Lawyers: SUPPORTING

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM, AND SHRI K.S.S.PRASAD RAO, JM ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 (C.O.FILED BY ASSESSEE) ITA NO.34/CTK/2012 (ASSESSMENT YEAR 2008 - 09) (ASSESSMENT YEAR 200 8 - 09) ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), CUTTACK. .. APPELLANT - VERSUS - M/S.KALINGA MINING CORPORATION,AT: SAMANTA NIWAS, SEIKH BAZAR, CUTTACK. PAN: AABFK 4556 E .. RESPO NDENT M/S.KALINGA MINING CORPORATION,AT: SAMANTA NIWAS, SEIKH BAZAR, CUTTACK. PAN: AABFK 4556 E .. APPELLANT - VERSUS - ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), CUTTACK. .. RESPON DENT FOR THE ASSESSEE : P.K.JESTHI/MITALEE JESTHI, ARS FOR THE DEPARTMENT : SMT. PARAMITA TRIPATHY, DR DATE OF HEARING : 14.02.2012 DATE OF PRONOUNCEMENT : 17.02.2012 ORDER SHRI K.K.GUPTA, AM : THE REVENUE AND THE ASSESSEE ARE IN APPEAL ARI SING OUT OF THE ORDER OF THE LEARNED CIT(A) DT.20.10.2011 AND THE CROSS OBJECTION HAS BEEN PREFERRED BY THE ASSESSEE SUPPORTING THE ORDER OF THE LEARNED CIT(A) ON THE ISSUE RAISED BY THE REVENUE IN THEIR APPEAL BEFORE US. 2. WE PROPOSE TO DISPOSE ALL THE A PPEALS AND THE CROSS OBJECTION TOGETHER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE REVENUE IN THEIR APPEAL HAVE RAISE D THE ISSUE OF LEARNED CIT(A) NOT ADHERING TO THE FACTUAL ASPECTS BROUGHT ON RECORD BY THE ASSESSING OFFICER FOR THE PURPOSE OF DETER MINING THE CLOSING STOCK WHICH OUGHT TO HAVE BEEN AVAILABLE TO THE ASSESSEE AS ON 31.3.2008 WAS RIGHTLY BROUGHT TO TAX BY THE ASSESSING OFFICER. 4. THE LEARNED DR CONTENDED THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND CARRIES ON THE BUSINESS IN IRON ORE F ROM ITS OWN MINES IN JODA AND KEONJHAR. ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 AND ITA NO.34/CTK/2012 2 RETURN FOR THE YEAR ENDING 31.3.2008 WAS FILED DECLARING INCOME OF 43.57 CRORES. DURING THE COURSE OF SCRUTINY PROCEEDINGS U/S.143(3), ON THE BASIS OF THE AUDIT REPORT IN F ORM 3 CB HE PROCEEDED TO CONSIDER THE STOCK AS WOULD BE AVAILABLE TO THE ASSESSEE ON 31.3.2008 BY BRINGING ON RECORD THE DAILY PRODUCTION STATEMENT, MONTHLY PRODUCTION STATEMENT AND AFTER ADJUSTING THE RAISING AGENCY RECEIVING 40 % OF THE BASIC SALE PRICE EXCLUSIVE OF TAXES AND DUTIES AS DIRECT PRICE WHO WERE RAISING ORES FOR THE ASSESSEE DETERMINED CLOSING STOCK AS PER THE DISPATCH REGISTER OF THE ITEMS WHEN NO OPENING STOCK WAS MAINTAINED. HE VALUED THE STOCK OF VARIOUS ITEMS WHEN THE 40% OF THE BASIC RATE WAS TO BE HELD BY THE ASSESSEE WHICH WAS NOT DISCLOSED AS CLOSING STOCK IN THE BOOKS OF ACCOUNT AMOUNTING TO 7.83 CRORES. THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO DELETED THE SAME BY HOLDING A VIEW THAT IN THE CASE OF A MIN E OWNER AND RAISING IRON ORES THROUGH THE AGENCIES , A CLOSING STOCK WOULD NOT APPEAR UNLESS THE OPENING STOCK WAS THE RE TO FIND OUT UNDISCLOSED INCOME , RELYING ON THE DECISION IN THE CASE OF CIT V. AHMEDABAD NEW COTTON MILLS CO.LTD., AIR 1930 PC 56. 5. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) MISDIRECTED HIMSELF TO HOLD A VIEW THAT THE COST OF SALES HAD TO BE I NCORPORATED FOR THE PURPOSE OF THE ASSESSEE BEING A MINE OWNER HAD TRADED IN GOODS WHICH WERE RAISED BY ITS AGENCIES WHO DID NOT HO LD ANY STOCK AS VALUED WHICH COULD BE CONSIDERED FOR THE DETERMINATION OF THE COST OF SALES. SHE SUBMITTED THAT THE LEARNED C IT(A) THEREFORE, ERRED IN HOLDING A VIEW THAT THE CLOSING STOCK VALUED IN THIS YEAR WOULD BECOME THE OPENING STOCK IN THE SUBSEQUENT YEAR WOULD END INTO A NULLITY. SHE FURTHER ARGUED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) WAS N OT JUSTIFIED TO TOTALLY DELETE THE ADDITION OF THE VALUE OF CLOSING STOCK OF 8,77,07,840 ( REVISED FIGURE AFTER RECTIFYING THE ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 AND ITA NO.34/CTK/2012 3 ARITHMETICAL MISTAKE VIDE ORDER U/S.154 ON 21.10.2011) BY RELYING ON THE RULINGS GIVEN IN THE CASE OF CIT V . AHMEDABAD NEW COTTON MILLS CO. , LTD ., [ AIR 1930 PC 56 ) WHICH IS OBSOLETE WHICH HOLDS THAT VALU ATION OF BOTH OPENING STOCK AND CLOSING STOCK HAS TO BE REVISED AS AGAINST REVISION OF VALUATION OF CLOSING STOCK ONLY AS DONE IN THE PRESENT CASE BY THE A.O. SHOWN BY THE ASSESSEE AT NIL. HE IS NOT JUSTIFIED IN RELYING ON THE OBSOLETE DECISION OF CIT V. AHMEDABAD NEW COTTON MILLS CO. LTD (SUPRA), WHEN THE RATIO OF THAT DECISION HAS LONG SINCE BEEN OVERRULED BY A PLETHORA OF COURT DECISIONS I.E. CIT VRS CORPORATION BANK LTD [ 1988] 174 ITR 616 ( KARNATAKA), MELMOULD CORPORATION VRS. CIT [1993] 202 ITR 789 ( BOMBAY)., CIT VRS CARBORANDUM UNIVERSAL LTD [1984] 149 ITR 759 ( MADRAS ) , WHERE THE COURTS HAVE HELD THAT WHERE THE ASSESSEE SEEKS A CHANGE IN VALUATION OF STOCK IN ANY YEAR IT SHOULD BE ALLOWED FOR CLOSING STOCK ONLY PROVIDED IT IS BONAFIDE AND FOLLOWE D CONSISTENTLY IN SUCCEEDING YEARS EVEN IF IT IS DETRIMENTAL TO REVENUE FOR CONCERNED ASSESSMENT YEAR UNLIKE THE CASE CITED BY THE LEARNED CIT(A) WHEREIN VALUATION OF BOTH OPENING AND CLOSING STO CK WERE DIRECTED TO BE REVISED . AS A COROLLARY WHERE THE ASSE SSING OFFICER REVALUES CLOSING STOCK FOR ONE ASSESSMENT YEAR , HE MAY BE ALLOWED TO CONSISTENTLY FOLLOW THE SAME METHOD FOR ASSESSMENT FOR SUCCEEDING ASSESSMENT YEARS WITHOUT REVALUING THE CLOSING STOCK OF THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE LEAR NED CIT(A) WAS NOT JUSTIFIED TO IGNORE THE FACT THAT THE ASSESSEE IS DELIBERATELY NOT DISCLOSING THE VALUE OF CLOSING STOCK IN ITS ACCOUNTS , WHEREAS IT HAS SHOWN THE QUANTITY ONLY IN ITS AUDIT REPORT IN FORM NO. 3CD ANNEXURE - A IN QUANTITATIVE STOCK STATEME NT AS ON 31.03.2008 AS CERTIFIED BY THE AUDITOR. THE LEARNED CIT DR PRAYED TO SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND RESTORE ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 AND ITA NO.34/CTK/2012 4 THAT OF THE ASSESSING OFFICER IN THIS REGARD BY ALLOWING THE APPEAL OF THE REVENUE. 6. THE LEARNED AR OF THE ASSESS EE SUPPORTED THE ORDER OF THE LEARNED CIT(A) WHO HAD NOTED THAT THE BASIC ACCOUNTING PRINCIPLES THAT IF THE VALUE OF THE OPENING STOCK IS NOT TAKEN THE VALUE OF CLOSING STOCK WOULD NOT ALSO BE TAKEN. THE ASSESSEE IS FOLLOWING THE SAME METHOD OF ACCOUNTING YEAR AFTER YEAR AND THERE IS NO DEVIATION. THE ADOPTION OF CONSISTEN T SYSTEM OF ACCOUNT ING CANNOT BE RECONSIDERED ON THE BASIS OF THE ASSESSING OFFICERS FINDING THAT THE ASSESSEE DOES NOT MAINTAIN GOODS ACCOUNT WHEN THE WORK OF RAISING IRON ORE IS THROUGH AGENCIES AND THE MARGIN AS PER THE RESPECTIVE AGREEMENTS ARE ALREADY ACCOUNTED FOR AS IRON ORE EXCAVATED AND SOLD. THE LEARNED CIT(A), THEREFORE, WAS JUSTIFIED IN DELETING THE UNILATERAL ADDITION TO THE VALUE OF CLOSING STOCK WITHOUT TAKING THE CORRESPON DING VALUE AS OPENING STOCK TO DETERMINE THE UNDISCLOSED PROFIT IF ANY WHICH COULD BEOUTSIDE THE ACCOUNTING OF STOCK ONLY . THE ASSESSEE COULD NOT BE SAID TO BE MAKING PROFITS ON ITS OWN WHEN THE VALUATION OF WHATEVER HAS BEEN EXCAVATED HAS ALREADY BEEN RE NDERED TO TAX IN ACCORDANCE WITH THE AGREEMENTS ENTERED WITH THE RAISING AGENCIES WHEN THE TURNOVER OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR IS MORE THAN 85.3 CRORES. HE SUBMITTED THAT PROBABLY THE ASSESSING OFFICER WAS CONCERNED WIT H THE STOCK O F MINED MATERIAL L YING WITH THE ASSESSEE FOR THE PAST 2/3 YEARS WHICH VALUATION HAS BEEN RENDERED AT 76,629 BY THE AUDITORS THAT TRIGGERED THE ASSESSING OFFICER TO COMPUTE SEPARATE CLOSING STOCK ON THE BASIS OF PA R T INFORMATION WHICH INFORMATION HAS NOT B EEN PUT TO USE IN ITS ENTIRETY. AFTER HAVING VALUED THE CLOSING STOCK PURPORTEDLY HELD BY THE ASSESSEE ON ACCOUNT OF RAISING OF IRON ORE AT 19.56 CRORES HE CHOSE TO APPLY 40% OF THE BASIC RATE AS THE VALUE OF THE CLOSING ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 AND ITA NO.34/CTK/2012 5 STOCK THAT MUST BE AVAILABLE WITH THE ASSESSEE. THE LEARNED CIT(A) THEREFORE, RIGHTLY CONSIDERED THAT THE CO S T OF SALES COULD NOT BE SUBJECTED TO DETERMINATION OF CLOSING STOCK AS IF THE ASSESSEE IS MAKING PROFIT OF HIS OWN OR THROUGH HIS AGENCIES AS AGREED UPON. THE ASSESSEE HAS RENDERED TO TAX INCOME OF 43.57 CRORES AS THE MINE OWNER AND THE AMOUNT OWED BY THE AGENCIES CANNOT BE CONVERTED AS STOCK TO BE TAXED AS STOCK AVAILABLE N THE HANDS OF THE ASSESSEE. IF AT ALL THE STOCK WAS TO BE DETERMINED IT SHOULD BE DETERMINED IN THE HANDS OF T HE AGENCIES WHICH ARE EXCAVATING THE IRON ORES IN ACCORDANCE WITH THE AGREEMENT WHEN THE ROYALTY IS PAID BY THE ASSESSEE. HE, THEREFORE, SUPPORTED THE ORDER OF THE LEARNED CIT(A). 7. NOW COMING TO THE APPEAL OF THE ASSESSEE, HE POINTED OUT THAT A SUM OF 1 ,08,756 WAS DISALLOWED BY THE ASSESSING OFFICER ON THE PREMISE THAT THE ASSESSEE WAS NOT TO BEAR THE COST OF SALARY OF THE GOVERNMENT STAFF PLACED AT THE WEIGH BRIDGE WHICH WAS INCURRED BY THE ASSESSEE MERELY ON THE DIRECTION OF THE DEPUTY DIRECTOR OF MIN ES, JODA. THIS DISALLOWANCE WAS APPEALED AGAINST BEFORE THE LEARNED CIT(A), WHO CONFIRMED THE SAME WHEN THE AGREEMENT ENTERED INTO WITH T HE CONTRACTOR OF MINES INDICATED THAT THE EXPENSES OF GOVERNMENT STAFF AT THE WEIGH - BRIDGE ARE TO BE BORNE BY THE ASSES SEE FOR A TERM OF THREE YEARS RENEWABLE EVERY THREE YEARS. THE LEARNED CIT(A) MISDIRECTED HIMSELF TO HOLD THAT THE AGREEMENT WAS DATE D OR RENEWED ON 7.3.2009 DID NOT PERTAIN TO THE IMPUGNED ASSESSMENT YEAR AND CONFIRMED THE DISALLOWANCE OF THE ASSESSING OF FICER . IN SUPPORT, HE HAS SUBMITTED A PAPER BOOK IN WHICH HE HAS ENCLOSED THE ORIGINAL AGREEMENT ENTERED INTO BY THE ASSESSEE WITH OREWIN ENGG. CO., DT.7.4.2005 AND THE COPY OF THE BRIEF OF PAYMENT TO THE DEPUTY DIRECTOR OF MINES, JODA REGARDING WEIGH - BRID GE PAYMENT AT PAGES 17 AND 18 OF THE PB INDICATING THAT THE WEIGH - BRIDGE WILL BE ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 AND ITA NO.34/CTK/2012 6 OPERATED BY THE GOVERNMENT STAFF WHEN THE PAYMENT OF SALARY TO THEM WILL BE BORNE BY THE ASSESSEE TO BE RENEWED EVERY THREE YEARS. THIS BEING PART OF THE DIRECTION IN 2005 CON TINUED IN THE YEAR UNDER CONSIDERATION ALSO, THEREFORE, CANNOT BE REJECTED AS AN AGREEMENT ENTERED INTO LATER. THE MINES MANAGER HAD ISSUED THE CHEQUE OF 1,78,756 ON 21.1.2008 JUSTIFIED THE CLAIM OF THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT WHICH CANNOT B E DENIED. HE PRAYED FOR ALLOWING SUCH EXPENDITURE IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT. 8. THE LEARNED DR SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITY BELOW ON THIS ISSUE FOR HER PART OF SUBMISSIONS. 9. WE HAVE HEARD BOTH THE PARTIES AND PERU SED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO HOLD THAT THE APPEAL OF THE REVENUE DOES NOT HAVE ANY MERITS I NSOFAR AS IT WAS NOT THE VALUATION OF A STOCK AVAILABLE TO THE ASSESSEE FOR THE PURPOSE OF TAXING THE SAME IN THE ORDINARY COURSE OF BUSINESS INSOFAR AS THE ASSESSEE HAD ALREADY DECLARED THE STOCK WHICH WAS AVAILABLE TO IT BUT NOT SOLD. THE ASSESSING OFFICER, THEREAFTER TR IED TO COMPUTE THE C LOSING STOCK ON BITS OF INFORMATION WHICH IN OUR OPINION, DO NOT APPEAR TO BE ON PROPER FOOTINGS. THE ASSESSEE IS A MINE OWNER PAYING ROYALTY AND THE ACCOUNTING OF EXCAVATED IRON ORE WAS IN THE MANNER AS AGENCIES INVOLV ED IN EXCAVATION WERE SUBJECTED TO PAYMENT BY THE ASSESSEE AFTER BOOKING THE SALES AS DISCLOSED BY THE AGENCY M/S.OREWIN ENGG. CO. THIS INDICATES THAT THE ASSESSEE CANNOT BE SAID TO BE MAKING PROFIT ON THE PORTION OF IRON ORE RAISED WHEN HE WAS TO MAKE 100% PRO FIT THERE FROM. THIS IS WHERE THE FAULT LIED WHEN THE LEARNED CIT(A) RIGHTLY CONSIDERED THE COST OF SALES WHICH COULD RESULT I N COMPUTING THE ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 AND ITA NO.34/CTK/2012 7 CLOSING STOCK, IF ANY, IN A CONSISTENT SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE CLAIM OF EXPENDITURE OF RAISING COST OF 40% OF SALES HAVE BEEN CLAIMED AS EXPENDITURE, THEREFORE, IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO HOLD A VIEW THAT THE AMOUNT OWED BY M/S.OREWIN ENGG. CO., HAD A PORTION OF THE CLOSING STOCK WHICH COULD HAVE BEEN DETERMINED OVER AND ABOVE WHAT ORE WAS ALREADY AVAILABLE TO THE ASSESSEE. THE ASSESSEE IS PAYING ROYALTY TO THE GOVERNMENT ON ACCOUNT OF RAISING THE IRON ORE THROUGH ITS AGENCIES AND THEREFORE, CANNOT BE SUBJECTED TO TAXATION IN ISOLATION IN THE IMPUGNED ASSESSMENT YEAR WHEN THE LEARNED CIT(A) NOTED THAT THE ASSESSEE HAD NOT ISOLATED THE OPENING STOCK FOR FURTHER TRANSACTIONS WHEN THE WHOLE O R MORE BELONGED TO THE ASSESSEE. THE AMOUNT OWED BY THE AGENCY AT ANY PARTICULAR TIME CANNOT BE SUBJECTED TO TAX ON THE HANDS OF THE ASS ESSEE IN THE GARB OF VALUATION OF STOCK TO BE OWNED BY THE ASSESSEE AS ON 31.3.2008 . WE ARE, THEREFORE, INCLINED TO UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) BY DISMISSING THE APPEAL OF THE REVENUE. 10. THE CROSS OBJECTION SUPPORTING THE IMPUGNED ORD ER OF THE LEARNED CIT(A) ON THE ABOVE ISSUE IS DISPOSED OF ACCORDINGLY. 11. ON THE APPEAL FILED BY THE ASSESSEE IN RESPECT OF PAYMENT OF SALARY TO GOVERNMENT STAFF PLACED AT THE WEIGH - BRIDGE, WE HAVE PERUSED THE AGREEMENT AND FIND THAT ON THE DIRECTION OF THE DEPUTY DIRECTOR OF MINES THE SPECIFIC AMOUNT WAS REQUIRED TO BE PAID BY THE ASSESSEE FOR THE PURPOSE OF WEIGHING THE ORE MINED AND TRANSPORTED THROUGH ITS WEIGH - BRIDGE WAS ON AN AGREEMENT THAT HAS BEEN RENEWED PERI ODICALLY AND THE AMOUNT HAD BEEN PAID IN THE IMPUGNED ASSESSMENT YEAR ON THE SPECIFIC DEMAND RAISED BY THE DEPUTY DIRECTOR OF MINES. THIS AMOUNT, IN OUR VIEW, IS DIRECTLY AVAILABLE FOR CLAIMING AS EXPENSE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE BEING MINING. ITA NO.521/CTK/2011 C.O.NO.11/CTK/2012 AND ITA NO.34/CTK/2012 8 THE LEARNED CIT(A) THEREFORE ERR ED IN UPHOLDING THE DISALLOWANCE ON THIS COUNT ON MIS - APPRECIATION OF FACTS. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE C.O. FILED BY THE ASSESSEE THERE AGAINST IS DISPOSED OF ACCORDINGLY. THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE : 17.02.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE A SSESSEE : M/S.KALINGA MINING CORPORATION, AT: SAMANTA NIWAS, SEIKH BAZAR, CUTTACK. 2. THE DEPARTMENT : ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.