ASSISTANT COMMISSIONER OF INCOME TAX, AMRITSAR V. MESSERS NEW BHARAT RICE MILLS, BATALA

ITA 773/ASR/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2482 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 21-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Non passing of speaking order; Set aside
• Section: 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 773/Asr/2017 Assessment Year: 2013-14 Asstt. Commissioner of Income Tax, Circle-II, Amritsar [PAN: AACFN 5002H] Vs. M/s New Bharat Rice Mills, Faizpura Road, Batala (Appellant) (Respondent) Appellant by : None Respondent by: Sh. Ram Mohan Singh, CIT-DR Date of Hearing: 26.04.2022 Date of Pronouncement: 12.05.2022 ORDER Per Anikesh Banerjee, JM: The instant appeal was filed by the Revenue against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Amritsar [brevity the CIT(A)], bearing Appeal No. 10043/2016-17 dated 22.09.2017 u/s 250(6) of the Income Tax Act, 1961 [in brevity the Act], in respect of Assessment Year 2013-14. 2. The grounds of appeal is raised by the Revenue is as under: “1. Whether on the facts and circumstances of the case in law, Ld. CIT(A) is justified in deleting the addition of Rs. 17,79,81,528/- made by the AO on account of under valuation of closing stock and Rs.3,32,89,103/- made by the AO on account of low yield or rice. ITA No. 773/Asr/2017 Asstt CIT v. New Bharat Rice Mills 2 2. Whether on the facts and circumstances of the case and in law Ld. CIT(A) is justified in deleting the addition of Rs. 17,99,81,528/- and Rs. 3,32,89,103/- made by the AO on account of under valuation of closing stock of rice and on account of low yield or rice respectively as the stock register maintained by the assessee was not proper indicating neither variety of paddy purchased nor the quality of rice produced and sold. 3. The appellant craves leave to amend, modify or add any or more ground(s) of appeal.” 3. Brief fact of the case is that the Revenue agitated the grounds related and deleting all the additions of under valuation of closing stock amount of Rs.17,99,81,528/- & unaccounted sale of rice amount to Rs. 332,89,103/- by the ld. CIT(A). The assessee is a rice seller. The ld. AO is aggrieved about the improper maintenance of stock register by the assessee-firm. As per the ld. the assessee-firm did not maintain the stock register on basis of quality of rice. As per revenue the assessee-firm was unable to explain the valuation of closing stock of rice on quality wise. But the assessee maintained quality wise stock of paddy. The ld. Assessing Officer considered the report of CA where the whole stock was valued at rate of amount to Rs 4210/-. Since in Audit report no item wise differentiation, the Ld AO took the average rate amount to Rs 4210/- for whole stock which comes to Rs 40,70,20,652/-. The assessee-firm had declared the value of closing stock amount to Rs. 22,70,39,124/-. The difference amount to Rs. 17,99,81,528/- was added back in total income of assessee. In other issue, the ld AO calculated 14% of rice was sold out of books. Accordingly, amount to Rs. 3,32,89,103/- was added back unaccounted sale of rice. 4. Aggrieved, the assessee filed an appeal before the ld. CIT(A) and the ld. CIT(A) is deleted the entire additions of the assessee Form. 5. Aggrieved, the Revenue filed an appeal before us. ITA No. 773/Asr/2017 Asstt CIT v. New Bharat Rice Mills 3 6. The ld. CIT-DR argued against the deletion of the addition of excess valuation of closing stock Rs.17,99,81,528/- & unaccounted sale of rice amount to Rs. 332,89,103/- by the ld. CIT(A)-. Reliance was placed in the order of ld. AO, page-3 is as under: “Thus, it becomes clear that the assessee has maintained mixed Stock Register and not quality wise. i) The assessee has been furnishing stock statements to the bank wherein it had been giving quality wise details of paddy but no quality wise detail of Rice has been given in any of the monthly stock statement furnished by the assessee to the bank. Even in the Stock Audit Report, Auditor has not been able to show the quality of Rice lying at its premises at the time of his visit and he too had given the report of Rice (Without mention of any variety). Thus, it becomes clear that there the assessee has been maintaining no quality-wise day to day details of Rice. In view of the above discussion, it is clear that the assessee’s books of accounts are not reliable and the assessee has deliberately suppressed the yield of rice as discussed above and also suppressed the yield of full head rice as discussed above. The assessee has made purchases of rice at 70687 Kg for Rs.33147586/-and obtained rice of manufacturing at 8 3 9 0 6 a t Rs. 288716345/- Since the proper stock register has not been maintained, it is being presumed that the assessee has sold the opening stock and left with the stock out of purchases and manufactured by the assessee itself. The cost price of the purchases made and rice manufactured including the stock of packing material and Bardana comes to Rs.4210/~. As per C.A’s report, the closing stock is being valued at stock or market price whichever is less. The Cost Price is indicated in the rice account is, therefore, being adopted which works out to Rs.4210/-. Since no details of full head rice and broken rice have been maintained, therefore, the whole of stock in closing stock is being valued at Rs.4210/- which comes to Rs.40,70,20,652/- (closing stock 96679.49X4210=407020652/-). The assessee has shown the value of closing stock at Rs.227039124/-. Thus, an amount of Rs. 17,99,81,528/- is added to the total income of the assessee on account of under valuation of closing stock of rice. This addition is well made in appreciation of the fact that the assessee has grossly under-stated the production of full head rice as discussed above and most of the stock lying with the assessee is on account of full head rice and since the details of full head rice and broken rice is not available with the assessee. In the given circumstances, the best way to my mind to determine the value of closing stock of the rice purchased and manufactured during the year, presuming that the opening stock has already been sold which cannot be conceivably carried forward to next year. This presumption in my opinion is quite valid as there is nothing on record to suggest that the closing stock has come out ITA No. 773/Asr/2017 Asstt CIT v. New Bharat Rice Mills 4 of opening stock of the year. Penalty proceedings under section 271 (l)(c) are being initiated separately for furnishing inaccurate particulars of income. It is noticed as above that the assessee had shown the yield at 62% whereas the actual yield as per standard specification comes is 76Kg. when the processing is made by the assessee by using Ultra Model Machines. It is thus clear that the assessee has suppressed 14% of the rice obtained by milling which assessee has sold outside the books of accounts. It shows that the assessee has sold 6733.325 Kg of rice outside books of accounts (134673.75X5/100 =18854.325 Kg. The sale value of 6733.325 Kg when adopted at the average rate of 4944 sale rate declared by the assessee amounts to Rs.3,32,89,103/-. Thus, an amount of Rs. 3,32,89,103/- is added to the income of the assessee on account of unaccounted sales of rice. Penalty proceedings under section 271(l)(c) are being initiated separately for furnishing inaccurate particulars of income.” 7. A perusal of the record of the appeal, the ld. CIT(A) did not take cognizance of the view of the Assessing Officer. The ld. CIT-DR pointed out that the additional evidence which was accepted by the appellate authority was denied for reasonable opportunity to verify the documents by the ld. Assessing Officer. Here, the reasonable opportunity of the ld. Assessing Officer is denied, he further pointed out that the order was passed by the ld. CIT(A) without basis, so the order of the appellate authority is non reasoned and non speaking order with full of lacunae. 8. The observations of the ld. CIT(A) in page no22-23 is reproduced as under: “Under Valuation of Closing Stock The primary reason of addition as per AO is that the appellant has not submitted the quality wise stock register of rice. The appellant has submitted that the quality wise stock register was submitted by the assessee on 28.03.2016. The same along with the valuation of rice on the basis of quality has been placed on record. The reasons why AO has not considered them are best known to her. Thus the very basis of allegations of the AO that quality wise stock register is not maintained is bad in facts and the entire addition made on this ground is baseless. Further the AO has accepted the opening stock for this year and in the subsequent year the trading results have been accepted. The Punjab and Haryana High Court has held that the addition in a closing stock is revenue neutral and hence no addition is called for (CIT Vs Satish Estate Private Limited) especially when in the subsequent year the trading results are accepted. It is strange that the same AO in A.Y 2012-13 has made additions stating that appellant has not ITA No. 773/Asr/2017 Asstt CIT v. New Bharat Rice Mills 5 followed FIFO method. Then on 28.03.2016 she agrees that FIFO method has been followed for A.Y 2013-14 but the appellant should have followed weighted average method. This clearly establishes that AO was confused and inconsistent while making the assessment and such a huge addition has been made without any basis even when assessee has shown better results. Not only this, the AO has also ignored the finding of ITAT Amritsar. In the appeal order for the assessment year 2008-09 the Hon’ble ITAT Amritsar Bench, Amritsar has held in the case of the same assessee that “ the authorities below has applied uniform rate of rice to all varieties of stock of rice including broken rice which action is highly unjustified as the rice produced from different varieties of paddy having different purchase prices are bound to be different and it is also an undisputed fact that during production of rice some rice is bound to be produced as broken rice.” Thus, the ITAT Amritsar has also held that it is very unfair to adopt a uniform rate for the different varieties of rice. Thus the action of Ld AO to apply the uniform rate at Rs 4210/-is bad in law and accordingly the addition is deleted.” 9. Having heard the ld. CIT-DR, considering the submissions and relevant materials on record, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 9.1. The assessee-firm was unable to explain the valuation of quality wise closing stock of rice. The valuation of assessee-firm was submitted in Bank which was on basis of average rate of rice & paddy. This valuation submitted in bank is not supported in books of accounts. Respectful observation in the case of CIT(Central) Gurgaon v. Sheena Exports 207 Taxman 75 [2012] (P&H) that stock statement submitted in is unverified. The assessee later on through its regular books & day to day stock register had substantiated its claim related valuation of stock. Here is the lack of explanation before the Assessing Authority. The Ld. CIT(A) also failed plug of the lacuna in factual matrix. The ld. CIT-DR pointed out the documents are accepted by the ld CIT(A) without allowing opportunity to the ld AO. The ITA No. 773/Asr/2017 Asstt CIT v. New Bharat Rice Mills 6 additional evidence was accepted without considering legal provision. He prayed for sending back the matter to the ld Assessing Authority for proper verification of stock. On other hand, the method of valuation was adopted by the ld. AO in closing stock that should be considered to opening stock also. So, both the valuation of opening and closing stock will be in the order. The assessee-firm should get proper opportunity to explain its method of valuation before the ld.AO. 9.2. Accordingly, the impugned order is set aside and the matter is restored back to ld. AO for denovo adjudication after considering the assessee’s evidences. The assessee, in turn, is directed to substantiate its case. Needless to add that adequate opportunity of hearing shall be granted to the assessee. 10. In the result, the appeal of the revenue is allowed for statistical purposes. Order pronounced in the open court on 12.05.2022 Sd/- Sd/- (Dr. M. L. Meena) (Anikesh Banerjee) Accountant Member Judicial Member Date: 12.05.2022 *GP/Sr. PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(A), (4) The CIT concerned (5) The Sr. DR, I.T.A.T (6) The Guard File True Copy By Order