M/s Hirpara Metal Industries, JAMNAGAR V. The Income Tax Officer, Ward-1(3), JAMNAGAR

ITA 825/RJT/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6838 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: DM RINDANI
• Keywords: Business income
• Section: 133A; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.825/RJT/2010 (ASSESSMENT YEAR 2006-07) M/S HIRPARA METAL INDUSTRIES VS THE ITO, WD.1(3) 437/2, GIDC, JAMANAGAR JAMNAGAR PAN : AABFH3000L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DM RINDANI RESPONDENT BY: SHRI MK SINGH O R D E R PER N.R.S. GANESAN, JM THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A), JAMNAGAR DATED 24-02-2010 FOR THE ASSESSMENT YEAR 2 006-07. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS ADDIT ION OF RS.14,55,255 TOWARDS EXCESS STOCK U/S 69B OF THE ACT. 3. SHRI DM RINDANI, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF SURVEY OPERATION U/S 133A THE REVENUE AUTHORITIES FOUND EXCESS STOCK. THE ASSESSEE EXPLAINED TO THE REVENU E AUTHORITIES THAT THE EXCESS STOCK IS NOTHING BUT RECENT VALUE TAKEN AS PER THE LATEST PRICE LIST ON THE DATE OF SURVEY. ACCORDING TO THE LD.REPRESENTATIVE, THE DI FFERENCE IS NOTHING BUT THE DIFFERENCE BETWEEN THE ORIGINAL COST AND THE LATEST PRICE. THEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, THE EXCESS STOCK HAS TO BE T REATED AS BUSINESS INCOME AND THE ASSESSEE IS ENTITLED FOR ADJUSTMENT OF THE RESU LTANT LOSS AGAINST THE SAID INCOME. REFERRING TO THE JUDGMENT OF THE GUJARAT H IGH COURT IN FAKIR MOHAMMED HAJI HASAN VS CIT (2001) 247 ITR 290 (GUJ), THE LD. REPRESENTATIVE SUBMITTED THAT ITA NO.825/RJT/2010 2 IN THE CASE BEFORE THE GUJARAT HIGH COURT, THE ASSE SSEE INVESTED IN SMUGGLED GOODS. IT WAS NOT THE BUSINESS OF THE ASSESSEE SMU GGLING GOODS. THEREFORE, THE HIGH COURT FOUND THAT THE INVESTMENT MADE IN THE GO LD OF FOREIGN ORIGIN HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. IN THE CAS E OF THE PRESENT ASSESSEE, ACCORDING TO THE LD.REPRESENTATIVE, THE EXCESS STOC K WAS FOUND IN THE REGULAR COURSE OF BUSINESS ACTIVITY. THEREFORE, THE EXCESS STOCK HAS TO BE TREATED AS INCOME FROM BUSINESS AND THE ASSESSEE IS ENTITLED FOR RESULTANT ADJUSTMENT OF LOSS. REFERRING TO THE JUDGMENT OF THE GUJARAT HIG H COURT IN DCIT VS RADHE DEVELOPERS INDIA LTD (2010) 329 ITR 1 (GUJ), THE LD .REPRESENTATIVE SUBMITTED THAT IN THIS CASE ANOTHER DIVISION BENCH OF THE GUJARAT HIGH COURT CONSIDERED THE JUDGMENT IN FAKIR MOHAMMED HAJI HASAN VS CIT (SUPRA ) AND FOUND THIS JUDGMENT AS NEITHER RELEVANT NOR GERMANE TO THE ISSUE CONSID ERING THE FACT THAT IN THAT DECISION THE LEGISLATIVE SCHEME EMANATING FROM THE CONJOINED READING OF THE PROVISIONS OF SECTIONS 14 AND 56 OF THE ACT HAS NOT BEEN CONSIDERED. THIS OBSERVATION WAS MADE BY THE GUJARAT HIGH COURT AFTE R CONSIDERING THE JUDGMENT OF THE APEX COURT IN D.P. SANDU BROS. CHEMBUR P. LT D (2004) 273 ITR 1 (SC). THEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, THE JUDGMENT OF THE GUJARAT HIGH COURT IN FAKIR MOHAMMED HAJI HASAN VS CIT (SUPRA) I S NOT APPLICABLE TO THE FACTS OF THE CASE. 4. ON THE CONTRARY, SHRI MK SINGH, THE LD.DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT ADMITTEDLY THE EXCESS STOCK WAS FOUN D DURING THE COURSE OF SURVEY OPERATION. REFERRING TO THE ASSESSMENT ORDER, THE LD.REPRESENTATIVE SUBMITTED THAT DURING THE COURSE OF SURVEY OPERATION ONE OF T HE PARTNERS, SHRI CHETANBHAI HIRPARA ADMITTED THAT THE EXCESS STOCK IS UNACCOUNT ED STOCK OF THE FIRM AND HE HAD NO EXPLANATION FOR THE SOURCE OF THE UNEXPLAINE D EXCESS STOCK. THEREFORE, THE EXCESS STOCK HAS TO BE CONSIDERED AS UNEXPLAINE D INVESTMENT AND HAS TO BE TAKEN AS INCOME FROM OTHER SOURCES IN VIEW OF THE JUDGMENT OF THE GUJARAT HIGH COURT IN FAKIR MOHAMMED HAJI HASAN VS CIT (SUPRA). ITA NO.825/RJT/2010 3 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS ENGA GED IN THE BUSINESS OF MANUFACTURE OF BRASS PARTS. A SURVEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 01-11-2005. DURING THE COURSE OF SURVE Y OPERATION THE REVENUE AUTHORITIES FOUND EXCESS STOCK. HOWEVER, THE ASSES SEE CLAIMS THAT THE DIFFERENCE WAS NOT IN THE PHYSICAL QUANTITY. WHATE VER, IT MAY BE THE EXCESS STOCK FOUND, IS NOTHING BUT ONLY THE BRASS PARTS MANUFACT URED BY THE ASSESSEE. THEREFORE, THE EXCESS STOCK WAS GENERATED IN THE CO URSE OF THE REGULAR MANUFACTURING ACTIVITY OF THE ASSESSEE. HENCE, THE VALUE OF THE EXCESS STOCK HAS TO BE CONSIDERED AS BUSINESS INCOME. THE CONTENTION OF THE REVENUE IS THAT THE EXCESS STOCK HAS TO BE TREATED AS INCOME FROM OTHE R SOURCES IN VIEW OF THE JUDGMENT OF THE GUJARAT HIGH COURT IN FAKIR MOHAMME D HAJI HASAN VS CIT (SUPRA). WE HAVE CAREFULLY GONE THROUGH THE JUDGME NT OF THE GUJARAT HIGH COURT IN FAKIR MOHAMMED HAJI HASAN VS CIT (SUPRA). IN TH E CASE BEFORE THE GUJARAT HIGH COURT, THE ASSESSEE WAS FOUND IN POSSESSION OF GOLD OF FOREIGN ORIGIN. THE CUSTOMS AUTHORITIES SEIZED THE GOLD IN THE CAR OF T HE ASSESSEE AND IT WAS FORFEITED ABSOLUTELY TO THE GOVERNMENT. THE ASSESSEE CLAIM ED DEDUCTION OF THE VALUE OF THE GOLD. IN SUCH CIRCUMSTANCES, THE GUJARAT HIGH COURT FOUND THAT THE ASSESSEE SMUGGLED THE GOLD OF FOREIGN ORIGIN. THEREFORE, IT WAS HELD THAT THE INVESTMENT IN THE GOLD OF FOREIGN ORIGIN HAS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES. AS RIGHTLY SUBMITTED BY THE LD.REPRESENTATIVE FOR T HE ASSESSEE IT IS NOT THE REGULAR BUSINESS OF THE ASSESSEE DOING SMUGGLING OF GOLD AS WAS BEFORE THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMMED HAJI HASAN VS CIT (SUPRA). IN THE CASE BEFORE US, THE REGULAR BUSINESS IS MAKING OF B RASS PARTS. THEREFORE, IN OUR OPINION, THE JUDGMENT OF THE GUJARAT HIGH COURT MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE. MOREOVER, THE VERY SAME JUDGMENT OF T HE GUJARAT HIGH COURT IN FAKIR MOHAMMED HAJI HASAN VS CIT (SUPRA) WAS CONSID ERED BY ANOTHER DIVISION BENCH OF THE GUJARAT HIGH COURT IN RADHE DEVELOPERS INDIA LTD (SUPRA). THE LATER DIVISION BENCH FOUND THAT IN FAKIR MOHAMMED H AJI HASAN VS CIT (SUPRA), THE LEGISLATIVE SCHEME EMANATING FROM THE PROVISION S OF SECTION 14 AND 56 OF THE ITA NO.825/RJT/2010 4 INCOME-TAX ACT WAS NOT CONSIDERED. IN FACT AT PAGE 15 OF THE ITR, THE GUJARAT HIGH COURT HAS OBSERVED AS FOLLOWS: THE DECISIONS OF THIS COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN (2001) 247 ITR 290 (GUJ) AND KRISHNA TEXTILES (2009) 310 ITR 227 (GUJ) ARE NEITHER RELEVANT NOR GERMANE TO T HE ISSUE CONSIDERING THE FACT THAT IN NONE OF THE DECISIONS THE LEGISLATURE SCHEME EMANATING FROM THE CONJOINT READING OF THE P ROVISIONS OF SECTIONS 14 AND 56 OF THE ACT HAVE BEEN CONSIDERED. THE APEX COURT IN THE CASE OF D.P. SANDU BROS. CHEMBUR P. LT D (2005) 273 ITR 1 HAS DEALT WITH THIS VERY ISSUE WHILE DECIDING THE TREATM3ENT TO BE GIVEN TO A TRANSACTION OF SURRENDER OF TENANCY R IGHT. THE EARLIER DECISIONS OF THE APEX COURT COMMENCING FROM THE CAS E OF UNITED COMMERCIAL BANK LTD V. CIT (1957) 32 ITR 688 (SC) H AVE BEEN CONSIDERED BY THE APEX COURT AND, HENCE, IT IS NOT NECESSARY TO REPEAT THE SAME. SUFFICE IT TO STATE THAT THE ACT D OES NOT ENVISAGE TAXING ANY INCOME UNDER ANY HEAD NOT SPECIFIED IN S ECTION 14 OF THE ACT. IN THE CIRCUMSTANCES, THERE IS NO QUESTION OF TRYING TO READ ANY CONFLICT IN THE TWO JUDGMENTS OF THIS COURT AS SUBM ITTED BY THE LEARNED COUNSEL FOR THE REVENUE. IN VIEW OF THIS OBSERVATION OF THE SUBSEQUENT DIVIS ION BENCH OF THE GUJARAT HIGH COURT, THE JUDGMENT IN FAKIR MOHAMMED HAJI HASAN VS CIT (SUPRA) MAY NOT BE OF ANY ASSISTANCE TO THE REVENUE. IN VIEW OF THIS, THE VALUE OF THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY OPERATION HAS TO BE ASSESSED AS INCOME FROM BUSINESS. ACCORDINGLY WE SET ASIDE THE ORDER OF L OWER AUTHORITIES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2011. SD/- SD/- (A.L. GEHLOT) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT, DT : 29 TH JULY, 2011 PK/- ITA NO.825/RJT/2010 5 COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A), JAMNAGAR 4. THE CIT, JAMNAGAR 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT