M/s. Serajuddin & Co. Pvt. Ltd., Bhubaneswar V. ACIT, Circle-1(2), Bhubaneswr, Bhubaneswar

ITSSA 29/CTK/2013

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1418 (ITAT-CUTTACK)
• Duration Of Justice: 9 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 09-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 01-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Principle of natural justice; TDS
• Section: 132; 153A

Judgement Text

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK श्री जाजज माथन, न्याययक सदस्य एवं श्री अरुण खोड़पऩया ऱेखा सदस्य के समऺ । BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर (तऱाशियाां और अशिग्रहण) अऩीऱ सं/IT(SS)A No.29/CTK/2013 (नििाारण वषा / Asses s m ent Year :2007-2 008) M/s Se rajudd in & C o. (P ) Ltd., 7 th Floo r, ‘C ’ W ing, Fortune T o we r, Chandrase kharpu r, Bhubanes war-7510 23 P AN No.AAI CS 35 45 F ............ ......As sess ee Versus ACIT , Ci rc le-1(2 ), Bhubanes war ... ......... ........ Re venue AN D आयकर (तऱाशियाां और अशिग्रहण) अऩीऱ सं/IT(SS)A No.40/CTK/2013 (नििाारण वषा / Asses s m ent Year :2007-2 008) ACIT , Ci rc le-1(2 ), Bhubanes war ... ......... ........ Re venue Versus M/s Se rajudd in & C o. (P ) Ltd., 7 th Floo r, ‘C ’ W ing, Fortune T o we r, Chandrase kharpu r, Bhubanes war-7510 23 P AN No.AAI CS 35 45 F ............ ......As sess ee Shri Sunil Mishra, Advocate for the assessee Shri M.K.Gautam, CIT-DR for the Revenue Date of Hearing : 10/10/2022 Date of Pronouncement : 10/10/2022 आदेश / O R D E R Per Bench : These two cross appeals have been filed by the assessee and revenue against the order of the ld. CIT(A)-I, Bhubaneswar, dated 25.02.2013 for the assessment year 2007-2008. IT(SS)A Nos.29 & 40/CTK/2013 2 2. The assessee in its appeal i.e. IT(SS)A No.29/CTK/2013 has raised the following grounds :- On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in failing to consider that the assessment order passed u/s.143(3)/153A/144 of the Income Tax Act,1961(herein after referred as ' the Act') is bad in law and liable to be quashed inasmuch as that:- 1. no warrant of authorization u/s 132 of the Act was issued in the case of the appellant for which the assessment order passed u/s 153A of the Act is beyond jurisdiction and search action conducted and all other consequential proceedings are illegal and without jurisdiction; 2. the warrant of authorization u/s.132 of the Act issued by Jt. Director of Income tax is beyond jurisdiction and search action conducted and all other consequential proceedings are illegal and without jurisdiction; 3. no prior approval was taken in accordance with the provisions of Section 153D of the Act vis-a-vis CBDT instruction. 4. no opportunity was given for cross-examination of various persons whose statements were relied upon for making various disallowances thereby violating the principles of natural justice. 5. the assessment order was passed without providing the print out from seized and sealed CDs , Hard disks and the books of account illegally removed from the premises of its accountant thereby violating the principle of natural justice. 6. the assessment order was passed simultaneously under section 143(3) and 144 of the Act. 7. the assessment order was passed without serving notice under section 153A(1)(a) of the Act. The Ld Commissioner of Income Tax (Appeals) erred:- 8. in holding that:- 'the appellant has understated income by not disclosing correct value of closing stock of fines'. 9. in confirming the valuation of closing stock of iron ore fines generated in crusher as a by-product to the extent of Rs.1,20,04,603/-, without appreciating that the method of accounting adopted by the appellant for valuation of stock is consistently and regularly followed and hence, having not IT(SS)A Nos.29 & 40/CTK/2013 3 pointed out any inconsistency in the method of accounting the addition is unjustified and liable to be deleted. 10. in attributing Rs.546.21 as the cost of self generated by-product (crusher fines) on the basis of price of iron ore fines out sourced by the appellant. 11. The appellant craves leave to add, amend, alter or delete all or any of the aforesaid grounds of appeal. 3. At the time of hearing, ld.AR of the assessee submitted that he has been instructed not to press the grounds No.1 to 7. In this regard, ld. AR has also endorsed the same to the grounds of appeal. Accordingly, ground Nos.1 to 7 raised by the assessee in its appeal stand dismissed as not pressed. 4. The revenue in its appeal i.e. IT(SS)A No.40/CTK/2013 has raised the following grounds :- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition on account of undervaluation of closing stock ignoring the fact that the addition on account undervaluation of closing stock was made on the basis of evidence available before the AO. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in allowing transportation charges of Rs.1,89,41,720/- to the assessee. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in deleting bogus expenditure of ore calibration expenses of Rs.51,08,000/-. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in accepting the contentions of the assessee and not accepting the findings of the AO in violation of Rule 46A of the IT Rules. 5. The appellant craves to alter, amend or add any other ground that may be considered necessary in course of the appeal proceeding. IT(SS)A Nos.29 & 40/CTK/2013 4 5. It was submitted by the ld. AR that the only issue in assessee’s appeal is against the action of the ld. CIT(A) in confirming the valuation of closing stock of iron ore fines generated in the crusher as a by-product. It was the submission that the assessee had valued the closing stock of iron ore at the crusher site at Rs.Nil, whereas the ld. CIT(A) had directed the same to be valued at the rate of Rs.546.21 per MT. It was submitted by the ld. AR that the AO in the course of assessment had determined the closing stock quantity as on 31.03.2007 at 27706 MT and had adopted a rate of Rs.2450/- per MT and consequently had arrived at the value of closing stock at Rs.6,78,81,195/-. It was the submission that the AO had arrived at the figure of Rs.2450/- by adopting the cost of purchases made by the assessee from MESCO at Rs.875 per MT and to this added the cost of transportation per MT and other incidental cost associated with transportation at Rs.1420/- and also the cost of storage of materials. It was the submission that the assessee had nearly 5852 MT of iron ore fines at closing stock at Paradeep Port site. The assessee had a closing stock of 21978 MT of iron ore fines at the crusher site. It was the submission that the closing stock at the Paradeep Port site of 5852 had been valued at Rs.2000/-. It was the submission that the amount of Rs.2000/- represents the cost of transportation from the crusher site to the Paradeep Port site along with loading and unloading. The cost of 21,978 MT was valued at Nil as it did not have any specific value. It was the submission that, however, for the purpose of valuation of the closing stock the AO had adopted the figure of 2450, whereas the said closing stock at IT(SS)A Nos.29 & 40/CTK/2013 5 the crusher site had not undergone even the process of transportation. It was the submission that on appeal, the ld.CIT(A) adopted an average price of Rs.546.21 per MT. It was the submission that for the purpose of determining the figure of Rs.546.21 per MT, the ld. CIT(A) adopted the value of Rs.2000.71 per MT as disclosed by the assessee and reduced the cost of the fines generated in-house at Rs.1,454.50 per MT to arrive at the figure of Rs.546.21 per MT. It was the submission that the average price of Rs.546.21 adopted by the ld. CIT(A) is erroneous insofar as the iron ore fines at the crusher site being to a volume of 21,978 MT was just a by-product of the crushing activities done by the assessee for the purpose of generation of iron ore. It was the prayer that the addition of Rs.1,20,04,603/- may be deleted. It was also submitted that the said addition represented the valuation of 21,978 MT of iron ore at the crushing premises of the assessee. It was the submission that as no transportation or unloading or loading expenses have been incurred in respect of the said iron ore fines at the crushing site, the valuation as done by the ld. CIT(A) is excessive. 6. In reply, ld. CIT-DR submitted that in respect of deletion of addition of Rs.4,45,48,290/- by the ld.CIT(A) from the valuation of the closing stock of iron ore fines as done by the AO the revenue is in appeal in ground No.1. It was submitted by the ld. CIT(A) that the assessee was subjected to a search and seizure operation on 28.05.2008.The assessee is in the business of trading and export of iron ore. There was non-compliance by the assessee before the AO and no returns were filed by the assessee IT(SS)A Nos.29 & 40/CTK/2013 6 which has resulted into an ex-parte order. It was the submission that as there was no smelting plant in the country for smelting of iron ore fines, the same had been exported by the assessee to China. It was the submission that the seized material i.e. YIPL-9 showed that when Ferro Lumps is processed then iron ore to an extent of 62% is recovered and iron ore fines, which are nothing but powdered iron ore, is derived to an extent of 36%. It was the submission that the AO has done calculation in respect of the said iron ore fines generated by the assessee at 36% of the ferro lumps processed and had also considered the purchase of 1,03,698 MTs of iron ore fines purchased by the assessee from MESCO at Rs.700 to 800/- per MT and after taking into account the sales of iron ore fines, had determined the closing stock of iron ore fines and had valued the closing stock of iron ore fines of nearly 27706 MTs @ Rs.2450/- per MT which was determined by taking into consideration the cost of purchase from MESCO at Rs.700 to 800/- per MT and the transportation cost of Rs.1450/- per MT. It was also submitted that the assessee itself had for the assessment year 2008-2009 valued the closing stock at Rs.935/- per MT and consequently the valuation of the closing stock by the ld.CIT(A) Rs.546.21 per MT was erroneous. It was the submission that the order of the ld. CIT(A) is liable to be reversed and that of the AO to be restored. 7. We have considered rival submissions. A perusal of the assessment order shows that the AO has determined the quantity of the closing stock at 27,706 MT, as against this, the assessee has disclosed a total closing stock of 27,830 MT i.e. 21978 MT at the crushing site and IT(SS)A Nos.29 & 40/CTK/2013 7 5852 MT at the Paradeep Port site. In respect of the stock at Paradeep Port site of 5852 MT, the assessee had adopted a figure of Rs.2000/- per MT. We are going to consider the closing stock on the basis of what has been declared by the assessee because the quantity of closing stock as declared by the assessee is higher than that derived by computation made by the AO. The AO has taken the purchase price from MESCO at Rs.876/- per MT. Obviously when MESCO supplies to the assessee or sells to the assessee, it would include its margin of profit. What is the margin of profit is not known. Therefore, to adopt the purchase price of the assessee and to add to that transportation cost for the purpose of valuation of the closing stock, would not be an appropriate method insofar as the closing stock is to be valued at the cost price or the market price, whichever is lower. A perusal of the assessment order, where the AO has made the computation of the closing stock shows that the assessee has purchased 1,03,698 MT during the relevant assessment year, fines sold is 45000 MT, fine sold at Paradeep Port site is 70154 MT. This itself far exceeds the purchase and clearly the balance of the fines which is lying in the closing stock would have to be presumed to be from the assessee’s own production. Therefore, the assumption of the figure of 2450 being the value of the closing stock of iron ore fines as made by the AO is, admittedly, erroneous. On perusal of the order of the ld. CIT(A) shows that the ld. CIT(A) has applied the average rate of 546.21 per MT in respect of 21,978 MT of iron ore fines at the crusher site. The ld.CIT(A) has not disturbed the valuation of the closing stock at Paradeep Port site as done IT(SS)A Nos.29 & 40/CTK/2013 8 by the assessee at Rs.2000/-. The ld. CIT(A) has determined the amount of Rs.546.21 per MT by determining the net realisable value. This has been done by reducing the valuation of the closing stock of the iron ore fines in respect of such fines which were generated in-house and transported to Paradeep Port. From the valuation of the closing stock of such fines, which were left out of the purchases i.e. Rs.1454.50 per MT is the value of the closing stock of iron ore fines, which was generated in- house and Rs.2000.71 per MT was the value of the closing stock of the iron ore fines, which has been purchased by the assessee. The net realisable value as adopted by the ld. CIT(A) admittedly is one of the scientific method of determining the value of closing stock. Even otherwise, if we consider the purchases as done by the assessee, the same is to an extent of 1,03,698 MT. This purchase has been done at a cost of Rs.5.66 crores, thereby having cost of Rs.545 per MT. This figure is in the close vicinity of the figures adopted by the ld. CIT(A). True, this figure of Rs.545 per MT includes the profit element but then the net result in respect of the said addition is going to be Nil, insofar as this valuation of the closing stock would get adjusted into the value of opening stock in the next year and would also get reduced from the sale price when the same is sold. This being so, we are of the view that the figure of Rs.546.21 as adopted by the ld. CIT(A) is reasonable and his finding on this issue stands confirmed. 8. Without prejudice to the above findings, it may also be worthwhile to mention here that the closing stock is to be valued at the cost price or IT(SS)A Nos.29 & 40/CTK/2013 9 market price whichever is lower. The quantity of 21,978 MT, which is the closing stock, is under dispute in respect of valuation at the crusher site. The cost of the manufacturing of the said 21978 MT if seen would include a cost of Rs.90/- being the transportation charges paid by the assessee to Nesar Hayat for the transportation of the ferro lumps to the crusher site. To this, Rs.90/- must be added cost of processing and the cost of mining which could be best to arrive at Rs.60 to 70/- or to a maximum of Rs.100/- This being so, as the said iron ore fines is at the crushing site, the possible valuation could be about Rs.190/- per MT, but this has not been argued nor presented by the ld. AR of the assessee before us, therefore, we hereby confirm the figure arrived at by the ld. CIT(A) at Rs.546.21 per MT in respect of closing stock of 21978 MT at the crusher site of the assessee. 9. In Ground No.2 of the revenue appeal, the revenue has challenged the action of the ld. CIT(A) in deleting the addition representing the transportation charges made by the AO. It was submitted by the ld. CIT- DR that the AO had noticed that the assessee had claimed Rs.12.14 crores as transportation charges. It was the submission that as per the seized material i.e. YIPL-14, the trucker charges was Rs.1420/- per MT and transportation cost by train was at Rs.200/- per MT. It was noticed that the assessee had made a total transportation of 76026 MT iron ore fines and after taking a conservative view that all the fines have been transported by the truck determined the total expenses to Rs.10,79,56,920/-. The difference of Rs.1,34,41,720/- the AO held to be IT(SS)A Nos.29 & 40/CTK/2013 10 excess expenditure claimed. It was the submission that similarly in respect of the transportation of the ferro lumps from the mines to the crusher, the same was done by Nesar Hayat, who charged about Rs.90/- per MT and as a total tonnage was 76837 MT, the total cost would be Rs.0.69 crores. It was the submission that as it was noticed that the said amount have not been shown by M/s Yazdani International Pvt. Ltd. in its returns of income, the AO had disallowed Rs.0.55 crores as excess expenditure claimed under the head transportation charges. It was submitted that the ld. CIT(A) had deleted the same by holding that there was no adverse finding in respect of the transportation expenses claimed and there was no finding that the bills and vouchers did not exist. It was further submitted that the ld. CIT(A) had deleted the addition holding that TDS have also been made. It was the submission that the powers of the ld. CIT(A) is co-terminus with that of the AO and the ld. CIT(A) ought to have verified the bills and vouchers or directed the AO to have the said bills and vouchers examined. However, the same has not been done by the CIT(A). It was further submission that the order of the ld. CIT(A) is liable to be reversed and that of the AO should be restored. It was further submitted that the ld. CIT(A) has taken a stand that the AO has not found or discussed any deficiencies in the accounts or in the claims made for the transportation expenses. It was the submission that the variation in the valuation of the closing stocks of the fines by the ld. CIT(A) itself shows that there are deficiencies in the books of accounts of the assessee. IT(SS)A Nos.29 & 40/CTK/2013 11 10. In reply, ld. AR vehemently supported the order of the ld. CIT(A). It was submitted by the ld. AR that the ld. CIT(A) had called for remand report twice and in the remand proceedings also no defects had been pointed out and this has also been specifically brought out in the CIT(A)’s order. 11. We have considered the rival submissions. A perusal of the para 5.1 to 5.3 of the AO shows that the AO has considered 76026 MT as being transported. However, a perusal of para 4.4 of the order of the AO in the detail computation in respect of quantification of the closing stock of iron ore fines shows that the iron ore fines sold at Paradeep Port site at 70154 MT and the size 5-18 ore sold is 45052 MT. The transportation charges claimed by the assessee are not just in respect of only fines. It is in respect of finds, lumps and ROM. This presumption adopted by the AO that the transportation charges relate only to 76026 MT of iron ore fines itself is erroneous. This being so, when the very foundation of which the addition has been made is found erroneous, the addition itself is liable to be deleted and we are of the view that the ld. CIT(A) has rightly deleted the said addition. 12. Coming to the issue of transportation charges in respect of the transportation from mines to the crusher the claim of the AO is that M/s Yazdani International Pvt. Ltd. has not disclosed the same. A perusal of the order of the ld. CIT(A) clearly shows that TDS has been deducted. The assessee has also claimed the payment. Just because M/s Yazdani International Pvt. Ltd. has not allegedly shown the amount cannot lead to IT(SS)A Nos.29 & 40/CTK/2013 12 an addition in the hands of the assessee, especially when the expenditure had rightly been claimed and TDS in respect of the same has also been deducted. This being so, we are of the view that the ld.CIT(A) has rightly deleted the addition. 13. In regard to ground No.3, ld.CIT-DR submitted that in this ground the revenue has challenged the action of CIT(A) in deleting the bogus expenditure of ore calibration expenses. Ld. CIT-DR drew our attention to para 6 of the assessment order wherein the AO has mentioned that the assessee has claimed under the head ore calibration expenses an amount of Rs.1.91 crores. It was submitted that out of the said amount an amount of Rs.51.08 lakhs has been debited under the head job work done by Maa Engineering. It was the submission that Maa Engineering is a part of M/s Yazdani International Pvt. Ltd.. It was the submission that M/s Yazdani International Pvt. Ltd. has not shown this amount in its returns and consequently the AO has treated the said expenditure as bogus expenditure. It was the submission that the ld. CIT(A) deleted the same on the ground that this expenditure of Rs.51.08 crores was an amount paid to Maa Engineering, which is an entity under Yazdani International Pvt. Ltd. as the assessee had taken the crusher unit of Maa Engineering on lease. It was the submission that the ld. CIT(A) erred in holding that the said expenditure was not bogus and that Yazdani International Pvt. Ltd. was right in not showing the said income. It was submitted that the order of the CIT(A) is liable to be reversed and that of the AO to be restored. IT(SS)A Nos.29 & 40/CTK/2013 13 14. In reply, ld. AR vehemently supported the order of the ld. CIT(A). 15. We have considered the rival submissions. A perusal of the assessment order shows that the AO has treated the said amount of Rs.51.08 lakhs paid by the assessee to Maa Engineering, which is an entity under Yazdani International Pvt. Ltd. as bogus expenditure because Yazdani International Pvt. Ltd. has not shown the same in its income. A perusal of the ld. CIT(A) order clearly shows that the said amount of Rs.51.08 lakhs is not the income of Yazdani International Pvt. Ltd. but that of Maa Engineering. It is also an admitted fact that the assessee has taken on lease of crusher unit from Maa Engineering and the amount of Rs.51.08 lakhs has been paid as rent for the same crusher unit. This being so, we are of the view that the findings of the ld. CIT(A) recorded in this regard are on right footing and does not call for any interference. Thus, we dismiss this ground of revenue. 16. In the result, both appeals of the assessee and revenue are dismissed. Order dictated and pronounced in the open court on 10/10/2022. Sd/- (अरुण खोड़पऩया) (ARUN KHODPIA) Sd/- (जाजज माथन) (GEORGE MATHAN) ऱेखा सदस्य/ ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 10/10/2022 Prakash Kumar Mishra, Sr.P.S. IT(SS)A Nos.29 & 40/CTK/2013 14 आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : आदेशाि ु सार/ BY ORDER, (Assistant Registrar) आयकर अपीऱीय अधिकरण, कटक/ITAT, Cuttack 1. अऩीऱाथी / The Appellant- M/s Se rajudd in & C o. (P ) Ltd., 7 th Floo r, ‘C ’ W ing, Fortune T o we r, Chandrase kharpu r, Bhubanes war-7510 23 2. प्रत्यथी / The Respondent- ACIT , Ci rc le-1(2 ), Bhubanes war 3. आयकर आय ु क्त(अऩीऱ) / The CIT(A), 4. आयकर आय ु क्त / CIT 5. पििागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 6. गार्ज पाईऱ / Guard file. सत्यापऩत प्रयत //True Copy//