STANDARD GRANITES,SIVAKASI vs. ITO, WARD-3,, VIRUDHUNAGAR

The brief facts of the case emanating from the records are that the assessee is a partnership firm, carrying on quarry and related business in earlier

However, the AO disregarded the merger explanation on the basis that there was no proof of surrender of the PAN of the assessee, 26AS reflecting the transaction of royalty as well as small interest from SBI and SMI profit and loss account did not separately shown the TCS of Rs.6,40,000/- and concluded the assessment by making an addition of Rs.3.20 crores as unexplained investments u/s.69 of the Act by passing an order u/s.144 r.w.s. 147 of the Act dated 30.30.2022.

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A) and reiterated the facts which were explained and

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee assailing the action of the ld.CIT(A), submitted that both the authorities have erred in making the addition of Rs.3.2 crores though the assessee has completely explained the transactions which have been already declared by SMI in its return of income. In support of his argument, the ld.AR submitted a paper book containing 20 pages consisting of supplementary deed of partnership executed in favour of SMI, certificate of registration under VAT Act of SMI, complete set of ITR for the AY 2015-16, Profit and loss account and Balance sheet, revised Form 26AS of SMI along with original and revised Form 26AS of the assessee (Standard Granites). Further, the ld.AR stated that pursuant to the sale of business of the assessee to SMI as per the supplementary partnership deed (page Nos.1 to 4 of the paper book), the business of the assessee has been transferred and the same has been registered as branch of SMI (page Nos.5 and 6 of the paper book). Hence, the assessee has not carried out any commercial activity or transaction from the AY 2003-04. However, the ld.AR submitted that the PAN of the assessee inadvertently has not surrendered. The impugned transaction of Rs.3.2 crores of royalty paid to the department of Geology & Mining has been properly recorded in the books of SMI and claimed as an expenditure along with the TDS. However, initially the department of Geology & Mining has wrongly quoted the PAN of the assessee while uploading their TCS return, and hence, the amount of Rs.6,40,000/- of TCS has been shown erroneously in the Form 26AS of the assessee. During the proceedings before the authorities, the assessee had demonstrated by furnishing the original and revised Form 26As of the

Per contra, the ld.DR supported the orders of the authorities and stated that the assessee has not surrendered the PAN and hence the assessee is liable to file the return of income.

We have heard the rival submissions and perused the materials available on record and gone through the orders of the authorities along with the paper book filed by the assessee. The sole issue for our consideration is whether the addition of Rs.3,20,00,000/- made by the AO u/s.69 of the Act, on the basis of the royalty transaction reflected in Form 26AS of the assessee, is sustainable.

From the records, it is noticed that the assessee has consistently contended that pursuant to the supplementary partnership deed, its quarry and mining business stood merged with M/s. Sivakami Match Industries (SMI) and that the said business was being carried on by SMI from the earlier years. The assessee has placed on record the supplementary partnership deed, VAT registration details showing Standard Granites as a branch of SMI, the return of income of SMI for the relevant assessment year, audited financial statements, and the original as well as revised Form 26AS of both the assessee and SMI.

The assessee's specific explanation is that the royalty payment of Rs.3.20 crores made to the Department of Geology and Mining pertained to the business carried on by SMI and that, due to an inadvertent error in quoting the PAN by the Department while filing the TCS statement, the transaction initially appeared in the Form 26AS of the assessee. It is further claimed that the error

We find merit in the contention of the assessee that a mere reflection of a transaction in Form 26AS, by itself, cannot conclusively establish that the income or expenditure pertains to the assessee, particularly when documentary evidence has been produced to demonstrate that the transaction belongs to another taxable entity. At the same time, the claim of the assessee requires proper factual verification from the records of SMI. The primary concern of the Revenue is to ensure that the royalty expenditure of Rs.3.20 crores has been duly accounted for in the books of SMI and that the corresponding transaction has been considered while computing its taxable income, so that there is no loss of revenue. If the said royalty payment has already been recorded in the books of SMI, reflected in its return of income and corresponding Form 26AS, then taxing the very same amount again in the hands of the assessee would result in an unwarranted duplication.

In the interest of justice, we deem it appropriate to restore this limited issue to the file of the Jurisdictional Assessing Officer(JAO). The JAO shall verify the claim of the assessee from the records of M/s.Sivakami Match Industries, including its return of income, audited financial statements, Form 26AS and other relevant records, and ascertain whether the royalty amount of Rs.3.20 crores has already been accounted for by SMI and duly considered for tax purposes. If, upon such verification, the JAO finds that the royalty amount of Rs.3.20 crores, which formed the basis of the impugned addition, has already been accounted for by SMI and is reflected in its Form 26AS and books of account, the addition made in the hands of the assessee shall be deleted. However, if the claim of the assessee is found to be incorrect or not supported by the records of SMI, the JAO shall be at liberty to proceed in accordance with law after affording adequate opportunity of being heard to the assessee.

In the result, the appeal of the assessee is allowed for statistical purposes.