CIT, PATIALA vs. M/S R.K. RICE MILLS

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ITA/765/2008HC Punjab & HaryanaPHHC01080789200831 July 2009Author: MR. JUSTICE ADARSH KUMAR GOEL,MRS JUSTICE DAYA CHAUDHARY6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the view taken by the ITAT was on appreciation of evidence and was not shown to be perverse. The ITAT had reasoned that the AO's additions were made without pointing out any mistake in the assessee's books of account or stock register. The AO assumed that the yield shown by comparable cases ought to have been shown by the assessee, without any other justification, and no suppressed sales or inflated purchases were found. Regarding the stock difference, the ITAT noted that the original stock statement from the bank was not produced, and the assessee was not allowed to cross-examine bank officials. The ITAT gave preference to the assessee's stock register, which was also verified by Excise authorities, over the photocopy of the bank statement. The Court concluded that an appeal under Section 260A is permissible only on substantial questions of law, and if two views are possible, the Tribunal's view cannot be held to be perverse. Therefore, no substantial question of law arose.

What were the facts?

The Revenue (Commissioner of Income-Tax, Patiala) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 1997-98. The ITAT had deleted additions made by the Assessing Officer (AO) to the assessee's (M/s R.K. Rice Mills, Rajpura) declared income. The AO had rejected the assessee's books of accounts and made additions on grounds of suppressed yield of products and by-products, low yield of rice and other by-products from paddy milled belonging to government agencies, and a difference in the value of hypothecated stock versus book stock. These additions were initially upheld by the CIT(A) but later deleted by the ITAT. The High Court was considering the revenue's appeal on proposed substantial questions of law.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the ITAT was justified in deleting the addition of Rs.1,21,943/- on account of suppression of yield of various products and by-products of paddy milled, given the assessee's failure to maintain records and rejection of its books of accounts. 2. Whether the ITAT was justified in deleting the addition of Rs.3,94,075/- on account of low yield of rice and other by-products from paddy milled belonging to Government agencies, considering the assessee had not maintained any stock register for it. 3. Whether the ITAT was justified in deleting the addition of Rs.9,73,620/- on account of the difference between the value of Basmati stock hypothecated with the bank and the 'nil' stock shown in the assessee's books, given the admitted malafide intention of the assessee. 4. Whether the ITAT's decision deleting the AO's additions was perverse and bad in law. Contentions: Assessee: The ITAT's findings were based on appreciation of evidence and were not perverse. The AO's inferences were without justification, no suppressed sales or inflated purchases were found, and the assessee was not allowed to cross-examine bank officials regarding stock verification. The stock register maintained by the assessee, which was also verified by Excise authorities without pointing out mistakes, should be preferred over a photocopy of a bank stock statement where the original was not produced. Revenue: The AO was justified in making additions due to the assessee's failure to maintain records, rejection of books of accounts, and discrepancies in stock. The AO's comparison with other rice shellers' yields was a valid basis for addition. The assessee exhibited malafide intention regarding stock valuation.

Which sections of the Income-tax Act were involved?

Section 260A

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Cited by 4 judgments on BharatTax

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 765 of 2008 (O&M) Date of decision: 31.7.2009 The Commissioner of Income-Tax, Patiala. ......Appellant Vs. M/s R.K.Rice Mills, Rajpura ...Respondent CORAM:- HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MRS.JUSTICE DAYA CHAUDHARY PRESENT: Mr.Rajesh Katoch, Advocate, for the revenue. **** ADARSH KUMAR GOEL, J. (Oral)

1.

The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (for short, “the Act”) against the order dated 31.3.2008 passed by Income Tax Appellate Tribunal, Chandigarh, Bench “A” passed in ITA NO. 117/Chandi/2007 in the case of M/s R.K.Rice Mills, Rajpura v. Income Tax Officer, Rajpura for the assessment year 1997-98, proposing to raise the following questions of law: 1. “Whether on the facts and in the circumstances of the case, the ITAT was justified in deleting the addition of Rs.1,21,943/- made by the AO on account of suppression of yield of various products and by products of paddy milled, ignoring the fact that the assessee had failed to maintain record on this account and that the books of accounts had been rejected.?”

ITA No. 765 of 2008 -2- 2. “Whether on the facts and in the circumstances of the case, the ITAT was justified in deleting the addition of Rs.3,94,075/- made by the AO on account of low yield of rice and other by products from paddy milled belonging to Government agencies ignoring the fact that the assessee had not maintained any stock register for the same.?” 3. “ Whether on the facts and in the circumstances of the case, the ITAT was justified in deleting the addition of Rs.9,73,620/- made by the AO on account of difference in the value of stock of Basmati hypothecated with the bank and depicting “nil” stock in the books of accounts of the assessee ignoring the admitted malafide intention exhibited by the assessee. ?” 4. “Whether the decision of the Tribunal deleting the additions made by the AO is perverse and bad in law and without application of mind?”

2.

The Assessing Officer made addition to the declared income by rejecting the books of accounts. It was held that the assessee had not maintained separate details of yield of rice in respect of paddy milled owned by it and the yield of paddy milled belonging to FCI and PUNSUP.

ITA No. 765 of 2008 -3- The assessee had not kept the record for driage of paddy. The assessee declared different quantity of stock in different records. The AO after making comparison of the result of the assesee with the results of other rice shellers, made addition on account of suppression of yield of rice bran, phuck and phoose. Similar addition was made in respect of suppression of yield of rice bran, phuck and phoose obtained out of the paddy owned by PUNSUP and FCI and addition was also made on account of investment from undisclosed source in purchase of paddy, difference in the stock statement maintained by the assessee and in the stock statement furnished to the bank. The additions were upheld by the CIT(A). However, the Tribunal set aside the order of the CIT(A) and remitted the matter back to the file of CIT(A). On second round, CIT(A) reiterated its earlier order. On further appeal, the Tribunal upheld the claim of the assessee. The reasons given by the Tribunal are that there was no material to show suppressed sales or inflated purchase and the inference drawn was without any justification. The assessee was not given liberty to cross-examine the bank officials who claimed to have verified the stock. The observations of the Tribunal are as under: “It is unbelievable that all the eight parties mentioned by the Assessing Officer were having the same percentage of yields i.e. The yields taken into consideration by the Assessing Officer were at 65%, 2.5%, 5%, 2% and 20.5% in respect of rice, nakoo, rice

ITA No. 765 of 2008 -4- bran, phack and phoose respectively while respective yields shown by the assessee were at 64.10%, 3.7%, 3.21%, 2.0% and 22%. It is noticed that the Assessing Officer without pointing out any mistake in the books of account maintained by the assessee and the stock register, made the addition by assuming that the yield shown by the comparable case ought to have been shown by the assessee. No other reason has been given for making the addition. In our opinion, the Assessing Officer was not justified in making the addition particularly when no suppressed sale was found and no inflated purchase was noticed by the Assessing Officer in the books of account maintained in regular course of business, by the assessee therefore the addition made by the Assessing Officer and sustained by the ld. CIT(A) was not justified.” xx xx xx xx xx xx xx xx “The assessing officer on the basis of photocopy of the stock statement, came to ITA No. 765 of 2008 -5- the conclusion that the assessee was having 732.21 qtls stock of paddy basmati as on 31st March, 1997 while the stock was shown 'nil' in the books of account. However, the original stock statement was not brought on record and even the Assessing Officer did not allow the assessee to cross examine the bank officials who claimed to have verified the stock as on 31st March, 1997. In the instant case, the Assessing Officer did not point out any mistake in the books of account maintained by the assessee. The method of accounting was followed consistently by the assessee and there was no change in the method of accounting, no instance of suppressed sale was pointed out by the Assessing Officer. In such type of cases, the stock register is the subject matter of verification by the Excise authorities, in the present case, the said authorities had also not pointed out any mistake in the stock register maintained by the assessee. Therefore, preference was to be given to the stock register in comparison

ITA No. 765 of 2008 -6- to the photocopy of stock statement received by the Assessing Officer from the bank, particularly when original copy of that stock statement was not furnished at any stage.”

3.

The above observation shows that the view taken by the Tribunal was on appreciation of evidence and is not shown to be perverse. Appeal under Section 260A of the Act is permissible only on substantial questions of law. If two views are possible, the view taken by the Tribunal cannot be held to be perverse.

4.

No substantial question of law arises.

5.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE (DAYA CHAUDHARY) July 31, 2009

JUDGE raghav Note: Whether this case is to be referred to the Reporter? ........Yes/No

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