COMMISSIONER OF INCOME TAX BHATINDA vs. M/S JAI BHARATY RICE MILLS FEROZEPUR

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ITA/375/2005HC Punjab & HaryanaPHHC01079890200526 October 2010Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT was justified in deleting the additions. The Tribunal had found that the Assessing Officer failed to furnish any material to show that a discrepancy was actually found in the stock of 1100 bags of paddy. It was also recorded that no physical verification of stock was actually done by the Mandi Board officials. The Court noted that the assessee had maintained complete and audited books of accounts with no specific defects pointed out by the authorities. The admission made before the Punjab Mandi Board officials for compounding the offence did not automatically establish the fact of variation in stock. In the absence of concrete material from the Revenue and the Mandi Board officials, the additions made by the AO were not justified. The Court answered the substantial questions of law against the Revenue.

What were the facts?

The assessee, M/s Jai Bharat Rice Mills, filed its return for assessment year 1998-99 declaring an income of Rs. 72,470. During assessment, it was found that the assessee's rice sheller had a stock of 1100 bags of paddy, valued at Rs. 3,18,175, in excess of what was recorded in its books. The assessee applied for compounding of the offence under Section 46 of the Punjab Agriculture Produce Market Act, 1961, and paid Rs. 17,726 as market fee, RDF, and composition fee. The Assessing Officer (AO) treated the excess stock value of Rs. 3,18,175 as income and made an additional addition of Rs. 93,656 on account of profits from undeclared stocks. The Commissioner of Income Tax (Appeals) upheld these additions. The Income Tax Appellate Tribunal (ITAT) deleted both additions, leading to the present appeal by the Revenue.

What were the issues?

The High Court had to decide two substantial questions of law: 1. Whether the ITAT was legally justified in deleting the addition of Rs. 3,18,175, made by the AO based on evidence collected by the Punjab Mandi Board, including a samjhota fee letter dated 7.1.1997 and another letter dated 5.12.2000. 2. Whether the ITAT was legally justified in setting aside the addition made by the AO based on the assessee's application to the Mandi Board for compounding under Section 46 of the Punjab Agricultural Produce Marketing Act, 1961, for keeping excess stock of paddy. The Revenue argued that the ITAT was not justified in deleting the additions, as they were based on conclusive evidence collected by government agencies and the assessee's own application for compounding an offence. The assessee argued that the additions were not justified as the Revenue failed to provide concrete material to establish the discrepancy in stock, and the Mandi Board officials' physical verification was doubtful. The assessee also relied on ITAT decisions in Jagdish Chander Gupta vs. ACIT and Madras High Court's decision in CIT vs. N Swamy.

Which sections of the Income-tax Act were involved?

Section 46,Section 2(131)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Income-tax Appeal No. 375 of 2005 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- . 375 2005 Income Tax Appeal No of : 26.10.2010 Date of decision The Commissioner of Income Bathinda --- Appellant Versus / . M s Jai Bharat Rice Mills ( ), . Jalalabad W Distt Ferozepur --- Respondent : CORAM ’ . HON BLE MR JUSTICE ADARSH KUMAR GOEL ’ . HON BLE MR JUSTICE AJAY KUMAR MITTAL --- : Present . , . Ms Savita Saxena Govt Standing Counsel . for the appellant --- , . AJAY KUMAR MITTAL J 260 - , This appeal under Section A of the Income tax Act 1961 ( ’ ) for short “the Act ” has been filed by the assessee against the 7.1.2005, , order dated passed by the Income Tax Appellate Tribunal Income-tax Appeal No. 375 of 2005 2 , , ( ) ( ) . Amritsar Bench Amritsar SMC in short “the Tribunal” in ITA No 460/ /2009 1998-99. ASR in respect of the assessment year , Briefly noticed the facts of the case are that the - respondent assessee firm filed its return for the assessment year 1998-99 . 72,470/-. at an income of Rs In the process of , assessment proceedings it came to light that the rice sheller of the respondent had been surveyed by the Punjab Mandi Board on 8.10.1997 1100 , 715 , when a stock of bags of paddy weighing quintals . 3,18,175/- valuing Rs was found in excess as against the stock . shown in the account books of the assessee The assessee confessed its guilt by means of moving an application under Section 46 , 1961 ( of the Punjab Agriculture Produce Market Act for short 1961 ) “ Act” and requested for samjhota/ . compounding the offence , , . 17,726/- The Mandi Board accordingly charged a sum of Rs , / . comprising of market fee RDF and composition samjhota fee Detailed enquiries were thereafter made from the Mandi . Board It was intimated that the assessee had been charged samjhota . 5,000/- . fee of Rs along with market fee and RDF of Rs 6,363/- each on account of samjhota 1100 . of bags of paddy It was explained that physical verification of the firms is done according to Income-tax Appeal No. 375 of 2005 3 , , Registers A B C and D maintained for Food and Supplies . Department whereas Register L is meant for the Market Committee , / / . According to the Board market fee RDF samjhota fee etc are recovered on the valuation of stocks mentioned in the concerned . , registers Working on the above information the assessing officer treated the value of the stocks kept by the assessee out of accounts . as its income and consequently made an addition in the sum of Rs 3,18,175/-, . . i e the value that was determined in the form of samjhota. . Another addition was also made in the sum of Rs 93,656/- on account of profits earned by the assessee from the 1100 . undeclared stocks of paddy of bags The assessee carried appeal challenging the orders . - passed by the assessing officer The Commissioner of Income tax ( ) { ( ) }. ( ) Appeals in short “CIT A ” The CIT A upheld the additions made . by the assessing officer and dismissed the appeal The assessee - , filed further appeal before the Income tax Appellate Tribunal Amritsar , ( ). Bench Amritsar in short “the Tribunal”

The Tribunal vide its order 7.1.2005,

. dated deleted the additions made by the assessing officer

Income-tax Appeal No. 375 of 2005 4

It is how the Revenue has preferred this appeal claiming

that the following substantial questions of law arise for the

: consideration of this Court 1-

Whether the ITAT is legally justified in deleting the

. 3,18,175/-

addition of Rs made by the Assessing Officer

. on account of conclusive evidence collected by the Govt

Agencies of the Punjab Mandi Board vide Samjhota Fee

8.1.

1997

. 7/3931 letter dated and letter No dated 5.12.2000

-1 - . attached as Annexure P and P II 2-

Whether the ITAT is legally justified in setting aside the

addition made by the Assessing Officer on the basis of an

application made by the assessee to the Mandi Board for

46

compounding under Section of the Punjab Agricultural

, 1961

Produce Marketing Act for composition of his offence

of keeping excess stock of paddy as compared to stocks

. shown in its books of accounts ”

We have heard learned counsel for the appellant and

. have perused the record

,

The point that arises for consideration is whether the

addition was liable to be sustained merely on the ground that the Income-tax Appeal No. 375 of 2005 5

assessee had agreed to compound the offence on payment of (

)

compromise fee Samjhota fee with the Punjab Mandi Board under 46

1961 .

, Section of the Act In order to appreciate this question it

would be appropriate to first reproduce the findings of the Tribunal

,

: where the aforesaid deduction was deleted which are as under “

I have heard both the parties and given my thoughtful

consideration to the rival submissions with reference to ,

.

facts evidence and material on record I have also

referred the relevant pages of the paper book to which my

.

attention was drawn The undisputed fact is that the

, assessee had maintained complete books of accounts

.

which were also audited No specific defects have been

pointed out in the books of accounts by the authorities .

below The impugned additions have been made purely

by relying on the inspection carried out by the Punjab

.

Mandi Board Officials It is also true that the assessee

. , paid samjhota fee to the Mandi Board Officials However

the AO has not been able to confront the specific material

indicating that quantity of the stock actually found by the

.

, Inspection Team was as per books of accounts In fact

Income-tax Appeal No. 375 of 2005 6

the Mandi Board Officials had carried out physical

verification in the form of physical counting of the stock is

also doubtful and no such information and material has

been furnished either by the AO or by the Mandi Board .

Officials In fact the assessee has repeatedly requested

the ASO to furnish such information and even to call for / 131

. the information u s of the Income Tax Act Such

.

request has not been complied with The assessee has all

alone denied any discrepancy in the stock found by the

.

Mandi Board Officials The assessee had further

vehemently submitted that no physical verification of stock

. was actually carried out by the Mandi Board Officials ,

Therefore the onus was on the Revenue to establish with

the evidence that the Mandi Board Officials had actually

1100

carried out such inspection and stock of bags of

.

paddy was found in excess No material has been

.

furnished by the AO even before me The Revenue has

not placed any material to show actual discrepancy that

1100

was found about bags as pointed out by the Mandi

. ,

Board Officials Thus in the absence of any such Income-tax Appeal No. 375 of 2005 7 ,

, ’ impugned additions ”

The Tribunal on appreciation of evidence came to the

conclusion that the Assessing Officer had failed to furnish any

material which could show that actually any discrepancy was found in 1100

respect of bags of paddy which were said to have been in .

excess It was further recorded that no physical verification of stock

Income-tax Appeal No. 375 of 2005 8

.

was actually done by the Mandi Board Officials The said finding has

not been shown to be perverse one by the learned counsel for the .

,

Revenue In fact a finding had been recorded that the assessee had

maintained the books of accounts which had been audited and no

. defect was found in the said books by the authorities

,

In the light of the above the substantial questions of law

are answered against the Revenue and the appeal is accordingly . dismissed (

) AJAY KUMAR MITTAL JUDGE (

) ADARSH KUMAR GOEL 26, 2010 October JUDGE * * rkmalik

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