CIT-I LUDHIANA vs. M/S SUPER TECH AGRO OILS PVT. LTD.

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ITA/462/2010HC Punjab & HaryanaPHHC01093398201005 October 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the findings of the CIT(A) and the Tribunal were based on appreciation of evidence and were not perverse. It was observed that the sale figure shown by the assessee was in excess of the material recorded in the books of account, meaning the income declared was more than the material recorded. Even if there were deficiencies in the books, which might raise suspicion, any addition must be justified on a proper basis. When the sale figure was higher than the figure of raw material recorded or inferred, the CIT(A) and the Tribunal were justified in holding the addition to be unjustified. The Court found no substantial question of law arising for consideration. The appeal was dismissed. The specific findings on issues (i) and (ii) were that the additions were unjustified as the assessee's explanation regarding reprocessing was accepted and the AO's inferences were not supported by evidence. The judgment does not explicitly detail the reasoning for issue (iii) regarding Section 80IB, but it was implicitly covered by the overall dismissal of the appeal, suggesting the ITAT's decision on this point was also upheld.

What were the facts?

The Revenue (Commissioner of Income Tax) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2005-06. The ITAT had deleted additions made by the Assessing Officer (AO) to the income of the assessee, M/s Super Tech Agro Oils Pvt. Ltd., a manufacturer of ghee and washing soap. The AO had made additions on account of alleged unexplained investment in raw palm oil purchase and unrecorded sales, as well as for a difference in closing stock treated as unrecorded sales. The assessee contended that certain quantities of refined palm oil were used for reprocessing (deodorization) and not sold outside the books. The AO's inferences were based on quantitative details in the audit report, which the assessee argued were consolidated and presented differently.

What were the issues?

1. Whether, in the facts and circumstances, the ITAT was justified in deleting the addition of Rs.1,00,93,691/- made by the AO on account of unexplained investment in the purchase of 227900 kgs of raw palm oil and unrecorded sales of the same quantity, turning on Section 69 of the Income Tax Act, 1961. 2. Whether, in the facts and circumstances, the ITAT was justified in deleting the addition of Rs.8,17,948/- made by the AO on account of a difference of 18468 kgs of closing stock, which was treated as unrecorded sales, turning on Section 69 of the Income Tax Act, 1961. 3. Whether, in the facts and circumstances, the ITAT was justified in allowing the deduction under Section 80IB amounting to Rs.31,32,567/-, which was disallowed by the AO, turning on Section 80IB of the Income Tax Act, 1961. Assessee's Contentions: The assessee argued that the refined palm oil was used for reprocessing (deodorization) and not sold outside the books. They maintained that their stock records, maintained as per Excise Laws and subject to departmental inspection, reconciled the quantitative details. The AO's inferences were not supported by concrete evidence and were based on a misunderstanding of consolidated figures. The AO failed to point out any specific instance of purchase or sale outside the books. The auditors themselves considered sales of only 700954 kgs of refined palm oil in the books. Revenue's Contentions: The revenue contended that the ITAT was not justified in deleting the additions made by the AO, implying that the AO's findings regarding unexplained investment and unrecorded sales were valid.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 69,Section 80IB

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

Date of decision: 5.10.2010 Commissioner of Income Tax. -----Appellant. Vs. M/s Super Tech Agro Oils Pvt. Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Rajesh Katoch, Standing Counsel for the appellant. --- ADARSH KUMAR GOEL, J.

1.

This appeal has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order dated 16.9.2009 of the Income Tax Appellate Tribunal, Chandigarh in I.T.A. No.1045/Chandi/2008 for the assessment year 2005-06 proposing to raise following substantial questions of law:- “(i) Whether in the facts and circumstances of the case, the Hon’ble ITAT is justified in law in deleting the addition of Rs.1,00,93,691/- made by the Assessing Officer on account of unexplained investment in the purchase of 227900 kgs of raw palm oil and unrecorded sales of the same quantity? (ii) Whether in the facts and circumstances of the case, the Hon’ble ITAT is justified in law in deleting the addition of Rs.8,17,948/- made by the Assessing Officer on account of difference of 18468 kgs of the closing stock which was treated as unrecorded sales? (iii) Whether in the facts and circumstances of the case, the Hon’ble ITAT is justified in law in allowing the deduction u/s 80IB amounting to Rs.31,32,567/-, which was disallowed by the Assessing Officer?”

2.

The assessee is engaged in manufacturing of ghee and washing soap. During assessment, the Assessing Officer found deficiencies in the details of raw material, quantum of work in progress and finished products. On the basis of inference drawn, addition was made to the declared income of the assessee. On appeal, the addition was set aside which was affirmed by the Tribunal. It was held that even if there were deficiencies, addition could be justified only on some basis and inference drawn was not justified on facts. The findings recorded by the CIT(A), inter-alia, are as under:- “I have carefully considered the contention of the learned counsels for the appellant and perused the relevant record. This issue being disputed, in this case is that whereas the appellant has explained that it had utilized 227900 Kgs. of Refined Palm Oil, out of 237677 Kgs. of imported palm oil, purchased from the market in the “work in progress” for producing refined palm oil to be used for its in house consumption or sale to outside parties, the Assessing Officer is of the view that the imported refined palm oil claimed to be purchased as above, was sold by the appellant outside the books of account and that in the WIP, the appellant had used other crude palm oil which was purchased outside the books of account. It is explained by the appellant that the refined palm oil was initially taken to finished goods section and recorded in the finished goods record as per the Excise Laws. However, to remove foul smell from the refined palm oil, deodorization process had to be carried in refining section by transferring 2,27,900 Kgs of this oil out of total of 2,37,677 Kgs purchased by it. This contention of the appellant has somehow not been accepted by the Assessing Officer for the reasons discussed in the assessment order and which have also been discussed in the preceding paras. Though apparently, the Assessing Officer has sought to make out the case that this explanation of the appellant is not justified, the inference drawn by the Assessing Officer is somehow not supported by any evidence brought on record. The Assessing Officer has apparently drawn that inference just on the basis of certain entries as per the quantitative details given in various annexures of the Audit report filed with the return of income of the appellant. As already mentioned, the Assessing Officer has brought out in the assessment order some of these details in the form of different tables. Though, in the ordinary course, the Assessing Officer could be said to be fully justified in drawing some inference on the basis of the facts and figures given by the appellant itself, in the documents filed with the return of income, it was explained before me that these details did reflect the correct position and that discrepancy had come up on account of reporting quantitative position in slightly different manner. In my opinion, this explanation of the appellant could not be rejected summarily and without bringing on record certain concrete evidence. The Assessing Officer has made very serious allegations against the appellant in as much as the appellant had sold goods worth Rs.1 crore outside the books of account. However, as rightly pointed out in the written submissions of the appellant, except for the details given in the quantitative tallies filed with the return of income, the Assessing Officer could not point out a single instance where the appellant has been found to have purchased or sole certain goods outside the books of account.

In the written submissions of the appellant, which have been reproduced above, by the learned counsel, the complete stock tally of WIP and refined palm oil has been given. These details have been worked out keeping in view the contention of the appellant that 2,27,900 Kgs. of refined palm oil was taken in the WIP for reprocessing on account of deodourisation out of finished goods section. Even in the assessment order in Table-III brought out on page 4 of the assessment order where quantitative details of finished products third stage have been given, in the column. For sales, the words “sale/reprocess” have been mentioned by the Assessing Officer himself also. This rather supports the case of the appellant in as much as the figure shown against this column is not only in respect of sales, but include the figures in respect of reprocessing also. As per these details given by the appellant and which have been reproduced above, if quantitative details are worked out by considering 227900 Kgs. of refined palm oil to have been taken into WIP, the entire quantitative details are reconciled. Keeping in view the above position, the contention of the appellant that the figures given in the Audit Report were consolidated ones without splitting the same between the refined oil converted from purchased crude palm oil and the refined oil obtained from reprocessing of purchased refined palm oil to remove bad smell, appears to be correct.

As already mentioned, it has been the consistent contention of the appellant both before the Assessing Officer and during the appeal proceedings that the complete quantitative stock tallies and stock records are maintained by the appellant under the Excise Laws. This is so because the items dealt with by the appellant are subject to Excise Department’s checking. No defect in this record is stated to have been found either by the Excise Deptt or by the Assessing Officer. There is considerable force in the contention of the appellant that in the absence of any such defects having been found, the inference drawn by the Assessing Officer could not be justified.

Further, the appellant has claimed that 237677 Kgs. of imported refined palm oil was purchased by the appellant from M/s Gokul Refoils and Solvent Ltd., Abohar. The appellant had in its possession complete record which is also stated to have been produced before the Assessing Officer, with regard to purchase and subsequent transportation of this oil from Abohar to Ludhiana. As already mentioned the oil so purchased was duly accounted for in the relevant stock record maintained as per the excise Department requirements. From the stock records, it is duly verifiable that this refined palm oil was taken to be WIP. These records are maintained in form RG- 23A Part-1 and RGI Daily stock account register prescribed under the excise laws. The refined palm oil is shown to be first received and entered in the relevant form RG 23A Part 1 for imported refined palm oil. Out of this, this oil is shown to have been taken to stock register of crude palm oil (work in progress). The movement of the refined palm oil from RG23A Part-I to stock register is duly verifiable with reference to dates of purchase and quantity etc. Further, out of crude palm oil “work in progress”, the oil is taken to stock register maintained for refined palm oil which is as per the Excise Laws. Once the receipt of refined palm oil from Abohar, its movement from imported refined palm oil section to WIP section and then WIP section to refined palm oil section in the daily stock account register is duly verifiable from the record and which record is subject to regular inspection by the Excise Deptt. There is apparently no ground for taking a stand different from the explanations given by the appellant’s counsel.

Further the Assessing Officer has considered from the details given by the appellant in the quantitative details filed with Audit Report, that the appellant had sold refined palm oil at 928853 Kgs. However, as already explained, the contention of the appellant is that these figures included 227900 Kgs. of refined palm oil which was sent for reprocessing and not sold, as considered by the Assessing Officer. The account of the appellant are audited. The quantitative details replied upon by the Assessing Officer are also somehow given and certified by the Auditors only. Therefore, if as per these details the appellant was found to have sold 928853 Kgs. of refined palm oil as against that of 700954 Kgs. claimed by the appellant, the Auditors in my opinion, could not carry out the audit in the absence of details of sales of 227900 Kgs. In the absence of details of alleged sales of 227900 Kgs. outside the books of account which are otherwise, taken into account in the quantitative details given by the same Auditors, in my opinion, no Auditor could complete the audit because this position could not be reconciled in any manner. However, as the Auditors themselves have considered the sales of 700954 Kgs. of refined palm oil only in the books of account of the appellant, the contention of the learned counsels deserves to be accepted from that point of view also.

Further, as already mentioned and contended by the learned counsels also, the Assessing Officer could not point out any single instance of any sales or purchase made by the appellant outside the books of account. In the absence of such evidence, the ratio of decisions including the decision of the Hon’ble Juri ictional High Court in the case of K. C. Malhotra (supra) relied upon by the learned counsels, would go in favour of the appellant only.

Keeping in view the above discussed position, I am unable to agree with the line of thinking of the Assessing Officer and unable to persuade myself. The aid of Rs.1,00,93,691/- made by the Assessing Officer is, therefore, deleted. This ground of appeal is, therefore, allowed.”

3.

The above findings have been affirmed by the Tribunal.

4.

We have heard learned counsel for the appellant.

5.

It is clear from the findings concurrently recorded by the CIT(A) as well as the Tribunal that figure of sale shown by the assessee was in excess of figure of material recorded in the books of account. Thus, income declared was more than the figure of material recorded in record. Even if there may be deficiencies in the books of account, which may give rise to suspicion for making addition, inference has to be justified on same basis. When the sale figure was higher than the figure of raw material recorded in the books of account or inferred, the CIT (A) and the Tribunal could certainly hold the addition to be unjustified. The findings recorded are based on appreciation of evidence and are not shown to be perverse.

6.

No substantial question of law arises for consideration.

7.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE October 05, 2010 ( AJAY KUMAR MITTAL ) ashwani JUDGE 8

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