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Facts
The assessee, engaged in mining activities, declared income in its return. During reassessment proceedings under Section 147, the Assessing Officer (AO) did not consider the claim of loss of stock and assessed a higher income. The issue pertains to the valuation of closing stock which was suspended due to mining activities being stopped and the stock being impounded.
Held
The Tribunal held that the authorities below used the word 'seized' incorrectly, as the mining activities were only suspended and there was no seizure of stock. The ownership of the stock remained with the assessee as of 31.03.2011, and it should have been valued in the books of accounts.
Key Issues
Whether the closing stock, whose mining activities were suspended and stock impounded, should be valued and considered as part of income, and whether the term 'seized' was correctly applied by the lower authorities.
Sections Cited
147, 143(3), 143(2), 148
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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. SOUNDARARAJAN K
Per Laxmi Prasad Sahu, Accountant Member :
This is an appeal filed by the assessee against the Order passed by the learned CIT, Gulbarga, vide Order dated 29.03.2019.
Briefly stated facts of the case are that assessee is engaged in mining activities in Gulbarga area, filed return of income on 28.11.2012 declaring taxable income of Rs.1,98,72,650/ which was admitted-. The reassessment u/s 143(3) r.w.s. 147 was completed on dated 21.12.2018 wherein the AO has not considered the claim of loss of stock amounting to Rs. 1,32,26,706 and assessed the income at Rs. 3,40,96,250-. A notice under section 143(2) of the Act dated 29.11.2012 was issued and served to the assessee and assessment was made on 14.02.2013 assessing income at Rs. 3,30,99,354/- as against income admitted of Rs.1,98,72,650/- . The search and seizure operation was Page 2 of 10 conducted in the case of the assessee on 28.09.2010. Accordingly, statutory notices were issued to the assessee. During the course of search, assessee offered Rs.12 lakhs as unexplained investment income towards excess jewellery found. Assessee furnished details and from the details, it was observed from the P&L A/c that there is opening stock of Rs.10,54,06,116/- and there is no closing stock. There is comment of the tax auditor in Form 3CB which is as under:
During the course of assessment proceedings, AR was asked to provide details as to why closing stock was not reflected in the return of income filed and why should not be added to the income of the assessee. Assessee filed details on 29.12.2012 which is as under:
From the submissions, the AO observed that the stock is seized by Department of Mines and Geology. Therefore, it is not appearing in the P & L A/c. The learned Counsel reiterated the submissions made before the lower authorities and referred to letters issued by the various officers and he referred to English translation of the letter issued by the Mining and Geological Department dated 22.03.2011 and 04.11.2011 issued by the Range Forest Officer. He referred to letter issued by Deputy Director, Mining and Geological Department dated 22.03.2011 and submitted that stocks were seized by the Mines Department before closure of year. Therefore assessee
On the other hand, learned DR strongly relied on the Order of Hon’ble Apex Court and stated that the Hon’ble Apex Court decided the issue on 29.07.2011 as per his written synopsis and as per the classification assessee is coming under “C” category mines. Further he submitted that the judgment of the Hon’ble Apex Court was delivered on 22.07.2011 which is much later of the end of the Financial Year. Therefore in the letter issued by the Mines Department, there is no reference of the confiscation / seizure of the stock value as on particular date. The judgment of Hon’ble Apex Court will be effective from the date of pronouncement and as per the classification of the judgment assessee is under “C” category so the entire stock was seized. The effect of this judgment of the Hon’ble Apex Court will be in Financial Year 31.03.2011 and he further submitted that valuation of stock calculated by the AO is wrong. He relied on the judgment of Hon’ble Supreme Court in the case of Maddi Venkataraman and Co. (P.) Ltd., Vs. CIT [1998] 96 Taxman 643 (SC). The shortage / excess shown there is no explanation offered by the assessee in for quantity of 51,151 and requested that the matter may be sent back to the AO for fresh valuation of the stock lying at the site. He further submitted that both the authorities as well as CIT(A) has used wrong word ‘seized’ which is emanating in the list issued by the Forest Department and Mining and Geological Department and submitted that the case law relied on by the learned Counsel is not applicable to the present facts of the case.
Considering the rivals submissions we noted that the assessee is engaged in mining activities and filed return of income. The case of the assessee was completed under section 143(3) r.w.s. 147 dated 21.12.2018 wherein the AO has not considered the claim of loss of stock amounting to Page 5 of 10 Rs.1,32,26,706/-. Accordingly, notice under section 148 of the Act was issued to the assessee. In response to notice, assessee has filed original return of income which was made on 14.02.2013 wherein income was determined at Rs.3,30,99,344/- as against the income admitted of Rs.1,98,72,650/- while filing original return assessee claimed loss of stock amounting to Rs.1,32,26,706/-. On going through the submissions made by the learned Counsel and letter issued by the Range Forest Officer dated 04.03.2011, letter Deputy Director, Mining and Geological Department dated 22.03.2011 and letter issued by Deputy Conservator of Forests dated 24.03.2011, reproduced below, we did not find anywhere that the stocks lying at site were seized by the above Departments before 31.03.2011.
However, assessee has claimed loss of stock. As per the written submission of the DR we noted that there is purchase of 204693 metric tonne Page 9 of 10 of iron ore and sale of iron ore is 102293 metric tonne. So closing stock of iron ore should be 102400 metric tonne. However the value is taken as Nil which is not correct. As per the tax audit report, we observed that assessee is maintaining accounting method and merchantile system of accounting. We noted from the financial statement that purchase price of the iron ore is 10,54,06,116/- for 204693 metric tonne. Therefore purchase price is 514.95 per metric ton. How the AO has taken value of Rs.1,32,26,706/- and there is no explanation furnished by the assessee regarding loss of stock. We further noted that Order of Hon’ble Apex Court was pronounced on 29.07.2011. Therefore effect of judgment of Hon’ble Apex Court will not affect to the closing of Financial Year as on 31.03.2011 and both the authorities below have used word ‘seized’ which is not emanating anywhere from the list produced by the assessee noted supra. Only the mining activities were suspended. Assessee was doing mining activities outside the lease area granted. In this regard on 24.03.2011 assessee was issued letter and it was asked explanation and further directed not to transport ore stock and to maintain status quo. But t here is no seizure of stock. Therefore ownership was lying upon the assessee as on 31.03.2011. Assessee should have been shown the value of closing stock in his books of accounts.
Considering the totality of facts, we are remitting this issue back to the file of AO for denovo reassessment and assessee is directed to substantiate his case with cogent documents and not seek unnecessary adjournments for early disposal of the assessee. In case of failure, no second leniency shall be granted to the assessee.