KIRAN INDUSTRIES, ,KARIMNAGAR vs. INCOME TAX OFFICER, WARD-1, KARIMNAGAR

In response to the notice the assessee contended before the Assessing Officer (vide letter dated 06.11.2015) wherein the assessee explained as under: “The assessee is commission agent, and purchases the maize for others mainly to Cargil India Pvt Ltd., Secunderabad & Bangalore and Bengani Food Products, Kolkatta to some extent. The assessee firm purchases the maize on behalf of the principal / consignor and keep the same stock in different godowns. When the stock is purchased on behalf of the principal / consignor, the entry for the same purchase will be as under: Durshed godown or other godowns A/c Dr To the Farmers A/c. To be more clear when the stock is purchased and kept in a particular godown, wherein the stock is kept, that “Godown account” is debited by giving credit to the “farmers” Accounts. When the assessee raises the Consignment bill the “principal / consignor” account will be debited and “maize for consignment” account is credited. At the end of the year debit balance in the “Godown account” will be transferred to “Maize for consignment account” by crediting “Godown account” and debiting the “maize for consignment A/c”. The debit balance in the “maize for consignment” account standing at the end of the year will be shown as “consignment stock” in the balance sheet as the assessee has purchased that stock only for the principal / consignor. The consignment bills are raised on the principle / consignor which includes value of the stock transferred from the godowns plus the hamali, market fee, bardan etc., which will be settled by the principal /consignor after receiving stocks from the assessee firm. This is the regular practice by the assessee firm in dealing with the consignment stock. As such it is submitted that the amount shown under the consignment stock in the balance sheet to the assets side is the stock belonging to the principal / consignor on which the assessee firm does not have any right to sell stocks at their will and wish. The stocks are to be sold only at the instructions of the principal / consignor, for which the assessee firm raises the consignment bill as stated above. We submit that the consignment bills file has been already taken by then IT Authorities who have conducted the survey u/s 133A and verified by the that Assessing Officer at the time of assessment. We are submitting herewith five ledger account copies of “maize godown account” for your ready reference.

Again vide letter dated 23.03.2016 it was submitted that the purchases related to the consignment stock, as shown in the balance sheet, was not debited to the purchases account shown in the trading account of maize. It was further submitted that the closing stock of the maize consignment is considered as the stock belonging to the assessee- firm, relevant purchase is also to be considered in the hands of the assessee and if the same is considered, there will be no bearing on the gross or net profit declared and there would be no revenue loss. It was also clarified that the general practice followed in such cases is to show the stock purchased on behalf of the consigner separately and at the

The Assessing Officer observed that the assessee is mainly engaged in the business of purchase and sale of maize and hence it is the primary duty of the assessee to enter in its books of account any stock purchased and brought into the premises of the assessee. Since the assessee could not give any reason for not entering the same in the purchase and sale account and instead kept the same in “closing stock of maize consignment account”, A.O. was of the opinion that the assessee has not followed an appropriate method. In his opinion the assessee was not correct in following the same method over the years. He thus concluded that it was clearly an accounting mistake and the same can be treated as suppression of closing stock which in turn decreases the gross profit as well as the net profit. Therefore, the value

Aggrieved, assessee contended before the Ld. CIT(A) that the A.O. erred in observing that it was not debited to the assessee’s own purchases accounts shown in the own trading account of the assessee- firm. It was further contended that the stock having been debited to the purchase account, it cannot be shown in the closing stock since closing stock consists of assessee’s own stock and not the consignment stock. It was also contended that the A.O erred in not taking cognisance of the detailed explanation provided vide letter dated 23.03.2016. Vide Ground no.4 it was contended that the A.O. erred in reopening the case without having any additional information, after the completion of original assessment u/s 143(3) of the Act by the then Assessing Officer.

Ld. CIT(A) rejected the appeal filed by the assessee without going into the technical aspect as to whether the reopening of assessment was justified or not. No doubt, the Ld. CIT(A) reproduced the grounds filed by the assessee which includes the challenge to the validity of the reopening of the assessment but the fact remains that the order contains virtual reproduction of the grounds of appeal, statement of facts filed by the assessee, order passed by the Assessing Officer and the submissions of the assessee and even in his conclusions, we notice virtual reproduction of the order of the Assessing Officer indicating that as a quasi-judicial authority he has not done sufficient justice to the case on hand and proceeded to reproduce the same sentences, picking out from the assessment order, while confirming the assessment order. He omitted to consider the aspect of reopening of assessment since this issue was not figuring in the assessment order. As rightly pointed out by the Learned Counsel for the Assessee there is a lack of application of mind on the part of the Ld. CIT(A).

The assessee has filed a detailed explanation before the Assessing Officer indicating the method of accounting followed by it with regard to entries made vis-à-vis the purchases made on behalf of the consigner but both the Assessing Officer as well as the Ld. CIT(A) has not properly appreciated the points. It is not in dispute that the assessee has been following this method of accounting over the years and even if it is assumed that there is an accounting mistake, the correction process should be followed on a logical basis by taking stock of the maize as closing stock and purchase also should be increased by the same quantity in which event there would be no effect to profit in the trading account.

The most important fact of the instant case is that during the proceedings u/s 143(3) of the Act, the Assessing Officer had the benefit of the report of the DDIT (Inv.), Unit-II(3), Hyderabad and had also gone into the books of account and the method followed by the assessee and thus it cannot be said that there is any omission on the part of the assessee in furnishing the details, so as to enable the Assessing Officer to reopen the assessment beyond the period of four years.

No material whatsoever was filed by the Learned Departmental Representative to prove that there were sufficient reasons for reopening of the assessment. In fact the assessment record was not available with the Learned Departmental Representative and no report of the Assessing Officer was filed before us to indicate that the Assessing Officer has recorded the finding in the satisfaction note to the effect that the reassessment proceedings were initiated on account of omission on part of the assessee in furnishing true and correct particulars. It is well settled that reassessment is not permissible in the absence of failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment of income, particularly after lapse of four

Learned Departmental Representative was unable to place before us the order sheet copy of the Assessing Officer and the reasons recorded therein to indicate that some new material was found by the Assessing Officer to enable him to reopen the assessment and the notice was issued essentially on account of the fact that the return filed by the assessee does not contain true and correct particulars of income. As noticed by us, upon going through the assessment order passed u/s 143(3) of the Act, the Assessing Officer had the benefit of examining the books of accounts in detail and examined the nature of business for the purpose of making additions towards handling charges and commission income, impliedly reflecting that the A.O admitted that the assessee was mainly carrying on the business as a commission agent for and on behalf of the consigners. Such being the case, the notice issued u/s