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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
O R D E R Per Chandra Poojari, Accountant Member
This appeal by the assessee is directed against the order of CIT(A) dated 10/1/2019. 2. The assessee raised the following grounds: “1. The impugned assessment order is opposed to the facts of the case and the law and therefore, it is liable to be set-aside. RETRIEVAL OF STOCK.
2.1. The learned AO as well as the learned CIT (A) ought to have appreciated that retrieval of stock of 14990MT valued at Rs.2,72,38,894/- as per the books of account and included in the closing stock, which has enhanced the net profit, could not be added as income again 2.2. The learned AO as well as the learned CIT(A) failed to understand the accounting treatment that the retrieval of stock is recorded in the books of account and offered to tax over and above the normal profits, and therefore, it could not be added again as income. 2.3. The learned AO as well as the learned CIT(A) failed to appreciate that the adding of retrieval of stock of 14990MT as income would result in double taxation of the same income. 2.4. The learned AO as well as the learned CIT(A) failed to appreciate that section 41(1)(a) has no application to retrieval of stock which is accounted and disclosed in the books of account. VALUATION OF CLOSING STOCK.
3. The learned AO as well as the learned CIT(A) failed to appreciate that the addition of Rs.46,25,232/- as purported undervaluation of stock was unjustified. CESSATION OF LIABILITY.
4. The learned CIT(A) ought to have appreciated that the relevant material facts were already on record before him regarding the credit balance of Rs.4,23,986/- in the name of M/s SRMT Logistics, Bellary and in the admitted and undisputed factual background that this credit balance is not written off in the present assessment year and further that it is written off in the following assessment year and offered to tax, the addition was not sustainable.
5. The grounds are taken without prejudice to one another and the Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble ITAT. For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon'ble ITAT may be pleased to allow the appeal in the interest of the equity and justice.”
The facts of the case are that the assessee company is engaged in the manufacture of sponge iron and MS Billets. It also produces electricity by applying waste heat recovery process and transmitting the same to the Grid. The assessee filed the return of income declaring total income of Rs.14,84,35,860/- after setting off of brought forward depreciations pertaining to the earlier years, 2010-11 and 2011-12. The total turnover reported during the year was at Rs.206.46/- crores and the net profit before set off of brought forward depreciation was at Rs.24.90/- crores, which translates into net profit margin of 12% approximately. However, the tax was payable under the provisions of section 115JB at Rs.5,03,41,728/- as it was higher than the tax of Rs.4,79,32,630/- calculated under the regular provisions of the Act.
1.1. The learned AO completed the impugned assessment order u/s 143(3) dated, 27-02-2015 by enhancing the total income to Rs.18,28,69,370/- on account of addition of Rs.3,38,34,273/- under various heads. The details of additions are as follows:
Sl. Particulars of Addition/Disallowance Amount No. (In Rs.) (i). Disallowance of excess depreciation claimed 30,000/- (ii). Disallowance of expenses u/s 14A r.w. Rule 2,26,500/- 8D (iii). Addition of liability ceased to be in existence 4,23,986/- u/s 41(1) (iv). Disallowance of interest paid on borrowed 7,97,049/- funds (v). Addition of Retrieval of Stock u/s 41(1)(a) 2,77,31,506/- (vi). Difference in valuation of closing stock 46,25,232/- Total 3,38,34,273/- 1.2. The assessee filed the appeal on the following issues: Sl. Particulars of Addition/Disallowance Amount No. (In Rs.) (i). Addition of liability ceased to be in existence 4,23,986/- u/s 41(1) (ii). Addition of Retrieval of Stock u/s 41(1)(a) 2,77,31,506/- (iii). Difference in valuation of closing stock 46,25,232/- 1.3. The learned CIT(A) partly allowed the appeal and further appeal is filed to the Tribunal on the following issues:
Sl. Particulars of Addition/Disallowance Amount No. (In Rs.) (i). Addition of liability ceased to be in existence 4,23,986/- u/s 41(1) (ii). Addition of Retrieval of Stock u/s 41(1)(a) 2,77,31,506/- (iii). Difference in valuation of closing stock 46,25,232/- RETRIEVAL OF STOCK. 2.1. In view of the banning of mining activities in Bellary District, the assessee company faced difficulty of procuring iron ore, which is the main raw material in the production of sponge iron. Hence the assessee conducted cleaning of stocks in the dumping yard to retrieve the stock settled in the bottom of the stockyard and in the process, 14990 MT of iron ore was retrieved.
2.2. It requires to be mentioned that in the earlier years, the company claimed ground/handling and transportation loss. Hence the retrieval of stock of 14990 MT was added to the closing stock. The assessee disclosed total closing stock 124409 MT in the books of account, which are audited as per the provisions of section 44AB of the Act. It may be mentioned that the company hired the services of the independent agency for physical verification of such retrieved stock and its valuation, which is also noted in para 3(b) of Annexure to Audit Report.
2.3. The learned AO examined the same and came to the conclusion that the said retrieval of stock of 14990 MT was taxable as per section 41(1) of the Act since ground/handling loss was claimed in the earlier years. The assessee explained that the said stock of 14990 MT was already included in the closing stock of 124409 MT and therefore it required no separate addition. However, the learned AO misread the material facts and concluded, erroneously, that the said retrieval of stock of 14990 MT was not included in the closing stock and proceeded to add it as income invoking section 41(1) of the Act. In this factual background, two issues require to be considered in order to decide the matter:
(a). Whether the stock of 14990MT retrieved is included in the closing stock, and if already included, whether it is permissible to tax it again invoking section 41(1)?
(b). Whether the assessee had consented for the said addition u/s 41(1) as observed by the learned AO and the learned CIT(A)?
DISCLOSED IN CLOSING STOCK.
The ld. AR submitted that for the sake of removal of doubt, it would be appropriate if reference is made to the details of stock mentioned by the learned AO himself in para/serial No. (VI) of pages 7 & 8 of his order. The learned AO has noted down the quantity of opening stock, purchases, retrieval of stock and closing stock on the basis of the audited accounts. It may be seen that the learned AO has arrived at the closing stock of 124409 MT of iron ore after reducing the consumption from the opening stock of iron ore and thereafter, adding retrieved stock of 14990 MT and purchases during the year.
2.4. He submitted that a mere glance at the working of the learned AO does not leave any doubt that the said stock of 14990 MT retrieved from the stock yard is added in the closing stock and offered to tax. The working is as under:
Particulars Quantity (In MT) Opening Stock 1,85,045 Add: Retrieved Stock (+)14,990 Add: Purchases during the year (+)60,019
Less: Consumption during the year (-) 1,35,645 Closing stock 1,24,409 2.5. On the basis of this working, the learned A.O himself has computed the closing stock of 124409 MT after including the said retrieved stock of 14990 MT. He has also added the amount of Rs.46,25,232/- on the ground that the closing stock of 124409 MT was not valued including all the costs. The learned AO has observed (in Sl. No. (vi) of page 7 & 8 that the closing stock of iron ore of 124409 MT is valued at Rs.34,95,89,290/- by adopting the cost at Rs.2810/- (Rs.1804+Rs.1106) being cost of iron ore. The learned AO has increased the value of closing stock of 124409 MT of iron ore at Rs.35,42,14,522/- and on this basis added a sum of Rs.46,25,232/- as income. If the closing stock of iron ore was only 109,919 MT (124409 – 14490) i.e., if it did not already included the retrieved stock of 14990 MT the working of the quantity and its valuation of the closing stock would have been different. Having adopted the closing stock of iron ore at 124409 MT which is inclusive of retrieved stock of 14990 MT on the basis of the book results for the purpose of valuation of closing stock and consequential addition of the said amount of Rs.46,25,232/-, the learned AO ought not to have contradicted himself by stating that the said retrieved stock was not included in the closing stock. It is submitted that the learned AO is prohibited from adopting such a contradictory view in view of the maxim ‘approbate and reprobate’ i.e., the principle whereby a person cannot both approve and reject an instrument or a document.
2.6. For the sake of clarity, the working of the closing stock of 124409 MT iron ore with and without considering the retrieved stock of 14990 MT would be as under: Particulars Without With considering considering the retrieved the retrieved stock stock (Quantity in (Quantity in MTs) MTs) Opening Stock 1,85,045 1,85,045 Add: Purchases during the 60,019 60,019 year Sub-total 2,45,064 2,45,064 Less: Consumption during the year 1,35,645 1,35,645
Balance 1,09,419 1,09,419 Add: Retrieved Stock Nil 14,990 Closing Stock 1,09,419 1,24,409 Difference 14,990 The fact that the learned AO has adopted 1,24,409 MT of iron ore as closing stock and not 1,09,419 MT in his own valuation for a separate addition of Rs.46,25,232/- shows that the said retrieved stock was already included in the closing stock.
2.7. It is submitted that the books of account are audited u/s 44AB and the auditor’s report in Form No.3CD was also filed along with the return of income. As per Clause 28(B) of the 3CD Report, a manufacturing concern is required to furnish the complete quantitative details of opening stock, purchases, consumption, sales, closing stock, yield etc. of the raw materials, finished products, by-products etc. The details were furnished in Annexure ‘F’ to Tax Audit Report. As could be seen from this Annexure ‘F’, the closing stock of iron ore (raw material) of 124409 MT includes the retrieved stock of 14490 MT. It is submitted that the learned AO has adopted the very same figures in his working of valuation of closing stock as available in the 3CD Report.
2.8. It is submitted that the assessee had filed the Auditor’s Report u/s 44AB in Form No. 3CA & 3CD for the immediately succeeding assessment year, 2013-14 along with the return of income on 13-09-2013, much earlier to the passing of the impugned assessment order on 27-02-2015. As could be seen from the details furnished in Clause 28(ba) of the Form No.3CD, the quantity of opening stock of iron ore (raw material) is shown at 124409 MT. In other words, the said quantity of retrieved iron ore of 14490 MT was already included in the closing stock of 124409 MT as on 31-03-2012 and therefore, it is shown as the opening stock in the following year as on 01-04-2012 as per the books of account. These material facts on record completely disprove the version of the learned AO that the retrieved stock was not included in the closing stock during the subject assessment year.
2.9. It is further submitted that the assessee consented for the addition if the amount was to be added applying section 41(1) subject to its reworking of the closing stock, as it would be revenue/tax neutral in the final analysis. The assessee explained the issue of retrieval of stock before the learned AO vide letter dated 05-02-2015 (reproduced in the assessment order in page 6) and another letter dated, 24-02-2015. As may be seen from the First letter (reproduced in the assessment order) that there is no consent for addition of the value of the retrieved stock. However, the submissions on this issue were made in the second letter dated, 24- 02-2015, and the relevant para is reproduced below for the sake of ready reference:
“IMPLICATION OF SECTION 41(1). In addition to explanation submitted already pertaining to retrieval of stock (iron-ore) of 14990 MT in our letter dated, 05-02-2015, we further submit that the retrieval of stock (iron ore) from the stock yard took place on total clearing due to total closure of Mining operations in the sector. In the process whatever stock in the yard, over and above the book figures, has been treated as retrieval of stock (iron ore). This may be purely on account of loss in quantity claimed on handling of stocks while dumping in the stock yard and on taking to Crushing and Screening plants. The loss of stock claimed over a period of years is treated as retrieval of stock (iron ore) and, accordingly, included in the Closing stock.
Since the retrieval has a direct nexus to the loss of stocks of earlier years, it a matter to be considered under section 41(1) of the Income-tax Act. Accordingly, we agree to the proposal of treating the retrieval of stock as an income under section 41(1).
We also accept the proposal that the value for retrieval of stock (iron ore) to be adopted is at the rate prevailing at the beginning of the year i.e., 2010-11.”
The ld.DR submitted that the addition of Rs.2,77,31,506/- is towards retrieval stock and the assessee vide its letter dated 24/2/2015 and 26/2/2015 had given its consent for AO to make an addition u/s 41(1)(a) of the Act. Once the assessee has given consent, the assessee cannot file appeal against that addition. For this purpose, he relied on the following judgments: a. The Madras High Court in the case of Ramanlal Kamdar Vs. CIT 108 ITR 73, the Hon'ble Court have held that: “Once the assessee had stated that it had no objection to the proposed revision and the Income-tax Officer had also revised the original assessment as proposed by him, the assessee could not be said to have been aggrieved by the order of the Income-tax Officer.”
b. The Kerala High Court in the case of Mahesh &Shah 238 ITR 130, wherein it was held that: "The petitioner has agreed to treat the expenditure as a capital expenditure both before the Assistant Commissioner of Income- tax as well as before the revisional authority. No evidence or material is furnished to show that the petitioner was coerced to make a statement. Nothing prevented the petitioner to retract the same. The allegation of compulsion or coercion cannot be accepted on a mere statement. It is too late in the day to claim any compulsion. The present stand is nothing but an afterthought self-serving and appears to have been made to suit the convenience. The petitioner himself has signed it on March 13, 1995. Therefore, it will not be permissible to allow the petitioner to go back on his own stand before the authorities below. Such a stand is permissible and will not go against any law.” c. The Hon'ble Supreme Court in the case of Turner Morrison &Co. Ltd Vs. Hunger Ford Inv. 85 ITR 607, held that: “The authorized representative making agreement during assessment proceedings is binding on the assessee -copy of order sheet placed on this files” d. The Punjab & Haryana High Court in the case of Kanshi Ram Wadhwa 138 ITR 830 where in held that: “Had the assessee not consented to have an agreed order of assessment, the ITO would have perhaps held an enquiry for determining his actual income for that year. The assessee having derived the benefit of an agreed order cannot be allowed to turn round and urge that such an order was incorrect or unwarranted.” e. ITAT Amritsar Bench (SMC)Anil Kumar vs. ITO [2008] 26 SOT 17 (Amritsar) wherei held that:
"once addition was made on agreed basis,. same could not be challenged in appeal before C1T(A).” f. Further in the case of [2011] 14 taxmann.com 108 (Ahmedabad)In The ITAT Ahmedabad Bench 'C' Kantilal C. Shah vs. ACIT, Circle-3, Ahmedabad Stated that: "refraction of statement cannot be made without strong supporting evidence.”
Further, it was submitted that the assessee has not made out a case that such consent was given on account mistaken of facts or law. Hence, this ground of appeal of the assessee is to be dismissed.
We have heard both the parties and perused the materials on record. In this case, the addition was made by the AO on the reason that the retrieval stock is not shown in the trade as well as in the profit and loss account. Thus, he made addition of Rs.2,77,31,506/-.
We have carefully gone through the computation of the closing stock by considering this retrieval stock and also without considering retrieval stock which is as follows:
Particulars Without With considering considering the retrieved the retrieved stock stock (Quantity in (Quantity in MTs) MTs) Opening Stock 1,85,045 1,85,045 Add: Purchases during the 60,019 60,019 year Sub-total 2,45,064 2,45,064 Less: Consumption during the year 1,35,645 1,35,645
Balance 1,09,419 1,09,419 Add: Retrieved Stock Nil 14,990 Closing Stock 1,09,419 1,24,409 Difference 14,990 7.1. Thus, as seen from the above table, if we do not consider retrieval stock in closing stock, the quantity of closing stock will be 109419 MT. If we consider retrieval stock in the closing stock figure, then quantity of closing stock is 1,24,409 MT. Thus, there was difference of 14,990 MT whereby, closing stock has been increased to this extent. Being so, the contention of the ld.DR is that this retrieval stock is not included in the closing stock is not correct. In our opinion, unless the AO is able to point out that this closing stock has been left to be entered in the books of accounts, the books of account cannot be rejected without ascertaining the specific reasons. In the present case, it has been audited by the qualified CA and he has given the tax audit report, wherein he has specifically mentioned in Annexure F of tax audit report -----space left intentionally ---- asfollows:-
The above table clearly shows that closing stock as on 31/3/2012 has been arrived at after adding retrieval stock of 14,998 MT to the opening stock. Thus, the closing stock has been increased by this amount of quantity of retrieval stock. Thus, the AO is not justified in observing that retrieval stock has given into manufacturing and P&L account. Therefore there is no justification in recalling the claim of the assessee that retrieval stock has already gone into computation of income. The AO has not pointed out what is the basis of for observing that the closing stock has not gone into manufacturing and P&L account. We find no infirmity in the claim of the assessee. As the above statement produced by the tax auditor report u/s 44AB of the Act clearly demonstrate that retrieval stock has been gone into computation of closing stock and it has been included in the closing stock. The closing stock would only be 109419 MT instead of 124409 MT if it is not included in the closing stock arrived on 31.03.2012. 9.1 Futher, the as noticed from the G.P rate in the A.Y under consideration is it at 32.61% as against G.P rate at 16.62% in A.Y 2013-14. The Grosss profit rate in this A.Y 2012-13 has been increased due to retrieved stock gone in to computation of income. On this count also addition made by AO on this count to be deleted.
The other argument of the ld.DR is that this was agreed addition and assessee is precluded form challenging such addition. In our opinion, merely because the assessee agreed even after the retrieval stock included in the closing stock and considered for computation income in this Assessment year, then the department has no jurisdiction to tax that income in this assessment year, since legally such income do not gone out of income declared by the assessee. Therefore, the same income cannot be taxed twce by the Department. There cannot be any estoppel against statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by the authority of law. Acquiescence cannot take away from a party relief the that he is entitled to where the tax, levied or collected without authority of law. 11. For this purpose, it is pertinent to mention the ratio laid down by the various Courts which are as under:- (i) The Hon’ble Delhi High Court in the case of CIT v. Bharat General Reinsurance Co. Ltd., 83 ITR 303 (Del) held as follows:-
“It was true that the assessee itself had included that dividend income in its return for the year in question, but there was no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it was incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it could not confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. Therefore the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953- 54. It could not, therefore, be taxed in the assessment year 1958-59.”
(ii) The Hon’ble Bombay High Court in the case of Nirmala L. Mehta vs. A. Balasubramaniam, C.I.T. (2004) 269 ITR 1 (Bom) held that : “”there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law.”
(iii) The Hon’ble Supreme Court in the case of CIT, Madras vs V. MR. P. Firm, Muar reported in 56 ITR 67(SC) held as under:-
If a particular income is not taxable under the Income- tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income.
Being so, in our opinion, the assessee cannot be disentitled to file appeal against the addition made by the AO on account of retrieval stock. Accordingly, this ground of appeal of the assessee is allowed.
13. The next ground for our consideration is with regard to addition of Rs.4625232 towards net valuation of closing stock.
The contention of the ld.AR is that the learned AO added an amount of Rs.46,25,232/- on the basis that the closing stock of 124409 MT require to be valued at cost. It may be seen that the learned AO has not given the consequential reduction in the subsequent assessment year, 2013-14.
1.1 It is submitted that the learned AO may be instructed to give consequential effect in the following assessment year.
The ld.DR relied on the orders of lower authorities.
We have heard the rival submissions and perused the material on record. The plea of the ld.AR on this issue before us is very limited. He wants to consider closing stock as on 31/3/2012 as opening stock as on 1/4/2012. Once the AO included a sum of Rs.46,25,232 in the closing stock as on 31.03.212, the figures to be taken as opening stock as 01.04.2012 . This is the fair proposition for which the Revenue cannot have any grievance. Order accordingly. This ground of appeal is allowed.
17. The next ground is with regard to treatment of amount of Rs.4,23,986/- due to SRMT Logistics, Bellary, as income on account of cessation of liability.
The ld.AR submitted that this amount has not been written off by the assessee in the asst. year under considering in his books of accounts and as such, the same cannot be treated as income of the assessee. Further, it was submitted that it was written off in the asst. year 2013-14 and offered for taxationin A.Y 2013- 2014. Thus, it cannot be treated as income in the asst. year under consideration. The CIT(A) has given categorical findings and directed the AO to verify whether said credit of Rs.4,23,986/- was written off in the book of account in A.Y 2013-14 and treated as income for the asst. year 2013-14 and if so delete the addition. In view of this findings of the CIT(A), we do not find any infirmity in the order of CIT(A) and same is confirmed and this ground of appeal of the assessee is dismissed.