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Income Tax Appellate Tribunal, DELHI BENCHES “F” : DELHI
Before: SHRI BHAVNESH SAINI, J.M. & SHRI O.P. KANT, A.M.
ORDER PER BHAVNESH SAINI, J.M. This appeal by assessee has been directed against the order of Learned CIT(A)-XXXVIII, New Delhi, Dated 1st January 2013, for the assessment year 2009-2010.
2 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. 2. We have heard the Learned Representatives of both the parties and perused the material available on record.
The Learned Counsel for the Assessee argued on Ground Nos.4, 5 and 6. Rest of the Grounds are general and have not been argued. Therefore, the same are dismissed as not pressed.
Briefly the facts of the case are that assessee is engaged in the business of extraction, processing and sale of mineral products at Nuagaon in Keonjhar and Mayurbhans District of Orissa. The assessee has also exported iron ores during the year. The assessee has had the turnover of soap stone minor during the year. During the year, the turnover of the assessee company was Rs.433.97 crores as compared to Rs.403 crores in the last assessment year. The export sales stood at Rs.21.20 crores as compared to Rs.121.69 crores in the last assessment year. During the year, the assessee company has issued additional share capital.
3 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. 4.1. During the earlier assessment year 2008-2009, there was an addition on account of valuation of closing stock by taking the value of stock of raw material and finished goods as per FIFO method, as the Assessee was following A weighted average method and not valuation as per FIFO method. The addition on account of the above in the last assessment year was of Rs.1,69,57,108/-. The assessee was asked to submit the details of the same. The assessee submitted that as per the FIFO method, the closing stock comes to Rs.25,66,78,992/- whereas as per the closing stock adopted by the assessee was Rs.25,90,64,357/-. Thus, as per FIFO method, the closing stock will be less by a figure of Rs.23,85,365/-. The assessee stated that the credit of the closing stock of the earlier year should be given as the addition was made in the last assessment year. The assessing officer as per FIFO method, taken the value of the closing stock. As per submission of the assessee and as per excess value of stock declared by assessee, by not following the FIFO method, its value comes to Rs.23,85,365/- and addition made to the 4 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. closing stock as per last assessment year was of Rs.1,69,57,108/-. Thus, the total of the sum comes to Rs.1,93,42,473/- which was to be decreased.
4.2. The assessing officer also noted that the assessee during the year has valued the iron ore fines at zero value in respect of 06 locations and the total quantity comes to 1,00,010 metric tons. Table reproduced in para 4.3 of the assessment order. The assessing officer noted that this was very abnormal valuation of valuing the cost of raw material at NIL. The assessee was asked to justify the value of closing stock of these items which is taken at NIL and to submit the bills of purchase of iron ore fines. The assessee submitted the bills of iron ore fines for the year, according to which, the average valuation was taken of Rs.725/- per metric ton as noted in para 4.4 of the assessment order. The assessing officer, therefore, asked the assessee as to why the value of such closing stock should not be estimated by the above average value. The assessee submitted before assessing officer that during the year 2008-2009, export market of iron ore fines was in a bad shape. The company procured
5 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. some fines in expectation of sizeable exports, but, during the initial period of the year, some exports could be made by the company, but, thereafter, conditions of the buyers became stringent and they insisted best quality of fines. The company's stock were not matching those standards and, therefore, exports was affected very badly. There were no ready buyers in domestic market of iron ore fines. Therefore, company could not sell the material. Over a period of time, due to dust particles adding to the material, quality further deteriorated and some of the material was just not acceptable in the export market at any cost. In this view of the matter, certain material which could not match the bare minimum parameters in quality was valued at NIL value. The A.O, however, noted that the assessee has merely made a statement without any justification or bonafide evidence and that assessee has also not submitted any valuation report. It was further noted that no documentary evidences in this regard has been filed to show value of the stock at NIL, therefore, explanation of assessee was not accepted and assessing officer applied average rate of Rs.725/- per
6 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. metric ton against the total quantity of 1,00,010 metric ton and made addition of Rs.7,25,07,250/- on account of under reporting of valuation of closing stock. The assessing officer, however, given benefit of addition made to the closing stock in earlier year as well as excess value declared by assessee at Rs.1,93,42,473/- and made net addition to the closing stock at Rs.5,31,64,777/- on account of under valuation of closing stock.
4.3. The assessing officer further noted that during the assessment year under appeal, assessee has sizable investment which yields exempt income to the assessee. The investments at the end of the year in shares stand at Rs.19.06 crores. The same was the position of investments as on 1st April 2008. The assessee has incurred financial expenses on account of interest of Rs.9,42,09,000/-. The assessing officer noted that the above investments will have its share of borrowing and non borrowings. The assessee does not maintain a separate bank account for the purpose of investments. The assessee has also not given any nexus of income from the reserves or share capital of the company.
7 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. The assessee has an overdrawn account throughout the year. The assessing officer, therefore, disallowed Rs.56,68,397/- under section 14A of the Income Tax Act, 1961.
4.4. The assessing officer further noted that there was a huge demand pending in the case of the assessee. Therefore, the DCIT, Circle-15(1), New Delhi, issued various attachment notices including the attachment of debtors. The details of debtors were taken from the details of sales made by the assessee during the year from the submission of the assessee. The assessee as per requirement of A.O. furnished list of addresses of parties. Notices under section 133(6) was again issued to around 20 parties to confirm the sale transaction. Out of the above, two were returned back, one party denied having any transaction with the assessee and balance have not replied till date of the passing of the order. The assessee was asked to file confirmation of these parties and to produce the books of account. But, no books of account have been produced. Summons under section 131 was issued to assessee for production, but, same was 8 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. not complied with. The assessee was, therefore, told that in case of failure, 3% of the turnover will be added to the returned income. Since the assessee failed to file confirmation from the sales parties, thus, it was observed that the sales of the assessee do not appear to be properly recorded nor are the books of account have been produced before the assessing officer. The assessing officer, therefore, applied 3% against gross sales and made addition of Rs.13,01,09,000/- being suppression of sales.
All the three additions were challenged before Learned CIT(A). The Learned CIT(A) after recording submissions of the assessee and on the same reasoning as given by the assessing officer, confirmed the additions. The Learned CIT(A) also noted that assessee claimed before him that books of accounts were sent from Mumbai to Delhi through M/s. Blue Dart Express Ltd., i.e., Courier Company, which could not deliver the books of account on time. The Learned CIT(A) noted that assessee did not move any application under Rule 46A for examination of its books
9 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. of account, therefore, rejection of the books of account was upheld and appeal of assessee has been dismissed.
On Ground No.4, assessee challenged the addition of Rs.13,01,09,000/- on account of estimation of income.
Learned Counsel for the Assessee referred to page 73 of the paper book, which is, reply filed before assessing officer along with complete details. PB 86 is also another reply supported by the documents. PB 92 is also reconciliation of AIR information with the books of account and to explain the money, which assessee has to receive. Learned Counsel for the Assessee submitted that the assessing officer did not reject the books of account of assessee, therefore, finding of Learned CIT(A) is incorrect and that no addition could be made on account of non verification of the debtors. He has submitted that assessee wanted to produce books of account before Learned CIT(A), but, on mere technical reasons that no application under Rule 46A have been filed, books of account have not been 10 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. examined by the Learned CIT(A). Learned Counsel for the Assessee submitted that assessee is willing to produce the books of account before assessing officer for fresh examination.
On the other hand, the Learned D.R. relied upon the Orders of the authorities below and submitted that no books of account were produced before the authorities below. PB 95 is chart of the GP and NP ratio to show that in assessment year under appeal, the GP and NP rate have fallen down, therefore, addition was correctly made. The Learned D.R. relied upon Judgment of the Honourable Punjab and Haryana High Court in the case of Sanjay Kundu vs. CIT [2017] 397 ITR 371 (P & H) in which the civil contractor failed to produce books of account despite giving various opportunities. Therefore, the Order of the assessing officer was held to be justified in applying net profit rate of 12%. The said Judgment is confirmed by the Honourable Supreme Court by dismissing the SLP filed by the assessee reported in 2017-TIOL-413-SC-IT.
11 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi.
We have considered the rival submissions. The assessing officer considering huge demand pending against the assessee, issued various attachment notices to the debtors of the assessee, for recovery of the due taxes. Notice under section 133(6) were also issued to several debtors. The assessee did not produce the books of account before assessing officer. Therefore, assessing officer has directed to apply 3% against the total sales. The course adopted by the assessing officer is not justified because if the assessee did not produce books of account before him, the assessing officer should have pointed-out infirmities in the records produced by the assessee, before applying higher profit rate. No defect in maintenance of books of account have been pointed-out. The assessing officer has not rejected the books of account under section 145(3) of the Income-Tax Act, 1961. The assessing officer initially investigated this case for verification of the debtors for recovery of the demand against the assessee from the debtors of the assessee. Therefore, such a reason would not be justified to apply higher profit rate for estimating the income of the assessee.
12 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. The assessee submitted before the Learned CIT(A) that assessee has Registered Office at Mumbai and books of account of the assessee sent from Mumbai to Delhi through the reputed courier company, but, the same are not delivered on time. Therefore, it was a reason for non production of the books of account before the assessing officer. Learned Counsel for the Assessee further submitted that assessee produced books of account before Learned CIT(A), but, in absence of application under Rule 46A same was rejected. Learned Counsel for the Assessee has given undertaken before us to produce the books of account before assessing officer for fresh examination. The assessing officer in the assessment order has specifically noted that turnover of the assessee in the assessment year under appeal is higher as compared to earlier year, but, there is a substantial decrease in the export sales in assessment year under appeal, as against exports made in proceeding assessment year. These were the relevant factors which should have been considered by the assessing officer while applying higher profit rate against the assessee because the 13 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. assessee claimed that there was a fall in export because the assessee’s stock was not matching with the standards of the Foreign Buyers and that domestic sales have increased. Therefore, there would not have been any reason for the assessee to suppress the profit. Since the books of account have not been rejected by the assessing officer, therefore, there was no justification for him to apply higher profit rate. The entire history of the assessee has also not been considered in this regard and non-verification of the debtors by itself is no ground to apply higher profit rate because both situation work differently in I.T. Act. The replies filed by the assessee in detail show that details of the debtors were also provided to the assessing officer. Therefore, totality of the facts and circumstances of the case in the light of the fact that assessee has agreed to produce books of account before the assessing officer, we are of the view that interest of justice requires that this issue may be re- examined at the level of assessing officer. We, accordingly, set aside the orders of the authorities below and restore this issue to the file of assessing officer with a direction to the 14 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. assessee to produce books of account, bills/ vouchers and other supporting documents before assessing officer, for fresh examination. The assessing officer shall give reasonable, sufficient opportunity of being heard to the assessee. In the result this ground of appeal of assessee is allowed for statistical purposes.
10. On Ground No.5, assessee challenged the addition of Rs.5,31,64,777/- on account of valuation of stock.
11. Learned Counsel for the Assessee submitted that assessee has been following weighted average method consistently for the last so many years. Therefore, there was no justification for the assessing officer to apply FIFO method in assessment year 2008-2009. An identical matter in case of assessee for A.Y. 2008-2009 was considered by ITAT, Delhi, F-Bench in ITA.No.6600/D/ 2014, Dated 22nd December 2017, in which, the Tribunal has upheld the weighted average method of valuation of closing stock adopted by the assessee. The appeal of assessee has been 15 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. allowed on this issue. Copy of the order is placed on record. He has, therefore, submitted that addition of Rs.1,69,57,108/- made in proceeding assessment year has been deleted, for which, effect shall have to be given in assessment year under appeal. He has submitted that Order of the Tribunal has been confirmed by the Honorable Delhi High Court by dismissing the Appeal of the Revenue in Income Tax Appeal No.124 of 2019, Dated 5th February, 2019, copy of the order is placed on record. He has referred to PB 93 and PB 100 which are the explanation filed before assessing officer for adopting NIL value of export iron ore fines. He has submitted that assessee is willing to produce books of account and other details before assessing officer as have been submitted on Ground No.4 above.
The Learned Departmental Representative, on the other hand, submitted that in the assessment year under appeal the dispute is not of FIFO method or weighted average method for valuation of the closing stock, but, the valuation of the closing stock taken at NIL of 1,00,010
16 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. quantity of metric tons, for which, no evidence have been furnished.
We have considered the rival submissions. It is not in dispute that there is a fall in export sales in assessment year under appeal substantially as compared to the preceding assessment year. The assessee rightly contended that in assessment year the export market of iron ore fines was in a bad shape. The assessee, therefore, rightly contended that Foreign buyers have insisted for best quality of iron ore fines and the stock of the assessee was not matching with the standards of the Foreign Buyers, therefore, the assessee could not sell the iron ore fines in domestic market and due to dust etc., the quantity of iron ore fine have deteriorated further. The explanation of assessee is supported by the fact that there is fall in export of iron ore fines in assessment year under appeal as compared to earlier years. However, the assessee did not produce books of account and other details and production record because of the reasons that the Courier Company could not supply the same at Delhi within a reasonable
17 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. period. Since, on Ground No.4, the matter in issue have been restored to the file of assessing officer for examination by directing the assessee to produce books of account and other details, therefore, in our view, this issue also requires for reconsideration at the level of the assessing officer. Our views are also further strengthened by the fact that in preceding assessment year 2008-2009, on change of method of valuation of the closing stock, the assessing officer made addition of Rs.1,69,57,108/- which was given effect in assessment year under appeal by the assessing officer. However, this addition have been deleted by the Tribunal vide Order dated 22nd December 2017 and Order of the Tribunal is confirmed by the Honorable Delhi High Court. Therefore, the entire matter requires fresh reconsideration at the level of the assessing officer. We, accordingly, set aside the orders of the authorities below and restore this issue also to the file of assessing officer with a direction to the assessee to produce books of account, production details and other supporting material before assessing officer for his consideration. The assessing
18 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. officer shall give reasonable, sufficient opportunity of being heard to the assessee before passing the order afresh. This Ground of appeal of assessee is allowed for statistical purposes.
14. On Ground No.6, assessee challenged the addition of Rs.56,68,497/- under section 14A of the Income Tax Act, 1961.
15. Learned Counsel for the Assessee referred to paper book-2, which is computation of income, in which, assessee has made suo moto disallowance under section 14A of the Income Tax Act, in a sum of Rs.3,33,397/-. PB 14 is balance sheet of the assessee ending 31st March, 2009 to show that assessee’s own funds are in a sum of Rs.358.68 crores. He has further submitted that no new investment have been made in assessment year under appeal and that assessee has sufficient funds to make investment, therefore, the addition is wholly unjustified. He has also submitted that assessing officer did not prove any nexus of income from reserve or share capital of the 19 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. assessee-company. No satisfaction have been recorded by the assessing officer as to how the disallowance made by the assessee was not proper, therefore, section 14A could not be invoked against the assessee.
On the other hand, Learned Departmental Representative relied upon orders of the authorities below.
We have considered the rival submissions. The assessing officer noted in the assessment order that assessee has made sizeable investments, which yields exempt income to assessee and the investment at the end of year in shares stands at Rs.19.06 crores. The assessing officer also noted that same was the position of investment as on 1st April 2008. This would support the explanation of assessee that no new investment have been made in assessment year under appeal and same were old investments. It is not in dispute that assessee has own sufficient funds to make investment which were to the tune of Rs.358.68 crores. Assessee also suo motu disallowed Rs.3,33,397/- under section 14A of the Income Tax Act.
20 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. The Honourable Punjab and Haryana High Court in the case of CIT vs., Winsome Textile Industries Ltd., 319 ITR 204 (P&H) observed that “Assessee did not make claim of expenses -14A do not apply – Own funds used to acquire shares and no expenses incurred, therefore, no addition could be made. Honourable Delhi High Court in the case of I.P. Support Services India Limited 378 ITR 240 (Del.) held that “No disallowance be made under section 14A in the absence of satisfaction as to why voluntary disclosure made by the assessee was unreasonable and unsatisfactory”. The Honourable Punjab and Haryana high court in the case of Kapson Associates 381 ITR 204 (P&H) noted that “Assessee claimed old investments out of capital and reserves, but, no separate amount borrowed for making investment - No disallowance be made. The Honourable Punjab and Haryana High Court in the case of Abhishek Industries Limited 380 ITR 652 (P&H) held that “onus is upon assessing officer to record satisfaction that interest bearing funds used for investment to earn tax free income”. The Honourable Bombay High Court in the case of Reliance
21 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. Utility and Power Limited 313 ITR 340 (Bom.) held that “when assessee has sufficient interest free funds, presumption would arise that investment would be out of the interest free funds generated or available to assessee. The interest was deductible.”
17.1. Considering the totality of the facts and circumstances of the case, it is clear that assessee made suo motu disallowance under section 14A, but, assessing officer did not record any satisfaction as to how the disallowance made by the assessee was unreasonable or unsatisfactory. In the absence of any satisfaction recorded under section 14A of the Income Tax Act, no disallowance could be made against assessee. Further, assessee has own sufficient funds to make investment, therefore, there is a presumption in favour of the assessee that assessee has used own funds to make investment in shares. Therefore, no addition under section 14A of the nature could be made against the assessee. We, accordingly, set aside the orders of the authorities below and delete the entire addition. This 22 ITA.No.6601/Del./2014 Resurgere Mines & Minerals India Ltd., New Delhi. ground of appeal of assessee is allowed. No other point is argued or pressed.
In the result, appeal of Assessee partly allowed
Order pronounced in the open Court.