THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1 , VIJAYAPUR vs. SRI VENKATESH V SAKA , BAGALKOT

The grounds raised by the revenue are as under:- “(1) The ld. CIT(A) erred in law as well as on facts by deleting the addition of Rs. 99,38,940/- as suppressed sales. The ld.CIT(A) failed to appreciate the facts and grounds of addition on which they were made and considering the assessee's contention, the AO had already given relief by determining the suppression of sales to the extent of 20%.

Brief facts are that the assessee is engaged in the business of Granite Extraction from his own mines and also purchasing of Granite Blocks from third parties and selling in domestic as well as foreign markets. On page 9 of the assessment order, the AO noted that the details of Mineral Dispatch Permits issued by the Department of Mines and Geology (DMG) in respect of Granite Blocks mined from own mine was cross checked with few of the sales invoices for correctness of the quantity and he noted five such instances as per which, total volume as per invoices is lesser by 30.42% minimum to 47.67 % maximum. The AO was of the view that the assessee has under invoiced the sales quantity and he confronted the assessee in this regard. The reply of the assessee is reproduced by the AO on page 10 of the assessment order and as per the same, this is the explanation of the assessee that Department of Mines and Geology (DMG) measures from edge to edge of the Granite Block but at the time of sale, the customer insists for exclusion of white patches, modules, hair cracks and normal allowance. It was also submitted that unwanted portion of the Block cannot be detached and it was explained that if the assessee do the detachment of unwanted part, it will affect the remaining good portion of the block and therefore, to avoid litigation, the assessee makes payment of Royalty on the measurement by DMG. The AO was not fully satisfied and he held that 20% of sales quantity out of own mining is suppressed sales. He quantified the quantity and value of such alleged suppressed sales at 297.341 CBMs and Rs. 99,38,940/- respectively and made addition of this amount. Being aggrieved, the assessee carried the matter in appeal before CIT (A) who deleted this addition by observing as under in Paras 7.2 and 7.3 of his order as reproduced herein below:- “7.2 AR's argument during the Assessment and during the appellate proceedings is that measurement taken by DMG permits varies with actual marketing for sale purpose by the customer agents, which is a market practice. Comparative chart submitted by the assessee, of the granite supplied to government agency also shown the variation of DMG report measurement and sale invoices measurement of the same blocks. This is because of saleable variety.

Now, the revenue is in appeal before us. Learned DR of the revenue supported the assessment order. Learned AR of the assessee supported the order of CIT (A). This appeal was partly heard on 24.10.2018 and the matter was posted for final hearing on 26.10.2018 and both sides were directed to produce any evidence in support of the unsalable quantity reported by the assessee in the range of 30.42% minimum to 47.67 % maximum and the stand of the AO that 20% of the actual sales quantity reported by the assessee is unaccounted sales. On 26.10.2018, neither side could bring any evidence on record as were asked for and hence, the appeal was taken as heard for decision on the basis of materials available on record.

We have considered rival submissions and gone through the material available on record. We find that this is the stand of the AO that 20% of actual sales quantity reported by the assessee is suppressed sale. The AO is also accepting that the total quantity as per DMG measurements is not saleable because as against the difference of 30.42% minimum to 47.67 % maximum, the AO is alleging that only 20% of sales quantity reported by the assessee is suppressed sales. Now the question is what is the basis of this estimate by the AO. We find that the same is arbitrary because no basis is indicated by the AO in the assessment order for this estimate. If the difference in the quantity as per DMG measurement and sales quantity reported by the assessee is 40% of DMG measurement quantity being rounded off average of minimum 30.42% and maximum 47.67%, the sales quantity reported by the assessee is 60% of DMG quantity and 20% of such sales quantity is estimated by the AO as suppressed sales and this means that as against 60% saleable quantity as per the assessee, saleable quantity as per the AO is 72% of DMG quantity being 120% of 60%. It is noted by the learned CIT (A) in Para No. 7.3 of his order as reproduced above that even during survey, no evidence of suppression was found by the department. Hence, in our considered opinion, in this factual position that the AO is also accepting the fact that total DMG quantity is not saleable and no basis is given by him to allege suppression of sales to the extent of 20% of sales quantity as alleged by him and also in view of this fact that even in course of survey, no evidence of suppression was found by the department, we hold that no interference is called for in the order of CIT (A) on this issue.

In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on the date mentioned on the caption page.