ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. GHATGE PATIL INDUSTRIES LTD.,, KOLHAPUR

आदेश / ORDER

PER VIKAS AWASTHY, JM

ITA No.1278/PUN/2016 by the Department is directed against the

order of Commissioner of Income Tax (Appeals), Pune-11 dated 11.03.2016 for the assessment year 2002-03. The Revenue in appeal has assailed the findings

of Commissioner of Income Tax (Appeals) on two grounds i.e.

i) Quashing of re-assessment proceedings; and

ii) Deleting the addition of Rs.29,18,469/- made by the Assessing Officer on account of suppression of sale of scrap.

outset that the appeal of the Revenue is liable to be dismissed on account of low tax effect.

the appeal by the Department for assessment year 2002-03 tax effect is less than Rs.20 Lakhs.

Commissioner of Income Tax(Appeal) in deleting the addition of Rs.29,18,469/- made by the Assessing Officer on account of sale of scrap. Undisputedly, the

tax effect involved in appeal is less than the monetary limit prescribed by the

recent CBDT Circular for filing of appeals before the Tribunal by the

Department. The CBDT vide Circular No.3/2018, dated 11.07.2018 has raised

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the monetary limit of tax effect for filing of appeals by the Department before

the Tribunal to Rs.20 lakhs. The Circular applies to the appeals to be filed by

the Department in future as well as the appeals pending before the Tribunal.

Without going into merits of the issues raised in the appeal, in view of the

CBDT Circular the present appeal of the Revenue is dismissed on account of

low tax effect.

approach the Tribunal for restoration of appeal, with the requisite material to

show that the appeal is protected by the exceptions prescribed in Para 10 of

the Circular (supra.)

assessment year 2002-03 is dismissed.

ITA No.1279/PUN/2016 (By Revenue) ITA No.1280/PUN/2016 (By Revenue) (A.Ys. 2003-04 & 2004-05)

directed against the order of Commissioner of Income Tax (Appeals), Pune-11

dated 30.03.2016 common for the assessment years 2003-04 & 2004-05.

The assessee has filed cross appeal in ITA No.1069/PUN/2016 for the

assessment year 2004-05 against the same order of Commissioner of Income

Tax (Appeals).

4 ITA Nos. 1278 to 1280/PUN/2016 ITA No. 1069/PUN/2016 A.Ys.2002-03 to 2004-05

set of facts, these appeals are taken up together for adjudication vide this

common order.

following grounds:

“1) On the facts and the circumstances of the case, the Ld.CIT(A) has erred in deleting the addition made on sale of scrap made by the AO amounting to Rs.7,02,58,930/- for the years 2003-04 to 2009-10 treating the statement of MD of the assessee company as unreliable in the absence of any evidence supporting/confirming the modus operandi for sale of scrap. 2) On the facts and the circumstances of the case, the Ld. CIT(A) has erred in ignoring the ratio decided in the judgment of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra Vs. UOI(1986). 3) The order of the Ld. CIT(A) may be vacated and that of the Assessing Officer be restored. 4) The appellant craves leave to add, alter, amend and modify any of the above grounds of appeal.”

Identical grounds of appeal have been raised by the Revenue for

assessment year 2004-05.

assessee is engaged in manufacturing of grey iron castings, gate valves,

mechanical industrial clutches etc. A search action u/s.132(4) of the Income

Tax Act, 1961 ( hereinafter referred to as ‘the Act’) was carried in the case of

assessee on 11.09.2008. The notice u/s.153A of the Act was issued to the

assessee on 21.08.2009. In response to the said notice, the assessee filed

return of income on 12.10.2009 declaring loss of Rs.5,10,06,327/-. The return

filed by the assessee was on the similar lines as was filed under the provision

of section 139(1) of the Act. During search, it was found that the assessee has

indulged in suppression of sale of scrap. The Managing Director of the

5 ITA Nos. 1278 to 1280/PUN/2016 ITA No. 1069/PUN/2016 A.Ys.2002-03 to 2004-05

Company, Shri Kiran Patil in his statement recorded u/s.132(4) of the Act

made disclosure of additional income of Rs.8 Crore divided equally in four

assessment years i.e. assessment years 2006-07 to 2009-10. However, the

Managing Director subsequently retracted from his statement. The Assessing

Officer completed assessment making addition on the basis of statement

recorded u/s.132(4) of the Act made by the Managing Director of the Company.

The ld. DR submitted that in assessment year 2003-04, the Assessing Officer

made addition of Rs.1,26,255/- in respect of unaccounted sale of scrap. For

the similar reasons, Assessing Officer made addition of Rs.39,95,909/- in

assessment year 2004-05 on account of suppression of scrap sale. The

Commissioner of Income Tax(Appeals) deleted the addition in both the

impugned assessment years as the addition made by the Assessing Officer on

account of suppression of sale of scrap was less than 1% of the total turnover.

The ld. DR prayed for setting aside the impugned order and restoring the

findings of Assessing Officer.

vehemently defended the order of Commissioner of Income Tax (Appeals) in

deleting the addition. The ld. AR submitted that during search operation no

incriminating evidence whatsoever was found by the Department indicating

suppression of sale of scrap. No declaration was made by the Managing

Director of the assessee company for the assessment years 2003-04 and 2004-

ld. AR referring to the assessment order submitted that the Assessing Officer

made addition of the difference between the value of sale of scrap @1% of the

total turnover and actual scrap sale recorded in the books. The ld. AR pointing

to the table in Para 5 of the assessment order dated 30.12.2010 passed

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u/s.143(3) r.w.s 153A of the Act for assessment year 2003-04 submitted that

the addition has been made merely on estimation.

11.1 The ld. AR further pointed that the Managing Director of the Company

in his statement recorded u/s.132(4) of the Act had not admitted any

undisclosed income for the assessment year 2003-04 and 2004-05. The

Revenue in the grounds of appeal has not questioned the findings of

Commissioner of Income Tax (Appeals) on non seizure of any material

indicating unaccounted income in the assessment year 2003-04 and 2004-05.

The ld. AR vehemently supported the findings of Commissioner of Income Tax

(Appeals) and prayed for dismissing the appeals of the Revenue.

and have perused the orders of Authorities below. The solitary issue raised by

the Revenue in appeal is against deleting addition of Rs.1,26,255/- on account

of suppression of sale of scrap in assessment year 2003-04 and Rs.39,95,909/-

in assessment year 2004-05. The ld. AR has asserted that during search

operation, no incriminating material was found for making such addition. Even

in the statement recorded u/s.132(4) of the Act by the Managing Director of the

Company which was subsequently retracted. There is no declaration of

undisclosed income for the assessment year 2003-04 and 2004-05. These facts

have not been disputed by the Revenue. We observe that the Commissioner of

Income Tax(Appeals) in Para 4.1 of the impugned order has categorically

recorded these facts and the same have not been challenged by the Department

in the appeal. The addition has been made by the Assessing Officer merely on

the basis of estimation of undisclosed sale of scrap. The Assessing Officer has

estimated 1% of total turnover as the value of scrap generated. The shortfall of

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scrap i.e. less than 1% has been added by the Assessing Officer. The addition

made by the Assessing Officer in the impugned assessment years is as under:

A.Y. Turnover Scrap sale Scrap sale Difference @1% shown in the book 2003-04 69,30,16,443 69,30,164 68,03,909 1,26,255

2004-05 1,10,20,02,935 1,10,20,029 70,24,120 39,95,909

assessment years 2003-04 and 2004-05 were completed u/s.143(3) of the Act.

Thus, assessment years under appeal are non- abated assessments. In the

absence of any incriminating material no addition could have been made by the

Assessing Officer in the impugned assessment years. So far as the statement of

Managing Director is concerned, we observe that the Managing Director of the

assessee-company had not made any declaration of additional income for

assessment years 2003-04 & 2004-05. Thus, the statement by Managing

Director whether retracted or not would have no bearing in the assessment

years under appeal. It is a well settled law that in the case of completed

assessments, additions in assessment proceedings under section 153A can be

made only on the basis of any incriminating material found and seized during

search operation. Any addition made on estimation or surmises would not

sustain.

any infirmity in the findings of the Commissioner of Income Tax (Appeals) in

deleting the addition. Accordingly, we uphold the same and dismiss the appeals

filed by the Revenue for both the assessment years 2003-04 & 2004-05.

8 ITA Nos. 1278 to 1280/PUN/2016 ITA No. 1069/PUN/2016 A.Ys.2002-03 to 2004-05

No.1280/PUN/2016 for the assessment years 2003-04 and 2004-05 are

dismissed.

ITA No.1069/PUN/2016 (By Assessee) A.Y. 2004-05

Income Tax (Appeals) by raising following grounds:

“1. The order of the learned CIT(Appeals) is bad in law and opposed to the facts. 2. The learned CIT(Appeals) has erred in upholding addition of Rs.28,621/-made by the DCIT as difference between cost of construction as per books and value as per the valuation report of DVO. He erred in simply following the order of CIT(A) Kolhapur for A.Y. 2005-06 and confirmed the addition. He failed to appreciate that entire cost of construction has been recorded in the books of account of the appellant from year to year, ignoring the extract of ledger of audited accounts placed on the records which contained complete narration for each entry date wise, and failed to appreciate that the report of DVO was a personal judgment devoid of any evidence. The addition of Rs.28,621 may kindly be deleted. 3. The appellant craves leave to add to amend or alter any or all the grounds of appeal either before or at the time of hearing.”

year 2004-05 has assailed the findings of Commissioner of Income Tax

(Appeals) in confirming the addition of Rs.28,621/- on account of difference

between cost of construction of bungalow as per DVO’s report. The ld. AR

submitted that the Assessing Officer while making addition has applied CPWD

rates without considering the fact that the assessee had constructed house in

Kolhapur. The Assessing Officer should have adopted State PWD rates. The ld.

AR further pointed that during search no incriminating material was found

indicating unaccounted investment in the construction of bungalow. The ld. AR

pointed that difference between cost of construction of bungalow as declared by

9 ITA Nos. 1278 to 1280/PUN/2016 ITA No. 1069/PUN/2016 A.Ys.2002-03 to 2004-05

the assessee (Rs.83 Lakhs) and the cost of construction determined by the

Assessing Officer on the basis of DVO report (Rs.94 Lakhs) is about 13%. The

Tribunal in assessee’s own case for assessment year 2005-06 in ITA

No.1332/PUN/2014 decided on 27.09.2017 has deleted the addition on

account of marginal difference in the valuation.

Income Tax (Appeals) in confirming the addition in respect of unaccounted

investment in bungalow.

against confirming addition of Rs.28,621/- on account of difference between

cost of construction of bungalow as declared by assessee and value as

determined by the DVO. We find that identical issue was raised by the assessee

in ITA No.1332/PUN/2014 for assessment year 2005-06 before the Tribunal.

The Tribunal deleted the addition by observing as under:

“10. The first issue which arises in the present appeal is jurisdictional issue that in the case of search proceedings where no incriminating documents were found, can the addition be made in respect of assessment proceedings, which had not abated. The second issue which is arising is that where the difference in the valuation is about approximately of Rs.11 lakhs which works out to 13.43% and where the DVO has failed to give the benefit of deduction under self supervision and had also applied CPWD rates as against the prescribed rates of PWD rates, can any addition be made in the hands of assessee. We find merit in the plea of assessee in this regard. The total addition made in the instant assessment year was only Rs.85,988/- and difference shall stand reduced in case the rates of PWD for construction are applied as against the DVO applying the rates of CPWD and further, the assessee is entitled to the deduction in value on account of self supervision. In the totality of the above said facts and circumstances and in view of the difference being about 13.43%, we find no merit in the orders of authorities below in upholding the above addition made in the hands of assessee. Accordingly, we delete the addition of Rs.85,988/-. In view of our deciding the issue on merits, we are not going into the jurisdictional aspect of the issue raised by the leaned Authorized Representative for the assessee, which becomes academic in nature. Accordingly, we hold so.”

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The property in question in the assessment year under appeal is the same which was subject matter of valuation in the assessment year 2005-06. No material has been placed before us by the Revenue controverting the findings of the Co-ordinate Bench. Following the decision of Tribunal in assessee’s own case in the immediately succeeding assessment year, we delete the addition for similar reasons. Accordingly, appeal of the assessee for the assessment year 2004-05 is allowed.

Order pronounced on Friday, the 31st day of August, 2018.

Sd/- Sd/- (डी. क�णाकरा राव/D. KARUNAKARA RAO) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 31st August, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals), Pune-11. 4. The Pr. CIT (Central), Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.