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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P BOAZ
Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of CIT(A), inter alia, on the following grounds: “
1. The order of the learned Commissioner of Income-tax [Appeals] in so far as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case.
2. The Appellant denies himself liable to be assessed on a total income assessed of Rs. 8,55,52,040/- by the learned assessing officer as against the returned loss of Rs. 1,05,57,700/- by the appellant under the facts and circumstances of the case.
3. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance of returned net loss of Rs. 1,05,57,700/-, under the facts and circumstances of the case.
Page 2 of 10 4. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer of Rs. 8,55,52,040/- as Un-explained Investment in raising Iron-Ore under the facts and circumstances of the case.
5. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the finding of the learned assessing officer that the statements extracted from the appellant under section 132[4] of the Act and under section 131[A] of the Act, are proved to be false and incorrect are still valid and binding to make assessment in terms of section 115 of the Evidence Act under the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to appreciate that the principles of estoppel are not applicable to the tax proceedings and further consent cannot confer jurisdiction that the so called voluntary statements inducted by the learned assessing officer were proved during the course of proceedings that the statements on an wrong premise given by the appellant are contrary to the actual and existing facts as regard to the quantity of extraction of ores from the mines under the facts and circumstances of the case.
7. The learned Commissioner of Income-tax [Appeals] is not justified in not holding that the reference to the valuation officer under the provisions of section 142[2A] of the Act by the learned assessing officer as regard to the estimation of cost of extraction of ore is ultra vires the provisions of section 142[2A] of the Act under the facts and circumstances of the case.
Without prejudice the learned authorities below are not justified in law in not allowing the deduction to the admitted cost as per the books of Rs. 5,96,74,794/- while determining the cost of extraction of iron ore under the facts and circumstances of the case.
9. Without further prejudice to the above, the valuations adopted by the learned authorities are highly excessive and the same is required to the reduced substantially under the facts and circumstances of the case.
Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 1TR 692, the Appellant denies itself liable to be charged to interest under section 234 A, 234 B and 234 C of the Income Tax Act under the facts and circumstances of the case. Further the levy of interest under section 234 A, 234 B and 234 C of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are not discernable under the facts of the case.
11. The Appellant craves leave of this Hon’ble Tribunal to add, alter, amend, delete or substitute any of the grounds urged above.
12. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity."
The assessee has also filed an application for the admission of additional grounds for the reasons that these grounds go to the root of the case. Therefore, the same may be admitted. The additional grounds raised
are extracted hereunder: “The appellant begs to submit the under mentioned additional grounds of appeal which were not specifically urged in the original grounds of appeal filed before this Hon'ble Tribunal nor before the learned Commissioner of Income-tax [Appeals] I Bangalore. These grounds do not involve any investigation of any facts otherwise on the record of the department and are also pure question of law. It is humbly prayed before this Hon'ble Tribunal that the additional grounds may kindly be admitted and disposed off on merits for the advancement of substantial cause of justice. Reliance is placed on the decision of the Hon'ble Apex Court in the case of National Thermal Power Company Limited Vs. CIT, reported in 229 ITR 383 and also on the ratio of the decision of the Hon'ble Karnataka High Court in the case of Gundathur Thimmappa & Sons Vs. CIT, reported in 70 ITR
70. ADDITIONAL GROUNDS OF APPEAL
1. The order of assessment passed by the learned assessing officer under section 143 [3] of the Act is bad in law for the reason that learned assessing officer after rejecting the books of the appellant ought to have passed an order under section 144 of the Act on the facts and circumstances of the case.
2. The Appellant craves leave of this Hon'ble Tribunal to add, alter, amend, delete or substitute any of the grounds urged above.
3. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
3. Since the AO has framed the assessment order under section 143(3) on the basis of material available before him and the books of accounts of the assessee were not rejected, therefore it cannot be said that assessment was framed under section 144 of the Act. Under these circumstances we find no merit in the additional ground according to which the assessment was framed, after rejecting the books of accounts. Therefore we decline the admission of this additional ground.
Page 4 of 10 4. So far as grounds on merit, we find that though various grounds are raised but they all relate to the disallowance of loss of Rs.1,05,57,700/- and assessment of total income at Rs.8,55,52,040/- resulting into addition of Rs.11,10,01,980/-. The facts in brief borne out from the record are that the assessee’s premises was searched in connection with search in the case of Fiza group of cases on 07.02.2008. A survey under section 133A was also conducted in the business premises of the assessee. During the course of search action and survey proceedings, the assessee was found to be in possession of excess stock for which he offered an additional income of Rs.7,00,00,000/- subject to the valuation. On the basis of the valuation of the stock by the Mines Engineer (who is a registered valuer) vide report dated 18.02.2008, the appellant’s total investment in raising the stock was estimated at Rs.11,10,01,980/-. When the said report was confronted to the assessee/appellant, he agreed to it and offered additional income of Rs.11,10,01,980/- for assessment years 2007-08 and 2008-09 (in addition to the additional investment in the residential house of Rs.17,32,500/- for assessment year 2007-08). However, the assessee did not disclose the said additional income in the income tax return filed by him subsequently. After giving the appellant opportunity to explain the said discrepancy and taking into account that the investment in excess stock was accessible for assessment year 2008-09, the AO brought the same to tax.
Assessee preferred an appeal before the CIT(A) but did not find favour with him and now the assessee is before us with the submission that the assessee was engaged in the business of extraction and sale of iron ore under the name M/s. Sun Minerals at Chikkanayakanahalli in Tumkur District. A search was conducted at the assessee’s residential premises and also B M Farookh of Fiza Developers and Inter Trade Pvt. Ltd., in Bangalore and Mangalore. No search warrant was issued in the name of the assessee. The learned counsel for the assessee further contended that during the course of statement recorded by the AO, it was stated by Page 5 of 10 the assessee that he did not maintain the books of accounts. Therefore, there cannot be any question for excess stock found during the course of search or survey. So far as the source of investments are concerned, it was stated that assessee had agricultural income which was initially invested in the business of mining. It was further contended that the valuation of this stock was not properly done by the so called valuer as he has not followed the basic principles. It was further contended that assessment was not framed under section 153A. It was framed under section 143(3) after issuing notice under section 142(1) of the Act. The learned counsel for the assessee further contended that during the course of assessment proceedings, assessee has sought the permission for the valuation of the stock found during the course of search and also to reconcile the stock found with the books of accounts. But he was not afforded sufficient time to reconcile the excess stock found with the books of accounts. Whatever statement was made, it was made subject to the condition that the books of accounts may be updated and produced for reconciliation but sufficient time was not afforded to the assessees. Since the valuation was not done properly and also without affording proper opportunity to the assessee, the valuation report cannot be used for making the addition in the hands of the assessee.
6. The learned DR on the other hand has contended that search under section 132 was conducted upon the residential premises of the assessees besides B. M. Farookh of Fiza Developers and Inter Trade Pvt. Ltd. In support of his contention, he invited our attention to the seizure memo (panchanama) appearing at page Nos. 51 and 62 of the compilation of the assessee, wherein assessee’s name is specifically mentioned. During the course of search, the uninventorised books of accounts were found and for his non removal, an order under section 132(3) was passed (copy of the order is available at page 58 of the compilation). The search was conducted on 07.02.2008 and 08.02.2008 and the statement of the appellant was recorded on 14.03.2008, 31.03.2008 and during the course of Page 6 of 10 statement, the appellant has agreed for the valuation made by the valuer for the excess stock of ore at Rs.11,10,01,980/-. The valuation report dated 18.03.2008 is available at page No. 3 of the compilation and the statement admitting the excess stock is available at page Nos. 4 to 6 of the compilation. The learned DR further contended that assessee has retracted from earlier statement of admitting the excess stock vide his letter dated 10.09.2009. Despite issuing notice under section 142(1), the assessee has not filed the return of income. The return of income was sent by registered post on 25.11.2009 declaring a loss of Rs.1,05,57,700/-. Thereupon, notice under section 143 and 142 was issued. AO has afforded sufficient opportunity to explain or reconcile the excess stock with its books of accounts but the assessee could not do the same. Therefore, the addition made by the AO and confirmed by the CIT(A) does not call for any interference.
Having heard the rival submissions and from careful perusal of the orders of the lower authorities and material available on record, we find the search and seizure operation was also conducted upon the assessee along with B. M. Farookh as is evident from the panchanama appearing at page Nos. 51 and 62. In this panchanama, joint warrant was issued in the name of B. M. Farookh of M/s. Fiza Developers and Inter Trade Pvt. Ltd., and the assessee. During the course of search, uninventorised books of accounts were also found. These excess stocks of iron ore lying at the business premises of the assessee at chikkanayakanahalli was also found during the course of survey conducted. The excess stock was valued by Shri. K. Nagabushan, Mining Engineer and Registered Valuer, who after having conducted a professional survey submitted the valuation report on 18.03.2008 valuing the investment in raising a stock at Rs.11,10,01,980/-. The valuation report was confronted to the assessee during the course of statement recorded on 31.03.2008. In response thereto, the appellant has admitted the additional income of Rs.11,10,01,980/- for the assessment year 2007-08 and 2008- 09. He however stated that he will update his books of accounts and produce
Page 7 of 10 before the AO or the ADIT shortly. His first statement was recorded on 14.03.2008 in which he offered Rs.7,00,00,000/- on tentative basis. On 14.03.2008, he has deposed that he will arrive at the actual amount and furnish the details on the valuation report that will be submitted by the Mines Engineer Shri. K. Nagabhushan. After the surrendered statement, he has not filed the return of income though he was asked to file the same by the AO by issuing notice under section 142(1) on 24.02.2009. The AO issued different notices asking the assessee to file the return of income but it was not filed and finally the return of income was sent by registered post on 25.11.2009 declaring a loss of 1,05,57,700/-. We have also carefully perused the assessment order and we find that assessee was repeatedly asked by the AO to explain the source of excess stock also to reconcile it from the books of accounts. Before the AO, the assessee was challenged the validity of the statement but he could not furnish or explain the source of investment in excess stock. He has also attacked the valuation report but did not find any other valuation report in support of his contentions.
8. A search was conducted on 07.02.2008 and thereafter survey under section 133A was also conducted at the business premises of the assessee and excess stock of iron ore was found at the mines of the assessee. The statement of the assessee was recorded on 14.03.2008 in which assessee/appellant has offered an additional income of Rs.7,00,00,000/-. Besides, offering the additional income of Rs.7 crore, the assessee has stated that he will arrive the actual amount and furnish the details based on the valuation report. The statement of the assessee in response to question No. 3 is extracted hereunder for the sake of reference: “Q. No. 3 Do you need to state anything else. Ans. I have offered additional income for taxation at Rupees Seven Crores on tentative basis. I will furnish the assessment year details of the above offer to you shortly. I also submit that I will arrive at the actual amount and furnish the details to you based on the valuation report that would be submitted by the mines engineer Shri. Nagabhusan and on the basis of the seized material, my above offer may be accepted under section 132(4) of the IT Act, 1961. I request that all the benefits available under section 132(4) may be granted to me for the above offer.”
Thereafter, the valuer has made a professional survey of the stock of iron ore at the mines of the assessee and submitted valuation report on 18.03.2008. The valuation report was confronted to the assessee and his statement was recorded on 31.03.2008. Having examined the valuation report, the assessee has come forward to offer an amount of Rs.10,10,01,980/- for taxation in his hands for assessment year 2007-08 and 2008-09. The relevant portion of statement recorded on 31.03.2008 is extracted hereunder for the sake of reference: “Q.9: While giving your sworn statement U/s 132(4) of the I T Act on 14.03.2008 in your answer to Q.3 you had stated that you will arrive at the actual amount of investment in raising the iron ore stock available in the mines, as per the valuation report of the Mines Engineer Sri Nagabhushan, since you have not maintained proper books of accounts for the above period. I am giving you the copy of the valuation report dt 18.3.2008 submitted by Sri K Nagabhushan, panel valuer and Mines Engineer. He has estimated that 5,62,324 MTs of different varieties of iron ore is available in the mines. He has also estimated the expenses for raising the above stock at Rs 11,10,01,980/- (Rupees eleven crores ten lakhs one thousand nine hundred eighty only). Do you agree with the valuation. Ans: As stated in my sworn statement dt 14.3.2008 in my answer to Q.No.3, I agree with the valuation given by Sri K Nagabhushan, Mines Engineer and Valuer. I offer the amount of Rs 11,10,01,980/- for taxation in my hands for the A Y 2007.08 and A Y 2008.09 being my investment in raising the above stock of iron ore. I will furnish the Asst Year wise break up of the above amount and will pay the taxes shortly.” Q.9: Do you want to state anything else. Ans: As stated above I have offered the above additional income of Rs 11,10,01,980/- for assessment for the A Y 2007.08 and A Y 2008.09. I will update my books of accounts and produce before you shortly. I also want to add that I had completed construction of my residential house during Nov 2006 and I had disclosed the investment will 31.3.2006 at Rs 62,67,504/- in my balance sheet for the F Y 2005.06. I offer the difference amount of Rs 17,32,500/- for Asst for the AA.Y 2007.08 as already stated in my sworn statement dt 07.02.2008 during the course of the search.”
10. The retraction from the offered income was first time made by the assessee
Page 9 of 10 on 10.09.2009 when the assessee was repeatedly asked to file the return of income. First notice under section 142(1) was issued on 24.02.2009 thereafter on 22.05.2009 and 28.08.2009. Moreover, the assessee did not retract from his earlier statement through letter dated 10.09.2009 specifically. He simply wanted time to update the books of accounts and to explain excess stock. But despite affording various opportunities to the assessee, assessee could not explain satisfactorily its source of investment in the excess stock found during the course of survey operation at the business premises.
Though the search was conducted at the residential premises of the assessee, but the assessment is being framed on the basis of the survey conducted at the business premises of the assessee where the excess stock was found. Therefore, we find no infirmity in the assessment framed under section 143(3) of the Act.
From the careful perusal of the assessment order we find the AO has dealt with all the objections raised by the assessee in detail in his order. Since the excess stock of iron ore was found, the onus is upon the assessee to explain the source of the expenditure incurred in mining such excess ore. The valuation of excess ore was done by the valuer and the same was also confronted to the assessee and the assessee has not disputed the method of valuation done by the valuer while offering the additional income on 31.03.2008. It is not the case where the income was offered or surrendered by the assessee under duress or pressure. Search was conducted on 07.03.2007 and additional income was offered through statement on 31.03.2008. Even after making statement, the assessee did not come forward to retract the statement on a plea that the statement was recorded under duress or in pressure. The retraction statement comes through letter dated 10.09.2009, almost after a year. Therefore it cannot be said that retraction is valid and there is no value of the statement recorded by the Revenue
Page 10 of 10 authorities. Moreover, sufficient opportunity was given to the assessee during the course of assessment proceedings to explain the source of expenditure incurred in extracting the ore but no satisfactory explanations were furnished by the assessee. He simply made a general/legal objections which were duly dealt with by the AO. Under these facts and circumstances of the case, we are of the considered view that the valuation of excess stock was done properly and the assessee was suppose to explain the source of expenditure incurred in mining the said ore and when he failed to do so, the AO has rightly made the additions on account of unexplained investment, which were latter confirmed by the CIT(A). We therefore find no merit in the assessee’s appeal.
Ground No. 10 relating to charge of interest under section 234A, 234B and 234C is consequential in nature, it needs no independent adjudication. Accordingly, the order of CIT(A) is confirmed and appeal of the assessee is dismissed.
In the result, appeal of the assessee is dismissed. Pronounced in the open court on 22nd September, 2017.