ACIT, CIR-2, BURDWAN, KOLKATA vs. M/S RAJ LAXMI RICE MILL PVT. LTD., BURDWAN

This is an appeal filed by the revenue against the order of Ld. CIT(A)-Burdwan dated 26.05.2015 for AY 2010-11.

The sole grievance of the revenue is against the action of the Ld. CIT(A) in deleting the addition of Rs.54,92,434/- made by AO u/s. 69B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). 3. Brief facts of the case are that the assessee is into business of rice milling and had filed e-return of income on 27.09.2010 declaring a total income of Rs.13,50,523/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noted that the assessee maintained a cash credit loan account with SBI, Burdwan Main Branch. The AO issued notice u/s. 133(6) of the Act to the Bank Manager asking for copies of the statement of assets hypothecated against cash credit loan by the assessee. In response, the Chief Manager, SBI furnished the copies of the statement of assets hypothecated against the cash credit loan submitted by the assessee with the Bank for the period from April, 2009 to 31.03.2010 and it was noticed by the AO from the said 2 Raj Laxmi Rice Mill Pvt. Ltd., AY, 2010-11 documents that stock position as on 31.03.2010 has been valued at Rs.96,53,000/- against closing stock valued at Rs.41,60,866/- as on 31.03.2010 as shown by the assessee in the Balance Sheet for the year. Thus, the AO observed that the assessee has undervalued the closing stock for computation of low profit for the purpose of reducing the tax burden. Thereafter, the AO issued show cause notice as to why the undisclosed closing stock of Rs.54,92,434/- should not be added to the total income. The assessee company replied to the said show cause notice that the stock of paddy, paddy work in progress and rice bran was inflated in the bank statement only for securing high cash credit and that the closing stock shown to the bank was inflated and the assessee company referred to eight case laws of Hon’ble High Courts of Madras, Rajasthan, Jammu & Kashmir, Allahabad etc. to the notice of the AO and contended that in the light of the plethora of decisions cited the assessee’s explanation may be considered and no addition be made on this score. However, the AO did not agree with the explanation given by the assessee and referred to the decision of P&H High court in the case of B. T. Steels Ltd. Vs. CIT (2010) 328 ITR 471 (P&H) and Karnataka High Court decision in the case of Recon Machine Tools Pvt. Ltd. Vs. CIT 286 ITR 637 to repell the contention of the assessee company and made the addition of Rs.54,92,434/- as undisclosed investment u/s. 69B of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the addition. Aggrieved, the revenue is before us.

We have heard rival submissions and carefully perused the material available on record. We note that the assessee company is doing the business of rice milling. During the course of assessment proceedings, the AO asked from, the SBI, Burdwan for the statement of assets hypothecated against cash credit loan by the assessee and received it from the SBI. When he compared it with the assessee’s Balance Sheet produced as on 31.03.2000 before him, found that there was a difference of closing stock of Rs.54,92,434/-. When confronted, the assessee company stated that in order to secure higher cash credit, the assessee has shown its stock of paddy, paddy work-in-progress and rice bran at an inflated amount and relied on the decision of various High Courts wherein in similar cases, the explanation of the assessee to show inflated stock to avail higher cash credit has been accepted unless the 3 Raj Laxmi Rice Mill Pvt. Ltd., AY, 2010-11 bank had physically verified the stock and certified it. We note that the AO has relied on the decision of Hon’ble P&H High Court in the case of B. T. Steels Ltd., (supra) which is not applicable to the assessee’s case because in that case the Tribunal held that the AO not only had the bank statement before him but also the verification thereof by the Regional Officer that the stock was actually lying with the assessee. In the present case in hand, there is no such physical verification by the bank that the hypothecated assets have been physically verified. The AO has not found any mistakes in the books of account maintained by the assessee. The assessee’s sales are subject to VAT and as per VAT return, the quantum of sales is tallied with the sales found recorded in the sales details and books of account. The opening stock as per audited books of account has not been found to be incorrect by the AO. The AO has not found any discrepancy between the value of purchase and sales shown by the assessee in the books of account. Further, we note that the assessee’s business are monitored by District Controller, Food & Supplies Department, Burdwan which is under the Govt. of West Bengal since the paddy is a controlled item. The officers of Food & Supplies Deptt., are empowered to supervise, control, monitor the consumption of the paddy, production of rice, movement and stock of rice since it is an essential commodity under the Essential Commodities Act. The Ld. CIT(A) has taken note of the fact that the District Controller, Food & Supplies Deptt., Burdwan had attested inter alia, the stock of rice at Rs.41,60,866/- which tallies with the books of account of the assessee. The Ld. CIT(A) has taken note of the decisions of Hon’ble Madras High Court in CIT Vs. Apcom Computers Pvt. Ltd. 292 ITR 630 (Mad), Hon’ble Allahabad High Court in CIT Vs. Khan & Sirohi Steel Rolling Mills (2006) 152 Taxman 224 (All) and Hon’ble Bombay High Court decision in CIT Vs. Acro India Ltd. 298 ITR 447 (Mum) and the Coordinate Bench decision of Tribunal, Cochin bench in the case of ACIT Vs. Manglam Publication (2010) 190 taxman (Mag.) 1 (ITAT Cochin) to accept the explanation rendered by the assessee company for the difference in stock position between the statement given to the bank as well and that given in the Balance Sheet. We note that when there are conflicting decisions of various High Courts and when there is no jurisdictional High Court’s decision on the issue, then the decision favourable for the assessee needs to be taken as per the decision of the Hon’ble Apex Court decision in the case of CIT vs. Vegetable 4 Raj Laxmi Rice Mill Pvt. Ltd., AY, 2010-11 Products Ltd. (1973) 88 ITR 192 (SC). Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and we uphold the same. Appeal of revenue is, therefore, dismissed.

In the result, the appeal of the revenue is dismissed. Order is pronounced in the open court on 17th November, 2017 Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 17th November, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to: 1. Appellant – ACIT, Circle-2, Burdwan 2 Respondent – M/s. Raj Laxmi Rice Mill Pvt. Ltd., Vill & P.O-Jabui, Dist. Burdwan, Pin-713422 3. The CIT(A), Burdwan 4. CIT , Burdwan 5. DR, Kolkata Benches, Kolkata /True Copy, By order,