DCIT, CORPORATE CIRCLE - 1(1),, CHENNAI vs. M/S. ALLIANCE GRANIMARMO PVT. LTD.,, CHENNAI

आदेश / O R D E R PER AMITABH SHUKLA, A.M : This appeal is filed against ITA No. ITA-30/CIT(A)-1/11-12 dated 30.05.2019 of the Learned Commissioner of Income Tax [herein after “CIT(A) for the assessment year 2009-10. Through the aforesaid appeal the assesse has challenged the order under ITA No. ITA-30/CIT(A)-1/11- 12 dated 30.05.2019 passed by CIT(A), Chennai. 2.0 It is seen from records that there is delay of 05 days in filing of this appeal. The assesse has submitted that it did not have timely access to the records , receivable from department, as result of which the

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impugned delay had occurred which was purely unintentional and accidental. Evidences brought on record allude that there is sufficient force in the assessee’s arguments. The delay in filing the appeal is therefore condoned and the appeal is being adjudicated as under. Ground of Appeal number 1 is general in nature and hence does 3.0 not requires any adjudication. 4.0 Grounds of appeal number 2-6 are centering around the twin disturbances made by Ld. AO on the valuation of closing stock and its deletion by the Ld. First Appellate Authority. 5.0 The first issue engrained in ground of appeal numbers 2-6 is regarding an addition of Rs. 2,51,93,262/- on account of under valuation of stock. The Ld. AO held the view that the assesse was required to value the closing stock of Karimnagar in parity with rates of closing stock at its TADA premises. Ignoring the arguments of the assesse that the Karimnagar stock was of comparatively inferior in quality as compared to TADA the Ld. AO made the impugned addition. On the said matter the Ld. CIT(A) has observed as under:-

“…..The submissions of the appellant were considered vis-a-vis the findings of the AO. The AO held that the closing stock of raw block at Karim Nagar had been valued at Rs.12,500/- per block whereas the closing stock of granites at Tada was valued at Rs.35,027.99 per cubic

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meter. Hence, the AO adopted a uniform rate of Rs.35,027/ per cubic meter and arrived at a value of Ra.3,91,72,162 as against Rs.1,39,78,900/- reported by the appellant for the valuation of raw blocks i.e, 1118.31 cubic meter of granite slabs at Karim Nagar. Thus, there was an undervaluation of closing stock amounting to Rs.2,51,93,262/- which was added back to the retuned income. In their grounds of appeal and during the appellate proceedings, the A.R held that the AO was not justified in adding the said sum towards undervaluation of stock of granite blocks. In the written submissions, he explained that the raw blocks mined at Karim Nagar were tan brown in colour and were comparatively of a very inferior quality as compared to the purchase of blocks at Tada, It was also submitted that the raw blocks at Karim Nagar were valued at lower or cost of market price and hence comparing the prices by applying the average purchase rate of higher quality stocks at Tada unit was not at all justified. In the Remand Report dated 26/2/2019, the AO stated that the appellant was given an opportunity vide letter dated 26/12/201l to explain the variation in the rate per cubic metre between Tada unit and Karim Nagar unit. It was concluded that the appellant company had not produced any substantial new evidences in support of their claim. Hence, it was held that the addition made on account of under valuation of closing stock was in order.

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The evidences furnished by the appellant during the appellate proceedings were carefully examined. The appellant company had furnished the comparative rates of sales of TAN Brown blocks of Karim Nagar visa-vis other blocks, both for exports as well as for domestic sales. It was noted that the net FOB rate in INR in the case of TAN brown blocks varied from 9178 to 14463. In the case of other colour blocks pertaining to Tada, the FOB rate was around 47000. As regards the domestic sales, the granite blocks of Karim Nagar were valued at rates which ranged from Rs.8500/- to Rs. 12,500/-. In the case of Tada and other colour blocks, the rate of domestic sales ranged from Rs.20,000/- to Rs.50,000/ - . Thus, it is apparent that there is a significant difference in the values of the Karim Nagar blocks as compared with those of Tada. The appellant also furnished copies of the invoices and shipping bills pertaining to TAN brown rough granite blocks and the other blocks such as "new imperial red" granites which were shipped to countries such as USA. Taking into account the facts, circumstances and the evidences furnished by the appellant, I find that there is considerable force in their submissions that the value of the granites mined at Karim Nagar are distinct as compared with those procured and used for production of slabs at Tada. Hence, the appellant's claim is found to be tenable. The disallowance made on account of under valuation of closing stock to the extent of

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Rs.2,51,93,292/- requires to be deleted. This ground of appeal is allowed…..” 6.0 We have heard rival submission in the light of facts of the case and material brought on records. The Ld. Counsel for the assesse, while reiterating the arguments which it had taken before the lower authorities drew our attention through his paper book, in support of its arguments, that there existed difference in the quality of granite sold and the corresponding price variation. We also note that the Ld. First appellate authority in his order supra, extracted herein above has analyzed the issue in great detail, inter-alia, by considering the remand report of the AO 26.02.2019. The Ld. Counsel for the assesse has, through his copies of invoices and shipping bills placed in the paper book, vividly explained that there exists a significant difference in the values of stone blocks at Karimnagar and TADA. The Ld. CIT(A) has concluded that the value of Granites mined at Karimnagar are the distinct when compared with those procured and used for production at TADA. The Ld. DR placed reliance upon the order of the Ld. AO. It was submitted that the assesse had cherry picked a specific bills and invoices in furtherance of its arguments. We find that the Ld. First appellate authority has passed a speaking order after carefully analyzing the material available on records and therefore does not require any interference at this stage. Accordingly, we confirm the order of the Ld. CIT(A) in respect of deletion of addition of Rs.2,51,93,292/- and dismiss the appeal filed by the Department.

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7.0 The next issue which has come up for our consideration is regarding the addition of Rs.9,51,32,300/- made by the Ld.AO. During the assessment proceedings the Ld. AO noted variation in quantum of dispatch of raw blocks from Karimnagar unit. The issue was discerned by the Ld. AO while considering the seignorage fees paid by the appellant. The said fees is reportedly paid by the entities, who have been allotted mines, in respect of excavations done by them from a specific mining units in a financial year. The Ld. AO noted that the mineral assessment reports prepared by the Department of mines and geology showed quantum of output dispatched from Karimnagar unit of 5739.893 cu.m. As against this, the quantum sales admitted was only 3024 cu.m which included an inter unit transfer of 503.57 cu.m to TADA. Thus there was a difference of 2715.893 cu.m. The Ld. AO rejected the arguments of the assesse that the variations had arisen between the dispatches and the actual quantity invoiced. The assesse explained that as per government rules seignorage fees was paid on the entire blocks dispatched but the sales was only of good quality saleable block forming part of the said block. The Ld. AO rejected the argument that it was customary in this line of business that there existed a difference between the quantities appearing in the mineral assessment orders vis-à-vis financials admitted by the assesse’s. Rejecting the arguments, the Ld. AO made addition of Rs.9,51,32,300/- by multiplying 2715.893 cu.m with Rs.35028. 8.0 We have heard the rival submissions in the light of material placed on records. The Ld. AO would like to make us believe that the explanation given by the assesse was unacceptable by citing deficiencies noted in para 15.3 at

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page-3 of his order. The argument of the variation being customary in this line of business has been negated by the Ld. AO on the premise that the same was not included by the assesse in the mandatory Tax Audit Report filed u/s 44AB. The Ld. DR fiercely opposed the relief accorded by the Ld. First Appellate Authority by relying on the order of the Ld. AO. 9.0 The Ld. Counsel for the assesse stated that it is customary in this line of business where the assessees are required to pay, as per government rules seignorage fees on the entire blocks of stone excavated from mine. It was argued that the block of a stone for which seignorage fees was paid, cannot always be sold as it is that is to say every block would have some part which would be damaged or qualitatively inferior to the extent of having nil value or suffering from some aspect, which makes some part as commercially unviable. In support of its arguments, the assesse invited our attention to study conducted by shodhganga – a reservoir of Indian thesis. A copy of Chapter-VI of the report was placed on record indicating that government collects its royalty dues on the gross measurement and not on net measurement. It was stated that the recovery of marketable granite was about 32 to 40% in Karnataka, 25 to 75% in Rajasthan and 20 to 40% in Tamil Nadu. The report recommended collection of royalty fees by the government on net measurement basis. On the issue of non-inclusion of the impugned quantity of particulars in the tax audit report, the Ld. Counsel for the assesse submitted that the said particulars were shown in the tax audit report in as much as sales figures clearly mentioned that the quantity dispatched from Karimnagar was 3024.cu.m and not 5739.89 cu.m.

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10.0 The Ld. First Appellate Authority, after considering the arguments put forth by the assesse held as under:-

“……The submissions of the appellant were considered vis-à-vis the findings of the AO. The AO noted that there was a variation between the output as per the Mineral assessment order made by the Department of Mines & Geology and the output reported in the financials of the appellant. The addition made in this regard amounted to Rs.9,51,32,300/-. In the Remand report it was stated that the appellant company had not reported the variations in the aforesaid items in its Tax Audit report. It was also stated that the appellant company themselves accepted that there was always a variation between gross and net measurement. It was also concluded that the appellant company had not produced any substantial new evidence in support of its claim. Hence, it was maintained that the addition made on account of variation in output was in order. In their subsequent reply, the appellant stated that the quantitative particulars had been clearly submitted in their Tax Audit report. A copy of the same was also furnished. The sale figures clearly mention that

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the quantity dispatched (Karim Nagar mines) is 3024 CBM and not 5739,893 CBM. Taking into account the explanations and the evidences furnished by the appellant, I am inclined to accept the contentions of the appellant that there were substantial reasons for the difference between the variation of output which is basically on account of the difference between the gross measurement of the granite blocks on which seigniorage fees were paid and the net measurement for which deductions were made by the buyer. Royalty/seigniorage fees is paid by the appellant on the gross measurement i.e on the granite blocks which were extracted from the mines whereas the blocks are sold on the net measurement as marked by the buyer. For instance, in Invoice No.3 dated 13/4/2018, the sale is for net measurement of granite block 280x150x150=6300 CBM whereas the corresponding transit form issued by the Department of Mines and Geology is on gross measurement 334x195x175=11.398 CBM. This comprises seigniorage fees and cess. Various such evidences were furnished by the appellant to substantiate their claim that the Mineral assessment by the Department of Mines and Geology was based on gross measurement on which seigniorage fees were charged by them whereas the sales invoices are raised based on net measurement as appraised or marked by the buyer after rejecting the defects and cuts in

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the blocks. Hence, this addition made on account of variation in output requires to be deleted. This ground of appeal is allowed….”. 11.0 In view of the above, the Ld. First Appellate Authority proceeded to accept the contention of the assesse that the difference between the output qua payment of seignorage fees and the actual sales was natural and customary in this line of business and deleted the additions made. Whereas there can be no dispute regarding the fact that there is a strong likelihood of qualitative difference between the quantity mined and the quantity actually sold. It is also an undisputed fact of the case that the government collects its royalty or what is known as seignorage fees on gross measurement of excavated blocks. 12.0 The question which thus remains is to quantify the ratio of damaged or unsaleable portion vis-à-vis high quality and saleable portion of the granite. The shodhganga study report alluded that the recovery of marketable granite was about 32 to 40% in Karnataka, 25 to 75% in Rajasthan and 20 to 40% in Tamil Nadu. The report is silent about percentage ratios available in Andhra Pradesh where the mining was done. It is seen that the appellant has claimed about 50% damages / unsaleable proportion qua the gross measurement of excavated granites. The shodhganga study report estimates lowest marketability of excavated granites at 20% in Tamil Nadu and highest at 75% in Rajasthan. Consequently, we are of the view that an estimate of 60% marketable granite being procured by the assesse can be

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made. The Ld. AO is therefore directed to recompute his addition by allowing the assesse a benefit of 40% as damaged or unsaleable granite stock by examining the books of accounts of the assesse including bills and voucher concerning the impugned granite blocks of Karimnagar Unit. The assesse is directed to render all assistance and cooperation to the Ld. AO in compliance of these directions. Non-cooperation from assesse side can be adversely viewed. To the extent the grounds of appeal raised by the Appellate Revenue on this issue are partly allowed. Ground of Appeal number 7 is regarding the violation of principle 13.0 of natural justice in as much as non-rendering of opportunity of being heard. The appellant revenue would like to make us believe that the Ld. First Appellate Authority has entertained, admitted and considered evidences put forth by the assesse and given relief therefrom without rendering the Ld. AO an opportunity of examining the same. Thus simply put the appellant Revenue has alleged that the Ld. CIT (Appeal) has violated provisions of Rule 46 A qua admission of additional evidence during appellate proceedings.

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14.0 It is therefore imperative at this stage to examine legal stipulation governing rule 46A.

“……46A. Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals).

(1)The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely :- (a)where the Assessing Officer has refused to admit evidence which ought to have been admitted ; or(b)where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer ; or(c)where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal ; or(d)where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.(2)No evidence shall be admitted under sub-rule (1) unless the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals)

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records in writing the reasons for its admission.(3)The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity-(a)to examine the evidence or document or to cross-examine the witness produced by the appellant, or(b)to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.(4)Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271….”

15.0 A bare reading of the statute narrated herein above indicates that a CIT (Appeal) is empowered to admit additional evidence during appellate proceedings which were not or could not be produced during assessment proceedings or in the opinion of the First Appellate Authority are necessary for adjudication of pending appeal with the exception that

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the assessing officer would be given an opportunity to consider said evidences. 16.0 The Revenue can always claim to be an aggrieved party if it’s this right is violated. At the outset it is noted that no request was made by the assesse before the Ld. First Appellate Authority for admission of any additional evidence under rule 46 A. Further, second para on page 10 of CIT appeal order shows that the authority had called for a remand report from the Ld. AO which was submitted. It has unequivocally recorded by the Ld. First Appellate Authority that “…..It was concluded that the appellate company had not produced any substantial new evidences in support of their claims …” indicating clearly that the AO considered evidences produced before the CIT appeal and confirmed their submission during his assessment proceedings. The impugned narrative from the AO clearly establishes that he was afforded an opportunity of considering the details etc filed by the assesse, though strictly not falling in category of additional evidence, by the Ld. First appellate authority which was duly availed. This finding of the Ld. CIT appeal has neither been controverted by the appellant Revenue by way of a ground of appeal nor has the revenue put forth any evidence in support thereof. Consequently, the ground of appeal raised by the appellant revenue is

ITA No.2579/Chny/2024 :- 15 -: not supported by evidence on records. Accordingly, the ground of appeal number 7 raised by the revenue is dismissed. 17.0 In the result, the appeal of the Revenue is partly allowed. Order pronounced on 28th , August-2024 at Chennai.

Sd/- Sd/- (यस यस ववश्वनेत्र रवव) (श्री अमिताभ शुक्ला) (SS Viswanethra Ravi) (Amitabh Shukla) न्याययक सदस्य / Judicial Member लेखा सदस्य /Accountant Member चेन्नई/Chennai, ददनांक/Dated: 28th , August-2024. KB/- आदेश की प्रयतमलवप अग्रेवषत/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT, Chennai 4. ववभागीय प्रयतयनधि/DR 5. गार्ड फाईल/GF