D.C.I.T CIR - 7,KOLKATA, KOLKATA vs. P.K.S LIMITED, KOLKATA

Since both the appeals above are against the same Assessee and the issues involved therein are interlinked and with the consent of the parties were heard together and consolidated order is being passed.

First, we shall take up the appeal filed against the order dated 15-03-2013 which arose against order U/Sec 143(3) of the Act.

The Revenue has raised the following grounds:- that under the facts and circumstances of the case, the learned CIT (appeals) – VIII, Kolkata, has erred in law as well as in facts in deleting the addition of Rs.60,14,746/-towards “handling & moisture loss” from the net profit in the case of iron ore

The assesse is a company dealing in the business of export and conducting its business in the name and style as PKS Limited and filed its return showing a total income at Rs.8,45,76,498/-on 29 -9 – 2008. Under scrutiny, notices under section 143(2) and 142(1) of the act issued, and & 1935/K/2013 M/s. PKS Ltd 2 in the response to which the assessee filed audited balance sheet, profit and loss account, tax audit report, bank statements, depository statement and books of accounts.

During such proceedings the AO observed that the assessee deducted an amount of Rs.60,14,746/-towards handling and moisture loss from the net profit as per profit and loss account. The assessee explained that there are two types of losses i.e. handling & moisture that would occur during the period of mining and shipment and the assessee did not consider such a loss during the valuation of closing stock of iron ore, thereby, resulted more value of closing stock in audited accounts. It was the contention of the assessee that according to their practice and depending upon the factors, the losses under handling and moisture will be worked out to 8% to 10% in the valuation of closing stock. The AO opined that the opening and closing stock was not valued physically and also was of the view that application of such percentage was without any basis and it is a notional percentage and disallowed the claim of Rs.60,14,746/- made by the Assessee.

In first appeal before the CIT-A, the assessee submitted that the AO not allowed the claim only on the reason that the said claim was not routed to profit and loss account. In this regard, the assessee placed on reliance on column no-12A of tax audit report wherein all the required information was provided in respect of the said claim. Considering the same and on examination of the record with regard to physical verification of stock conducted by the banks and certificates issued by the officials of the assessee, the CIT-A found that the AO was not justified in disallowing the claim towards handling and moisture loss, accordingly, & 1935/K/2013 M/s. PKS Ltd 3 deleted the addition of Rs.60,14,746/-made by the AO. The relevant portion of which reproduced herein below:

In challenge the revenue before us by raising the sole ground as mentioned herein above. The learned DR submits that the assessee did not produce anything in support of its claim before the AO. The learned DR further argued that it is a notional loss and it is, as rightly held by the AO, not allowable. The learned DR referred to para.5.1.3 of the order of CIT-A showing that the CIT-A deleted the addition by relying on the new evidence as produced by the assessee for the first time and submitted the CIT-A would have given an opportunity to the AO under remand proceedings and sought to allow the appeal.

The learned AR submits that the AO disallowed the claim of the assessee only on the impression that the said claim was not routed through profits and loss account. The learned AR further argued that the AO completely ignored the material information as provided in column number-12A of tax audit report. The learned AR submits that basing on such information the respondent revenue was allowing the claim of the assessee in earlier years and placed on record the assessment orders for 2006 – 07 and 2007 – 08 and argued that there was no material change involving the present claim of the assessee and the AO must follow the rule of consistency and prayed to dismiss the appeal.

Heard rival submissions and perused the material evidence on record. We find that the assessee submitted all the details relevant to its return of income including the impugned addition made on account of loss determined towards handling and moisture loss in the process of mining & 1935/K/2013 M/s. PKS Ltd 5 of iron ore, is evident from the assessment order and more particularly explanation offered by the assessee in its reply letter dated 4 October 2010 wherein the assessee stated that with regard to the difference of Rs.6.60 crores due to non-consideration of losses involving the claim in valuation of closing stock and submitted, because of such non - consideration resulted the difference in audited accounts. In first appeal, the CIT-A examined the details of working of loss or the shortage of stock and also verified the certificates issued and endorsed by the concerned of officials of the assessee. It is observed from the record that all the details involving the impugned addition has been provided in column number – 12A of tax audit report and it was available before AO in the assessment proceedings, ignoring such information and the AO having the opinion the said claim was not routed through profit and loss account and addition thereon is not justified.

We are not in agreement with the submissions of learned DR in respect of acceptance of new evidence by the CIT-A and relief thereon to assesse for the reason that the respondent Revenue has been consistently allowing the claim of the assesse as could be gathered from the assessment orders for A.Y’s 2006-07-07 & 2007-08 and the same were completed the assessments U/Sec 143(3) of the Act. Therefore, we find no reason to interfere with the order of the CIT-A and it is justified, accordingly, sole ground raised by the Revenue fails and it is dismissed.

Now, we shall deal with the other appeal filed by the Revenue challenging the cancellation of penalty as imposed by the AO U/sec 271(1)(c) of the Act. & 1935/K/2013 M/s. PKS Ltd 6

The appellant revenue raised the following grounds:

It is observed from the penalty order, that the AO initiated the penalty proceedings by issuing a notice under section 274 of the act on two grounds. One such ground was that as discussed in the afore mentioned paras of appeal in ITA 1935/Kol/2013 wherein we arrived at a conclusion that the order of AO in respect of disallowance involving the addition made on account of handling and moisture loss is not justified and confirmed the order of CIT-A.

It is also observed from the penalty order, that the AO passed penalty order exparte and thereby, imposed such penalty without hearing the assessee. It is also observed from the impugned order in this appeal, wherein the CIT-A opined that mere making a claim which is not sustainable in law, by itself, would not amount to punishing inaccurate particulars regarding income of the assessee and found that the assessee furnished any inaccurate particulars of its income, thereby, cancelled the penalty imposed by the AO.

In this regard we may refer to the decision of Honourable Supreme Court supra and the facts therein are that the assessee & 1935/K/2013 M/s. PKS Ltd 7 therein filed return for the relevant assessment declaring loss of Rs. 26,54,554 and the determined the total income at Rs. 2,22,688, whereby, the addition in respect of interest expenditure was made. The AO initiated penalty proceedings under s. 271(1)(c) of the Act on account of concealment of income/furnishing of inaccurate particulars of income. The CIT-A deleted the said disallowance and the Tribunal and Hon’ble High Court upheld the order of CIT-A. Before the Honourable Supreme Court the assessee contended that the disallowance made by the AO was solely on the basis of a different view on the same set of facts and there was no concealment of income nor what any inaccurate particulars of such income furnished. The Honourable Supreme Court held that a mere making a claim which is not sustainable in law and will not amount to concealment of income or furnishing inaccurate particulars. The relevant portion of which is reproduced herein below:

In the present case, the assessee filed the required evidence before the AO in original assessment proceedings wherein the claim amount to the extent of Rs.60,14,746/- was disallowed on the ground that it not routed through profit & loss account. Therefore, it is clear the AO identified the amount of Rs.60,14,746/- and disallowed. The CIT(A) considered the material available on record and found fault with the finding of the AO and allowed the & 1935/K/2013 M/s. PKS Ltd 8 said claim of the assessee. Therefore, the AO did not consider the material evidence available on record in right perspective. We find that disallowance of claim does not mean that the assessee has filed the inaccurate particulars of income. We also find that there is no finding that any details furnished by the assessee in its return were found to be incorrect or false. Thus, the order of penalty is liable to be quashed. In our view that the assessee has offered explanation vide its letter dt:4-10-2010 in assessment proceedings regarding loss as claimed, which has been substantiated by way of material evidences in column no-12A of Tax audit report regarding the claim before the AO, which is found to be bonafide relating to claim as found by CIT-A. Therefore, no penalty in this regard can be imposed. Therefore, in view of the discussion above and in para-10, the penalty imposed is hereby cancelled and the order of the CIT-A is confirmed. Therefore, sole ground raised by the Revenue is dismissed.

In the result, both the appeals filed by the Revenue in for the A.Y’s 2008-09 are dismissed.