ITO, LUDHIANA vs. M/S C.C. COLD STORAGE, LUDHIANA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH’A’, CHANDIGARH

BEFORE MS. DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER

ITA No. 1137/Chd/2016 Assessment Year: 2011-12

The ITO Vs. M/s C.C. Cold Storage Ward -3 (2) Ludhiana Ludhiana

PAN No. AAAFC8197L (Appellant) (Respondent) Assessee By : Shri Ashwani Kumar Revenue By : Smt. Chandrakanta

Date of hearing : 09/01/2018 Date of Pronouncement : 09/04/2018

ORDER PER DIVA SINGH, J.M.

The present appeal has been by the revenue assailing the correctness of the order dated 26/08/2016 of CIT(A) 1 Ludhiana pertaining to 2011-12 assessment year on the following grounds: 1. Whether in the facts and circumstances of the case in law, was the Ld. CIT(A) justified in deleting the addition when it is accepted principle that during the survey if any stock is found on the premises of the assessee, it is taken to be the stock of the assessee unless proven otherwise?

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of appleas @ Rs. 50 per kg. i.e the minimum cost of apples at the time of survey, total value was worked out to Rs. 1,57,17,750/- which the assessee was required to explain. It was his submission that the assessee could not provide the details of parties to whom these apples belonged to neither at the time of survey nor during the assessment proceedings. Thus in the absence of any explanation the assessee having failed to discharge the onus placed upon it to prove that the stock lying at the business premises does not pertain to it led to the making of addition of the said amount in the hands of the assessee. Accordingly it was his submission that in the peculiar facts and circumstances of the case where admittedly the assessee could not identify by way of either giving the names of the parties or any of the details about the boxes of apples it was submitted these have correctly been treated as belonging to the assessee and the relief granted by the CIT(A) in these peculiar facts and circumstances it was submitted was contrary to the finding of the assessing officer which is challenged in the present proceedings. Inviting attention to the remand report extracted by the CIT-A in the facts of the present case specifically page 10 it was his submission that admittedly the identity neither by way of a postal address or the PAN details or any other identification could be demonstrated by the assessee.

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2.4 I have carefully considered the facts of the case, the basis of the addition made and the arguments of the AR. The appellant firm is engaged in the business of running a cold storage. During the course of the survey operations , 20,00,957 boxes of apples, 15 kgs each, were found lying at the business premises of the assessee. The assessee was asked to furnish confirmations from the said parties which could not be filed. Therefore, by taking the value of apples @ Rs. 50/kg, the said addition was made by treating the said income as income from undisclosed sources. The addition was made by mainly by relying on the report of the investigation wing. No independent enquiry was conducted and no other material was brought on file by the Assessing Officer. The AR explained that the appellant firm charges monthly rent on fruit and Karyana and for the season for potato storage. No evidence was found either during the survey or during the assessment proceedings to prove that the appellant firm is engaged in the business of trading the said items. From the records found during the survey, no adverse evidence could be gathered to show that the appellant is engaged in trading of the said items. The modus operandi of the business as explained by the AR is that when the items enters its premises; the details of the items are entered in the respective registers with 'Marka' as suggested by the person who has brought the items. Later on, when the goods are to be delivered, the rent is received as per the gate pass. These items are carried to and fro from the cold storage in trolleys, rehris and rickshaws. At the time of delivery, the goods are delivered to the concerned person against the rent received. The AR explained that the nature of the business is such that the appellant is not bound or required legally or otherwise to know the real identity of the owners of the items and their other details. The appellant is concerned with the rent received only/At the time of delivery of the goods, charges are received as per the gate pass by the staff. The said modus operandi in this line of business explained by the appellant, has not been challenged/contradicted or countered by the Assessing Officer as such in the remand report. The receipt from storage of rent of different items in the Profit & Loss Account are shown as under:-

By Storage Rent Karyana Rs 15,96,412 By Storage Rent Fruit Rs 21,98,861 By Storage Rent Vegetable Rs 3,83,951 By Storage Rent Alu Rs 16,46,625 Total Rent Receipts Rs 58,25,849

Total receipt of Rs. 58,25,849/- has been shown from storage of various items, which has not been doubted by the Assessing Officer in the remand report. The net profit has been shown as Rs. 3,06,866/- based on the books of accounts in the shape of stock register for vegetables/sweets, stock register for food, stock register for Karyana, books for karyana gate pass, food gate pass book etc. besides regular books such as ledger, cash book etc. These records were impounded during the survey and were available with the Assessing Officer at the time of framing the assessment. According to the AR, from the records lying impounded with the Assessing Officer, it is clear that the said goods/items belong to other parties and not to the appellant. The rental income has been duly accounted for in the books of accounts. Xerox Copies of fruit receipt books, fruit gate pass book, stock register of fruit was produced before the Assessing Officer during the remand proceedings as acknowledged in the remand report. No discrepancy was found in the books as such and nothing adverse in the said records was confronted to the appellant at the time of the assessment proceedings. Further, during the course of the appellate proceedings, the AR produced copies of incoming receipts and outgoing which were test-checked. It is not the case of the Assessing Officer that the rent received from the storage of different items is not accounted for in the books of accounts. According to the AR, it is not possible to know the complete postal address of the persons whose goods are stored and neither is the appellant is under any legal or other obligation to know the PAN no. of these persons since the goods were carried by

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the rehri-walas and rickshaw-walas. The AR explained that appellant company is not legally entitled to ask for the PAN cards as per the nature and practice in trade of cold storage, the assessee charges rent only on the items to stay in the business, the assessee is concerned with the maximum storage and to earn income by rent from storage. The AR further explained that if the assessee starts enquiring about all the details of the person to bring the goods, he is bound to lose the business and the said persons will opt for other cold storages. For the purpose of the assessee in this line of business, the owners are virtually the persons who bring the items of storage. In view of the said practice in the line of business of cold storage explained by the appellant and supported by the records maintained, which has not been countered/ questioned by the Assessing Officer in the remand report, the addition could not have been made merely because the confirmations from the owners were not produced. The said evidence proves that the appellant is not the owner of the apples and there is no evidence brought on record by the Assessing Officer during the assessment to show that the appellant is actually the owner of these goods. There is nothing recorded in the assessment to other parties and not to the appellant. The rental income has been duly accounted for in the books of accounts. Xerox Copies of fruit receipt books, fruit gate pass book, stock register of fruit was produced before the Assessing Officer during the remand proceedings as acknowledged in the remand report. No discrepancy was found in the books as such and nothing adverse in the said records was confronted to the appellant at the time of the assessment proceedings. Further, during the course of the appellate proceedings, the AR produced copies of incoming receipts and outgoing which were test- checked. It is not the case of the Assessing Officer that the rent received from the storage of different items is not accounted for in the books of accounts. According to the AR, it is not possible to know the complete postal address of the persons whose goods are stored and neither is the appellant is under any legal or other obligation to know the PAN no. of these persons since the goods were carried by the rehri-walas and rickshaw-walas. The AR explained that appellant company is not legally entitled to ask for the PAN cards as per the nature and practice in trade of cold storage, the assessee charges rent only on the items to stay in the business, the assessee is concerned with the maximum storage and to earn income by rent from storage. The AR further explained that if the assessee starts enquiring about all the details of the person to bring the goods, he is bound to lose the business and the said persons will opt for other cold storages. For the purpose of the assessee in this line of business, the owners are virtually the persons who bring the items of storage. In view of the said practice in the line of business of cold storage explained by the appellant and supported by the records maintained, which has not been countered/ questioned by the Assessing Officer in the remand report, the addition could not have been made merely because the confirmations from the owners were not produced. The said evidence proves that the appellant is not the owner of the apples and there is no evidence brought on record by the Assessing Officer during the assessment to show that the appellant is actually the owner of these goods. There is nothing recorded in the assessment order to show that the Assessing Officer examined these books of accounts which were lying impounded with him. Thus, the said evidence and the supporting books of accounts have not been discussed by the Assessing Officer. The AR has made another contention that the Assessing Officer has accepted the goods and receipts of the parties who had stored other items of karyana, potatoes, vegetables etc. thus, accepting the fact that these other goods stored did not belong to the appellant. Whereas, only the ownership of boxes of apples were questioned and not accepted. Further, both the receipt of rent from the storage of apples as well as the value of apples has been treated as income of the appellant by the Assessing Officer. It is a matter of fact that no documentary evidence in the form of purchase bills, transfer receipts of goods, carrier etc was found during the course of the survey to prove that the appellant was the actual owner of the apples found. No evidence was found to the effect that the appellant had purchased the apples found at his premises. In the absence of any adverse evidence and considering the fact that the books of accounts were lying impounded with the Assessing Officer, wherein no discrepancies were

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pointed out; the Assessing Officer was not justified in making the addition by holding that making the addition merely on the basis of the report of the investigation wing, without conducting any enquiry or bringing any adverse material, whatsoever, on record. Moreover, the books of accounts which if not found reliable ought to have been rejected before making the said addition which has not been done. In the face of the evidence/ books of accounts and other records maintained by the appellant alongwith supporting receipts in accordance with the trade practice and in the nature of business, the Assessing Officer should have brought some corroborative evidence on record rather than merely relying on the report of the investigation wing, in the face of the fact that no adverse material had been found during the course of the survey pointing to the fact that the appellant is engaged in trading of these items. No documentary evidence was found during the survey and no corroborative evidence was brought on record by the Assessing Officer to prove that the appellant had made investments in the purchase of the apples. Without prejudice to the same, the AR has stated that had the goods stored in this cold storage belonged to the assessee, why would rent be shown as a income/receipt in the books. The AR made a valid point by stating that similar modus operandi had been accepted in the case of other fruits, like orange, grapes etc, potato and other karyana items. In the case of the other items also the appellant had no postal address, PAN etc. therefore, there was no basis to decline the same explanation regarding the apples. It is not a case where the addition has been made because the confirmations of the owners was not filed by the appellant but rather a case where the appellant has explained the prevalent practice in the business of the cold storage and thus shown why there is no requirement for keeping the details of the actual owners of the items, the said explanation not having been countered by the Assessing Officer in the remand report. Moreover, for the A.Y 2013-14; no addition on account of investments in any items stored was made and the Assessing Officer thus accepted that the goods stored in the cold storage do not belong to the appellant. There is no finding in the subsequent year that the appellant is investing in these items and trading in them. The AR has pleaded that on similar facts different view cannot be taken in different assessment years. The AR satisfactorily established that the apples did not belong to the appellant by explaining the prevalent practice in the business of cold storage and also on the basis of records maintained by the appellant in the form of respective registers as per the general practice in this line of business. In view of the said facts and circumstances, the Assessing Officer was not justified in making the said addition and the same is ordered to be deleted.

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the contrary no justification to take a contrary stand. We have seen from the record that the assessee has relied upon the modus operandi in the peculiar business of the assessee which is cold storage business wherein the CIT-A has considered, examined and concluded that at the time of storage of the goods at the premises of the assessee the details are entered in the respective registers with a”Marka” as suggested by the person who brings the items. The goods are delivered back to the said person on the receipt of the rent. The items stored in the cold storage it has been stated are carried to and from the cold storage in trollies; rehries and rickshaws. It has also been argued that the assessee in its specific nature of business is not legally required to satisfy himself about the identity of the owners of the items and insist upon propel identification. The assessee is only interested in the rent received from the persons who deliver the goods for storage and then take these back on the payment of the rent as per the gate pass. We note that it has been argued that the rental income has been duly accounted for in the books of accounts. We find that in the absence of any rebuttal on the specific trade practice relied upon by the CIT-A which has not been upset in the present proceedings it cannot be faulted that on the receipt of the rent the goods are handed over to the person who has brought these for storage and the identification is based on a “ nishan” / “mark” accepted by both the parties. We find that though the Ld. Sr. DR has relied upon the assessment order however nothing has been placed on record to rebut this argument of the assessee namely that there was no legal requirement or mandate for a cold storage facility to accept perishable goods for storage only from people who had PAN card identification proofs etc or after satisfying itself completely about the real identity of the persons storing his goods. We find that the assessee has also argued that in case the assessee would start enquiring about the details of the persons who bring the goods for storage it was the assessee’s apprehension that he was bound to lose business to some other Cold storage. We note that the argument that as far as the assessee is concerned the owner is virtually the person who bring the items for storage; pays the rent and takes back the goods stored is sufficient. We find that the assessee has also argued that similar modus operandi has been applied in the case of the assessee itself in the case of other fruits stored in its cold storage facility in a like manner during this very period like oranges, grapes etc and similarly for

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vegetables stored like potato, karyana items. We find that the assessing officer in the case of those items relying on the similar maintenance of records has accepted that those were goods belonging to the others the variation of view in the case of apples stored and the insistence to demonstrate the identity of those persons by way of producing the details of postal address or PAN details of the persons who have stored apples becomes questionable when oranges, grapes, potato similarly recorded are accepted. Considering the fact that the assessee has consistently been following the same method of recording details of goods stored in its cold storage facility from which rental income has been shown wherein the assessee has made available before the tax authorities copies of fruit receipt books, fruit gate pass book, stock register of fruit in the remand proceedings before the AO also wherein no discrepancy has been found or brought to our notice, we thus find no merit in the appeal of the Revenue. We find that the CIT-A while arriving at a conclusion has specifically referred to the view taken by the assessing officer in the case of the assessee itself in the immediately subsequent year wherein on similar set of facts and circumstances the assessing officer has accepted similar method of maintaining books of records and accounts of the assessee. Accordingly in the absence of any evidence to the contrary to show that the apples did belong to the assessee in the peculiar facts and circumstances present case we find no good reason to vary the conclusion drawn. Being satisfied by the consistent explanation offered by the assessee we uphold the impugned order and dismiss the appeal of the revenue. 5. In the result appeal of the Revenue is dismissed.

Order pronounced in the Open Court.

Sd/- Sd/- (ANNAPURNA GUPTA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 09/04/2018 AG Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR