Bhiwani Rice Mills v. Commissioner Of Income Tax

ITA No. 135 of 2005 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 135 of 2005 Date of Decision: 15.10.2010 Bhiwani Rice Mills Versus Commissioner of Income Tax ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Mr. Tajender K. Joshi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.By way of instant appeal under Section 260A of the IncomeTax Act, 1961 (in short “the Act”) arising out of the order dated30.7.2004 passed by the Income Tax Appellate Tribunal, ChandigarhBench “B”, Chandigarh (hereinafter referred to as “the Tribunal”) in ITANo. 885/CHD/2001, for the assessment year 1998-99, the assesseehas claimed the following substantial questions of law:- “i)Whether under the facts and circumstances of thecase the Tribunal was justified in upholding theaddition of Rs.50,000/- on account of alleged lowyield of rice without considering the necessaryexplanation and the evidence given by the appellantand hence the finding being perverse and withoutconsidering material on record need to be deleted.case the Tribunal was justified in upholding theaddition of Rs.50,000/- on account of alleged lowyield of rice without considering the necessaryexplanation and the evidence given by the appellantand hence the finding being perverse and withoutconsidering material on record need to be deleted. ii)Whether under the facts and circumstances of thecase the Tribunal was justified in upholding theapplication of the provisions of section 145(3) as perconditions laid down for its application?case the Tribunal was justified in upholding theapplication of the provisions of section 145(3) as perconditions laid down for its application? iii)That under the facts and circumstances of the casethe Tribunal is not justified in upholding the additionof Rs.2,49,621/- on the basis of alleged undervaluation of stock taking average sale price of someother assessee's and ignoring various otherassessee's sale price as given by the appellant andalso not considering the product of the appellantbeing of different qualities and method being followedconsistently by the appellant and hence findings areperverse?”the Tribunal is not justified in upholding the additionof Rs.2,49,621/- on the basis of alleged undervaluation of stock taking average sale price of someother assessee's and ignoring various otherassessee's sale price as given by the appellant andalso not considering the product of the appellantbeing of different qualities and method being followedconsistently by the appellant and hence findings areperverse?” 2.Briefly stated, the facts as narrated in the appeal are thatthe assessee is a partnership firm carrying on the business of shellingthe paddy and manufacturing the rice. The assessee filed return on31.10.1998 for the assessment year 1998-99 declaring loss ofRs.1,25,440/-. The case was taken up for scrutiny. The AssessingOfficer found defects that the yield shown by the assessee was 93.03%out of 100% and there were different percentage of yields in differentmonths and accordingly, made an addition of Rs.1,00,001/- on accountof low yield of rice. Besides this, an addition of Rs.2,49,621/- was alsomade for difference in valuation of closing stock of rice, rice bran, phuckand paddy husk. Against the said additions, the assessee approachedthe Commissioner of Income Tax (Appeals) [in short “the CIT (A)”] whovide order dated 28.1.2001 upheld the view of the Assessing Officer.On further appeal by the assessee, the Tribunal vide order dated30.7.2004 restricted the addition on account of low yield of rice toRs.50,000/- and upheld the addition of discrepancy of closing stock of Rs.2,49,621/-. This gave rise to the assessee to approach this Court by way of instant appeal. 3.We have heard learned counsel for the parties. Rs.2,49,621/-. This gave rise to the assessee to approach this Court by way of instant appeal. 3.We have heard learned counsel for the parties. 4.The point for determination in this appeal relates to additionof Rs.50,000/- on account of low yield of rice and Rs.2,49,621/-regarding under valuation of closing stock. 5.Learned counsel for the assessee submitted that theaddition on account of low yield of rice was totally uncalled for as therewas no justification for taking recourse to Section 145(3) of the Act.Arguing question No. (iii), he on the strength of the decision of theCalcutta High Court in Commissioner of Income Tax v. Bengal JuteMills Co. Ltd., [1992] 107 CTR (Cal) 34 submitted that where theAssessing Officer revalues the closing stock of earlier years, the valueof the opening stock of next year has to be in similar manner and noaddition on that account can be made. 6.On the other hand, learned counsel for the revenuesupported the order passed by the Tribunal. 7.We have considered the rival submissions of learnedcounsel for the respective parties and do not find any merit in theappeal. Taking up questions No.1 and 2 together being interconnected,it is noticed that the Tribunal while concurring with the finding recordedby the CIT (A) had observed as under:- “We have heard the rival submissions, perused theorders of the tax authorities and gone through thematerial available on record. We find that the CIT (A)sustained the action of the AO in rejecting the books of account u/s 145(3) mainly relying on theobservations of the AO regarding low yield of riceand for non-maintenance of stock register of yield ofrice, rice bran and paddy husk and also consideringthe fact that the assessee could not produce gatepass book bearing Nos. 501-550 and the other gatepasses used during the year under appeal were inhaphazard manner. In our opinion, so far as actionof the CIT(A) in sustaining the action of the AO whilerejecting the books of account is concerned, thesame is not justified on the basis of finding of the CIT(A) regarding haphazard use of gate passes andnon-production of gate pass book bearing Nos. 501-550, particularly observing that the assessee hadused the above gate passes in the precedingprevious year. However, the ld. CIT (A) was justifiedin sustaining the action of the AO in rejecting thebooks of account as the assessee had shown lowyield of rice and was not maintaining proper stockregister pertaining of yield of rice, rice bran andpaddy husk. We are, therefore, of the opinion thatthe CIT(A) rightly confirmed the action of the AO inrejecting the books of account. However, theaddition of Rs.100001/- made by the AO andsustained by the CIT (A) on account of low yield ofrice is excessive, since the AO has taken the yield of rice at 66% as against 65.27 declared by theassessee. In our view, a reasonable addition, i.e.Rs.50,000/- will meet the ends of justice on accountof low yield of rice. We accordingly direct the AO torestrict such addition on account of low yield of rice atRs.50,000/- as against Rs.100001/- and accept theground of the assessee in part.” 8.The aforesaid findings have not been shown to be perversein any manner. Accordingly, questions No.1 and 2 are answeredagainst the assessee. 9.Adverting to question No.(iii), the finding recorded by the Tribunal reads thus:- rice at 66% as against 65.27 declared by theassessee. In our view, a reasonable addition, i.e.Rs.50,000/- will meet the ends of justice on accountof low yield of rice. We accordingly direct the AO torestrict such addition on account of low yield of rice atRs.50,000/- as against Rs.100001/- and accept theground of the assessee in part.” 8.The aforesaid findings have not been shown to be perversein any manner. Accordingly, questions No.1 and 2 are answeredagainst the assessee. 9.Adverting to question No.(iii), the finding recorded by the Tribunal reads thus:- “3.Vide ground No.2 the assessee has challenged theorder of the CIT(A) in upholding the addition ofRs.249621/- on account of revaluation of closingstock of rice, rice bran, phak and husk. Duringassessment proceedings, the assessee was asked toshow cause as to why valuation of closing stock ofrice, rice bran, phak and husk should not be taken atprevailing market rate, as it had valued the closingstock of these goods even at lesser rate thanaverage sale price. The assessee contended thatvaluation of closing stock had been calculated at themarket rate as on 31.03.98 and the assesseerequested to compare its rate with other rice shellersof Amloh. The AO acting on request of the assessee observed that three rice shellers of the same localityhad valued the closing stock of rice at Rs.793.33against Rs.725 per qtl. shown by the assessee,Rs.261.33 in case of rice bran against Rs.260/- perqtl., Rs.168.33 in case of phak against Rs.168 perqtl. shown, Rs.49.33 in case of husk against Rs.49shown by the assessee. The AO accordinglycalculated the difference based on comparable casesof three rice shellers and made an addition ofRs.249621 in the hands of the assessee. In appeal, the assessee strongly rebutted the actionof the AO and pleaded that the method adopted bythe AO was absolutely illegal, as he neitherconfronted to the assessee the books of account ofthese three firms nor explained in his order any resultof their yield of rice shown by them in their respectivebooks. It was submitted that they might have showntheir yield of rice @ 64% or even low. The assesseealso submitted the rate adopted by the three differentrice shellers (other than those considered by the AO)for valuing their closing stock in support of itscontention and pleaded that it was showing muchhigher rate. However, the CIT(A) was not satisfiedwith the plea as the assessee itself had sold rice on7.3.98 @ Rs.805 against the rate applied by the AOas on 31.03.98 at Rs.790 per qtl. It was also observed that the last sale of phak by the assesseewas at Rs.180 against Rs.168 per qtl. adopted by theAO while calculating valuation of stock. The CIT(A)based on above observations, sustained the additionmade by the AO. 3.2.Before us, ld. AR reiterated the submissions madebefore the first appellate authority and pleaded thatthe CIT(A) while sustaining the addition has taken thesale transaction of 7.3.98, whereas the valuation ofthe closing stock was made on 31.03.98, i.e. after agap of 25 days. It was further submitted that theassessee was left with lower quality of goods in stockat the end of the year, which resulted in adopting theclosing stock at lower price. He urged that the AOwhile making the addition could not bring anymaterial evidence on record to suggest that theassessee was valuing its closing stock at lower ratethan prevailing market rate. It was, therefore,pleaded that the order of the CIT (A) be quashed.On the other hand, ld. DR relied on the order of theCIT(A). 3.3 After hearing both the parties, we find that the plea ofthe assessee that the AO while making the impugnedaddition could not bring any material evidence onrecord is not tenable, since the same was based onthree comparable cases of the same locality and that 3.3 After hearing both the parties, we find that the plea ofthe assessee that the AO while making the impugnedaddition could not bring any material evidence onrecord is not tenable, since the same was based onthree comparable cases of the same locality and that is also on the request of the assessee to verify themarket rate. It is also observed that the assesseewas changing its stance as before the AO it wasclaimed that it was maintaining proper books and themarket value adopted for valuing its closing stockwas proper and accurate, whereas ld. AR before uspleaded that lower quality of rice was left in theclosing stock resulting in lower market price thanprevailing market rate. We find that such contentionof the assessee to have lower quality of rice andallied items in closing stock as on 31.3.98 is notsupported by any material evidence on record,whereas the AO while making the addition has dulytaken assistance/help of three comparable cases ofthe same locality proceeding on request of theassessee. We are , therefore, of the opinion that theCIT (A) while sustaining the addition made by theAO has passed a well reasoned and speaking orderwhich does not need any interference from our side.We uphold the same and reject the ground of theassessee.” 10.In all fairness to learned counsel for the assessee,reference is made to the judgment Bengal Jute Mills (supra) reliedupon by him. In that case, the Court while considering the escapementof income due to undervaluation of stock of earlier year held that wherethe closing stock is inflated for a particular year the opening stock ITA No. 135 of 2005 -9- should also be determined on the same basis. The saidpronouncement does not help the assessee as fact situation is differentin present case and the valuation of closing stock of this year would beopening stock in the next year and would fall for consideration in thatyear. 11.No illegality or perversity was pointed out in the findingrecorded by the Tribunal. Question No. (iii) is also answered againstthe assessee. 12.In view of the above, there is no merit in this appeal. 13.Consequently, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE October 15, 2010gbs (ADARSH KUMAR GOEL)JUDGE