Commissioner Of Income-Tax, Central Ii, Chennai-34 v. M/S.kaleesuwari Refinery Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 01.07.2016 THE HONOURABLE MR.JUSTICE S.MANIKUMARandTHE HONOURABLE MR.JUSTICE D.KRISHNA KUMAR Commissioner of Income-Tax,Central II, Chennai-34. .. Appellant in all TCAs.versus M/s.Kaleesuwari Refinery Pvt. Ltd.,No.53, Rajasekaran Street,Mylapore, Chennai 600 004. .. Respondent in T.C.A.Nos.379 & 380/16 M.Arun,No.64, Teugu Chetty Street,Old Washermanpet,Chennai 600 021... Respondent in T.C.A.Nos.381 & 382/16 Prayer in T.C.A.Nos.379 & 380 of 2016: Tax Case Appeals filed underSection 260A of the Income Tax Act, 1961, against the orders ofIncome Tax Appellate Tribunal,"B" Bench, Chennai, made inI.T.A.Nos.138 and 139/Mds/2012, dated 24.01.2013. against the Common order of the commissioner of Income Tax (A)II, Chennai dt.24.10.11 and made in ITA.Nos.359, 360/10-11 for theAssessment Year 2008-09, 2009-10, against the order of the Assistant Commissioner of Income Tax,Central Circle II(4), Chennai dt.31.12.2010 and made inPAN.AAACK6087A for the Assessment year 2008-09 & 2009-10respectively. Prayer in T.C.A.Nos.381 & 382 of 2016: Tax Case Appeals filed underSection 260A of the Income Tax Act, 1961, against the orders of theIncome Tax Appellate Tribunal, "B" Bench, Chennai, made inI.T.A.Nos.143 and 144/Mds/2012, dated 24.01.2013, against the order of the Commissioner of Income Tax,(Appeal)II, Chennai-34 dt.27.10.2011 and made in PAN. for theAssessment year 2008-09, 2009-10 respectively, https://hcservices.ecourts.gov.in/hcservices/ against the order of the Assistant Commissioner of Income Tax,Central Circle II(4), Chennai dt.31.12.2010 and made inPAN.AAGPA8202LA for the Assessment year 2008-09, 2009-10respectively. For Appellant :Mr.R.Senthil Kumar, Senior Standing Counsel for Income-Tax COMMON ORDER (Order of the Court was made by S.MANIKUMAR, J.) As all the appeals arise out of same pleadings, except for thedifference, in the name of the assessees, for the assessment years2008-2009 and 2009-2010 respectively, and the substantial questionsof law raised in all the appeals being the same, the appeals aredisposed of by a common order. 2. Short facts leading to the appeals are that M/s.KaleesuwariRefinery Private Limited, Chennai, engaged in manufacture andtrading of edible oils, was subject to a search under Section 132of the Income Tax Act, 1961 on 16.07.2008. During the course ofsearch proceedings, a laptop was retrieved from one ShriKumarasamy, an official of the assessee company. The Assessingofficer found that certain differences in the closing stock as on31.03.2008, were recorded in the laptop. Notices were issued toM/s.Kaleesuwari Refinery Private Limited, Chennai and M.Arun,assessees, to explain the discrepancies. Assessees explained thatthe stock of M/s. Kaleesuwari Refinery Private Limited, Chennai wasmixed up with the stock of M/s. Arun Oil Trade and M/s.GMS Traders.Further explanation of the assessees was that M.Arun is theProprietor of M/s.Arun Oil Trade and M/s.GMS Traders and holding80% of shares in M/s.Kaleesuwari Refinery Private Limited, Chennaiand M.Arun, was also a Director in M/s.Kaleesuwari Refinery PrivateLimited, Chennai. 3. M/s.Kaleesuwari Refinery Private Limited, Chennai andM.Arun, Assessees submitted that they are engaged in manufactureand trading of edible oil. Before the Assessing Officer, theassessees contended that the physical verification and stock, inthe premises of M/s.Kaleesuwari Refinery Private Limited, Chennaiand found in laptop, belonged to all the concerns, namelyM/s.Kaleesuwari Refinery Private Limited, Chennai, M/s.Arun OilTrade and M/s.GMS Traders, and should be compared, taking intoaccount the above facts. It is also the contention of theassessees that refinery of oil is done on job work basis. 3. M/s.Kaleesuwari Refinery Private Limited, Chennai andM.Arun, Assessees submitted that they are engaged in manufactureand trading of edible oil. Before the Assessing Officer, theassessees contended that the physical verification and stock, inthe premises of M/s.Kaleesuwari Refinery Private Limited, Chennaiand found in laptop, belonged to all the concerns, namelyM/s.Kaleesuwari Refinery Private Limited, Chennai, M/s.Arun OilTrade and M/s.GMS Traders, and should be compared, taking intoaccount the above facts. It is also the contention of theassessees that refinery of oil is done on job work basis. 4. During the assessment proceedings, the assessees alsocontended that the stock available in the premises of the assessee,M/s.Kaleesuwari Refinery Private Limited, was stock ofM/s.Kaleesuwari Refinery Private Limited, Chennai, M/s.Arun Oil https://hcservices.ecourts.gov.in/hcservices/ Trade and M/s.GMS Traders and though different tanks were markedwith M/s.Kaleesuwari Refinery Private Limited, Chennai, M/s.ArunOil Trade etc., for all practical reasons of production andmanufacture, it was never possible for the assessees to maintainthe stocks separately, for each of these entities, at all times. 5. The Assessing Officer rejected the submissions of theassessees by stating that storage tanks are clearly demarcated forM/s.Kaleesuwari Refinery Private Limited, Chennai and M/s.Arun OilTrade and the accounting system of the assessees provides, forentries of the stock which were moved from one tank to another, andinto the main tank. The Assessing Officer held that the stocksneed not be seen in totality, but should be compared independentlyand accordingly arrived at the excess/deficit stock of items ofM/s.Kaleesuwari Refinery Private Limited, Chennai and M/s.Arun OilTrade, for assessment year 2008-09 (based on the statement from thelaptop of Shri Kumarasamy) and for assessment year 2009-10 (basedon physical stock taken on 16.07.2008. Thus, in the case ofM/s.Kaleesuwari Refinery Private Limited, Chennai, the Assessingofficer, treated the excess stock, as unexplained investment and10% of the deficit stock, as unexplained income generated out ofunaccounted sales for the assessment years 2008-09 and 2009-10,respectively, and accordingly passed orders on 31.12.2010 for theAssessment years 2008-09 and 2009-10, respectively. 6. For the respondent, Mr.M.Arun, in TCA Nos.379 & 380 of 2016and the respondent in TCA Nos.381 & 382 of 2016, the Assessingofficer, vide orders dated 31.12.2010 rejected the contentions ofthe assessee that the stocks of the above mentioned three concernsviz., M/s.Kaleesuwari RefineryPrivate Limited, Chennai, M/s.ArunOil Trade and M/s.GMS Traders, have to be recorded together in anaggregate manner, while working out any discrepancy in the stock,and the excess stock, recorded in the laptop. 7. Being aggrieved by the orders of the assessing officer,dated 31.12.2010, for the assessment years 2008-09 and 2009-10,M/s.Kaleesuwari Refinery Private Limited, Chennai, filedI.T.A.Nos.359 & 360/10-11 before the Commissioner of Income Tax(Appeals)-II and Assessee M.Arun has also filed appeals in ITANos.383 & 384/10-11. 8. In the case of Assessee M/s.Kaleesuwari Refinery PrivateLimited, Chennai, after considering the submissions of the partiesand the material on record, the Commissioner of Income Tax(Appeals)-II vide common order in ITA Nos.359 and 360/10-11 dated24.10.2011 for the assessment years 2008-09 and 2009-10, partlyallowed the appeals. 9. For the assessment year 2008-09, in the case of theassessee, Mr.M.Arun, the Commissioner of Income Tax (Appeals), vide https://hcservices.ecourts.gov.in/hcservices/ order dated 27.10.2011 in ITA No.383/10-11, has ordered ashereunder, 8. In the case of Assessee M/s.Kaleesuwari Refinery PrivateLimited, Chennai, after considering the submissions of the partiesand the material on record, the Commissioner of Income Tax(Appeals)-II vide common order in ITA Nos.359 and 360/10-11 dated24.10.2011 for the assessment years 2008-09 and 2009-10, partlyallowed the appeals. 9. For the assessment year 2008-09, in the case of theassessee, Mr.M.Arun, the Commissioner of Income Tax (Appeals), vide https://hcservices.ecourts.gov.in/hcservices/ order dated 27.10.2011 in ITA No.383/10-11, has ordered ashereunder, “8. This issue has been dealt by me in the appellateorder in the case of M/s.Kaleesuwari Refinery PrivateLimited (KRPL) for assessment years 2008-09 and 2009-10(Order, dated 24.10.2011 in I.T.A.Nos.359-360/10-11)wherein I have held that the entire excess/deficit stockfound during the search has to be considered in the handsof M/s.KRPL only. Since the entire excess/deficit stockhas been considered in the hands of M/s.KRPL, addition ofRs.16,17,431/- made on account of deficit stock in thehands of the appellant is deleted.” 10. While considering the same issue in ITA No.384/10-11 forthe assessment year 2009-10, in the case of the assessee, M.Arun,after considering the rival submissions, the appellate authority,Commissioner of Income tax Appeals - II, Chennai, vide order dated27.10.2011, at paragraphs 5 and 6, ordered as follows: (i) Addition on account of excess/deficit stock -page 14 (ITA No.384/10-11) “5. In the assessment order A.O had made thefollowing additions on account of excess / deficit stockfound during the search in the case of M/s.KaleesuwariRefinery Private Limited:Unaccounted Sales (Deficit stock of loose oil) Rs.38,14,084/-Unaccounted income (Excess stock of loose oil) Rs.1,93,37,683/-Unaccounted Sales (Deficit Stock of finished goods) Rs.17,648/-Unaccounted income (excess stock of finished Goods) Rs.8,64,830/- 6. This issue has been dealt by me in the appellateorder in the case of M/s.Kaleesuwari Refinery PrivateLtd., (KRPL) for assessment years 2008-09 and 2009-10(Order, dated 24.10.2011 in I.T.A.Nos.359-360/10-11)wherein I have held that the entire excess/deficit stockof loose oil found during the search has to be consideredin the hands of M/s.KRPL only. Since the entireexcess/deficit stock of loose oil has been considered intheM/s.KRPL,additionofRs.38,14,084/-andRs.1,93,37,683/- made on account of deficit stock ofloose oil in the hands of the appellant is deleted.” 11. Being aggrieved by the order of the appellate authority inthe case of the assessee M/s.Kaleesuwari Refinery Pvt. Ltd., andthe assessee, M.Arun, the Assistant Commissioner of Income Tax,Central Circle II(4), has filed appeals in ITA Nos.138 &139/Mds./2012 (M/s.Kaleesuwari Refinery Pvt. Ltd., Chennai) and ITANos.143 & 144/Mds/2012 (M.Arun) https://hcservices.ecourts.gov.in/hcservices/ 12. After considering the case of the parties to the appeals,stated supra, vide order dated 24.01.2013, the Income Tax AppellateTribunal, Chennai has ordered, as hereunder, 11. Being aggrieved by the order of the appellate authority inthe case of the assessee M/s.Kaleesuwari Refinery Pvt. Ltd., andthe assessee, M.Arun, the Assistant Commissioner of Income Tax,Central Circle II(4), has filed appeals in ITA Nos.138 &139/Mds./2012 (M/s.Kaleesuwari Refinery Pvt. Ltd., Chennai) and ITANos.143 & 144/Mds/2012 (M.Arun) https://hcservices.ecourts.gov.in/hcservices/ 12. After considering the case of the parties to the appeals,stated supra, vide order dated 24.01.2013, the Income Tax AppellateTribunal, Chennai has ordered, as hereunder, “9. ... There is no dispute that the assessee,M/s.Arun Oil and M/s.GMS Traders were functioning in thesame premises. There is also no dispute that search wasconducted in the premises form which all the threeconcerns were working. Therefore, physical stock asfound at the point of search, namely on 16.07.08 couldhave been that of all the three concerns only. It mightbe true that assessee had maintained separate accountbooks for each concern and had demarcated physicalstorage tanks. However, there is much force in thecontention of the assessee that practically it might nothave been possible to keep the stock of raw material andstock of finished goods separately earmarked. Whenimported raw oil was receive, it would have beennecessary to load it in tanks according to the availablecapacities of the tank, ignoring the specific names givenon the tank. No prudent businessmen would in suchsituation, clear a tank or return the imported oil forwant of space in an earmarked tank. Preponderance ofprobability is that stock could have been mixed up. Thisis the same, whether it was for working out the stockdiscrepancies as on 31.03.2008 and as on 16.07.2008.Assessing Officer had considered each concern separatelyfor working out the deficit / surplus stock ignoringground realities of a business. Insofar as profit of 10%taken on deficit stock is concerned, there is no disputebetween two parties. Thus, in our opinion, the Ld.CIT(A)was justified in taking a global view for making theanalysis of deficit/surplus, i.e., considering the stockof all the three concerns together. No doubt, thedeficit and surplus were considered for addition in thehands of assessee only, though there were three concernsworking from same premises. But in practical situation,this might have been the only possible method forresolving the issue. Practical limitations of businessfunctioning has to be given its own importance, and thismight not be always compatible with the accountingsystems used. Once 10% of the deficit stock is taken asprofit, no doubt such amount will be available with theassessee to explain the excess stock, at least to thatextent. In our opinion, Ld.CIT(A) was justified inallowing the telescoping of the profit on deficit stockwith the excess stock. Similarly once excess stock wasdetermined and added for A.Y.2008-09, such excess stockwould be available in the opening for the next year.Therefore, excess stock worked for A.Y.2009-10 hasnecessarily to exclude the excess stock addition made for A.Y.2008-09. We cannot fault this view taken by the CIT(A) either. We are of the opinion that the order of theCIT (A) cannot be disturbed. Appeals for both the yearsare dismissed.” 13.Thus the appeals preferred before the Income TaxAppellate Tribunal, Chennai in ITA Nos.138 & 139/Mds./2012 in thecase of assessee M/s.Kaleesuwari Refinery Private Limited and inITA Nos.143 & 144/Mds./2012, in the case of assessee M.Arun, havebeen dismissed. A.Y.2008-09. We cannot fault this view taken by the CIT(A) either. We are of the opinion that the order of theCIT (A) cannot be disturbed. Appeals for both the yearsare dismissed.” 13.Thus the appeals preferred before the Income TaxAppellate Tribunal, Chennai in ITA Nos.138 & 139/Mds./2012 in thecase of assessee M/s.Kaleesuwari Refinery Private Limited and inITA Nos.143 & 144/Mds./2012, in the case of assessee M.Arun, havebeen dismissed. 14. Being aggrieved by the order of Income Tax AppellateTribunal, Chennai, in ITA Nos.138 & 139/Mds./2012 in the case ofassessee M/s. Kaleesuwari Refinery Private Limited and in ITANos.143 & 144/Mds./2012 and in the case of assessee, M.Arun,Proprietor of M/s.Arun Oil Trade and M/s.GMS Traders, Tax CaseAppeals No.379 & 380 of 2016 and 381 & 382 of 2016, have beenfiled, on the following substantial questions of law. “Whether on the facts and in the circumstances of thecase, the Appellate Tribunal was right in deleting the 10%of the deficit stock which was considered as income fromunaccounted sales for the assessment years 2008-09 and2009-10?” 15. Though, Mr.T.R.Senthil Kumar, learned senior standingcounsel assailing the correctness of the orders stated supra, madesubmissions on the substantial questions of law, contending interalia that“d. the Appellate Tribunal and the CIT[A] erred inaccepting the contention of the assessee that the stockof the three concerns were to be reckoned together inan aggregate manner, while working out any discrepancyand considered the excess stock as recorded in thelaptop as unaccounted investment of the assessee.e. The Appellate Tribunal and the CIT[A] erred indeleting the 10% of the deficit stock was considered asincome from unaccounted sales for both the assessmentyears.f. The Appellate Tribunal erred in directing theassessing officer to given credit for the openingexcess stock also while computing the addition for theassessment year 2009-10” and prayed for an answer on the substantial question of law infavour of the revenue, going through the material on record and theorders of both the appellant authority and tribunal, we do not findany manifest error. On the other hand, we are of the consideredopinion that orders of the appellate authority and appellatetribunal, are very much a plausible view, on appreciation of thematerial on record, and essentially, a finding of fact. 16.A substantial question of law does not arise on thefindings of fact, unless it is substantiated that there isperversity. In Bhagat Construction Co. (P) Ltd., v. CIT reportedin (2001) 250 ITR 291 (Del.), the Delhi High Court held that aquestion of fact, becomes a question of law, if the finding iseither without any evidence or material or, if the finding iscontrary to the evidence, or is perverse or there is no directnexus between the conclusion of fact and the primary fact uponwhich that conclusion is based. But it is not possible to turn amere question of fact into a question of law by asking whether as amatter of law the authority came to the correct conclusion on amatter of fact. 17.In M.Janardhana Rao v. Joint CIT reported in (2005) 273ITR 50 (SC), the Hon'ble Supreme Court held that in the exercise ofthe powers under Section 260A, the findings of fact of the Tribunalcannot be disturbed. In the said judgment, the Apex Court furtherheld that the tests for determining whether a substantial questionsof law, is involved in an appeal are, (a) whether directly or indirectly it affectssubstantial rights of the parties, or (b) the question is of general public importance, or(c) whether it is an open question in the sense thatthe issue is not settled by a pronouncement of theSupreme Court or Privy Council or by the Federal Court,or (d) the issue is not free from difficulty, or (e) it calls for a discussion for alternative view. 17.In M.Janardhana Rao v. Joint CIT reported in (2005) 273ITR 50 (SC), the Hon'ble Supreme Court held that in the exercise ofthe powers under Section 260A, the findings of fact of the Tribunalcannot be disturbed. In the said judgment, the Apex Court furtherheld that the tests for determining whether a substantial questionsof law, is involved in an appeal are, (a) whether directly or indirectly it affectssubstantial rights of the parties, or (b) the question is of general public importance, or(c) whether it is an open question in the sense thatthe issue is not settled by a pronouncement of theSupreme Court or Privy Council or by the Federal Court,or (d) the issue is not free from difficulty, or (e) it calls for a discussion for alternative view. 18.We have given our careful consideration, as to how boththe appellate authority and the tribunal have considered the factsof the case and rendered findings, on the rival submissions of theparties. On the aspect of deleting 10% of the deficit stock, dealtwith by both the appellate authority and the appellate Tribunal, weare unable to subscribe to the contentions of the appellant, in allthe appeals before us, that there is any substantial question oflaw. Going through the material on record, we are of theconsidered view that the concurrent findings of fact, rendered bythe CIT (Appeals) and the Income Tax Appellate Tribunal, do notcall for any interference, as no substantial question of law, isinvolved. 19.Though, Mr.T.R.Senthil Kumar, learned Senior StandingCounsel contended that Circular No.21 of 2015 authorises therevenue to maintain appeals, de hors the monetary ceiling limit, onthe facts and circumstances of the each case, we are of theconsidered view that the appellant, in all the appeal, has not madea case for interference, both on law and facts. 20.In the result, all the appeals are dismissed. No costs.Consequently, connected Miscellaneous Petitions are also closed. Sd/- Asst.Registrar /true copy/ Sub Asst. Registrar To1.The Income Tax Appellate Tribunal,B Bench, chennai. 2.The Commissioner of Income Tax (A) II,Chennai. 3.The Assistant Commissioner of Income tax,CentralCircle II (4)Chennai. sv(co)krd 5/8 T.C.A.Nos.379 to 382 of 2016 C.M.P.No.8548 to 8550 of 2016