Commissioner Of Income Tax v. M/S Super Tech Agro Oils Pvt. Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.462 of 2010 Date of decision: 5.10.2010 Commissioner of Income Tax. Vs. M/s Super Tech Agro Oils Pvt. Ltd. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTALPresent:-Mr. Rajesh Katoch, Standing Counselfor the appellant. --- ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the revenue underSection 260-A of the Income Tax Act, 1961 (for short, “the Act”)against the order dated 16.9.2009 of the Income Tax AppellateTribunal, Chandigarh in I.T.A. No.1045/Chandi/2008 for theassessment year 2005-06 proposing to raise following substantialquestions of law:- “(i)Whether in the facts and circumstances of thecase, the Hon’ble ITAT is justified in law indeleting the addition of Rs.1,00,93,691/- madeby the Assessing Officer on account ofunexplained investment in the purchase of227900 kgs of raw palm oil and unrecordedsales of the same quantity?case, the Hon’ble ITAT is justified in law indeleting the addition of Rs.1,00,93,691/- madeby the Assessing Officer on account ofunexplained investment in the purchase of227900 kgs of raw palm oil and unrecordedsales of the same quantity? (ii)Whether in the facts and circumstances of thecase, the Hon’ble ITAT is justified in law indeleting the addition of Rs.8,17,948/- made bycase, the Hon’ble ITAT is justified in law indeleting the addition of Rs.8,17,948/- made by the Assessing Officer on account of differenceof 18468 kgs of the closing stock which wastreated as unrecorded sales? (iii)Whether in the facts and circumstances of thecase, the Hon’ble ITAT is justified in law inallowing the deduction u/s 80IB amounting toRs.31,32,567/-, which was disallowed by theAssessing Officer?” 2. The assessee is engaged in manufacturing of gheeand washing soap. During assessment, the Assessing Officerfound deficiencies in the details of raw material, quantum of workin progress and finished products. On the basis of inferencedrawn, addition was made to the declared income of theassessee. On appeal, the addition was set aside which wasaffirmed by the Tribunal. It was held that even if there weredeficiencies, addition could be justified only on some basis andinference drawn was not justified on facts. The findings recordedby the CIT(A), inter-alia, are as under:- “I have carefully considered the contention ofthe learned counsels for the appellant and perusedthe relevant record. This issue being disputed, in thiscase is that whereas the appellant has explained thatit had utilized 227900 Kgs. of Refined Palm Oil, out of237677 Kgs. of imported palm oil, purchased from themarket in the “work in progress” for producing refinedpalm oil to be used for its in house consumption orsale to outside parties, the Assessing Officer is of theview that the imported refined palm oil claimed to be “I have carefully considered the contention ofthe learned counsels for the appellant and perusedthe relevant record. This issue being disputed, in thiscase is that whereas the appellant has explained thatit had utilized 227900 Kgs. of Refined Palm Oil, out of237677 Kgs. of imported palm oil, purchased from themarket in the “work in progress” for producing refinedpalm oil to be used for its in house consumption orsale to outside parties, the Assessing Officer is of theview that the imported refined palm oil claimed to be purchased as above, was sold by the appellantoutside the books of account and that in the WIP, theappellant had used other crude palm oil which waspurchased outside the books of account. It isexplained by the appellant that the refined palm oilwas initially taken to finished goods section andrecorded in the finished goods record as per theExcise Laws. However, to remove foul smell from therefined palm oil, deodorization process had to becarried in refining section by transferring 2,27,900Kgs of this oil out of total of 2,37,677 Kgs purchasedby it. This contention of the appellant has somehownot been accepted by the Assessing Officer for thereasons discussed in the assessment order andwhich have also been discussed in the precedingparas. Though apparently, the Assessing Officer hassought to make out the case that this explanation ofthe appellant is not justified, the inference drawn bythe Assessing Officer is somehow not supported byany evidence brought on record. The AssessingOfficer has apparently drawn that inference just onthe basis of certain entries as per the quantitativedetails given in various annexures of the Audit reportfiled with the return of income of the appellant. Asalready mentioned, the Assessing Officer has broughtout in the assessment order some of these details inthe form of different tables. Though, in the ordinarycourse, the Assessing Officer could be said to be fullyjustified in drawing some inference on the basis of thefacts and figures given by the appellant itself, in thedocuments filed with the return of income, it wasexplained before me that these details did reflect thecorrect position and that discrepancy had come up on account of reporting quantitative position in slightlydifferent manner. In my opinion, this explanation ofthe appellant could not be rejected summarily andwithout bringing on record certain concrete evidence.The Assessing Officer has made very seriousallegations against the appellant in as much as theappellant had sold goods worth Rs.1 crore outside thebooks of account. However, as rightly pointed out inthe written submissions of the appellant, except forthe details given in the quantitative tallies filed withthe return of income, the Assessing Officer could notpoint out a single instance where the appellant hasbeen found to have purchased or sole certain goodsoutside the books of account. In the written submissions of the appellant,which have been reproduced above, by the learnedcounsel, the complete stock tally of WIP and refinedpalm oil has been given. These details have beenworked out keeping in view the contention of theappellant that 2,27,900 Kgs. of refined palm oil wastaken in the WIP for reprocessing on account ofdeodourisation out of finished goods section. Even inthe assessment order in Table-III brought out on page4 of the assessment order where quantitative detailsof finished products third stage have been given, inthe column. For sales, the words “sale/reprocess”have been mentioned by the Assessing Officerhimself also. This rather supports the case of theappellant in as much as the figure shown against thiscolumn is not only in respect of sales, but include thefigures in respect of reprocessing also. As per thesedetails given by the appellant and which have beenreproduced above, if quantitative details are worked out by considering 227900 Kgs. of refined palm oil tohave been taken into WIP, the entire quantitativedetails are reconciled. Keeping in view the aboveposition, the contention of the appellant that thefigures given in the Audit Report were consolidatedones without splitting the same between the refinedoil converted from purchased crude palm oil and therefined oil obtained from reprocessing of purchasedrefined palm oil to remove bad smell, appears to becorrect. As already mentioned, it has been theconsistent contention of the appellant both before theAssessing Officer and during the appeal proceedingsthat the complete quantitative stock tallies and stockrecords are maintained by the appellant under theExcise Laws. This is so because the items dealt withby the appellant are subject to Excise Department’schecking. No defect in this record is stated to havebeen found either by the Excise Deptt or by theAssessing Officer. There is considerable force in thecontention of the appellant that in the absence of anysuch defects having been found, the inference drawnby the Assessing Officer could not be justified. Further, the appellant has claimed that 237677Kgs. of imported refined palm oil was purchased bythe appellant from M/s Gokul Refoils and Solvent Ltd.,Abohar. The appellant had in its possessioncomplete record which is also stated to have beenproduced before the Assessing Officer, with regard topurchase and subsequent transportation of this oilfrom Abohar to Ludhiana. As already mentioned theoil so purchased was duly accounted for in therelevant stock record maintained as per the excise Department requirements. From the stock records, itis duly verifiable that this refined palm oil was taken tobe WIP. These records are maintained in form RG-23A Part-1 and RGI Daily stock account registerprescribed under the excise laws. The refined palmoil is shown to be first received and entered in therelevant form RG 23A Part 1 for imported refinedpalm oil. Out of this, this oil is shown to have beentaken to stock register of crude palm oil (work inprogress). The movement of the refined palm oil fromRG23A Part-I to stock register is duly verifiable withreference to dates of purchase and quantity etc.Further, out of crude palm oil “work in progress”, theoil is taken to stock register maintained for refinedpalm oil which is as per the Excise Laws. Once thereceipt of refined palm oil from Abohar, its movementfrom imported refined palm oil section to WIP sectionand then WIP section to refined palm oil section in thedaily stock account register is duly verifiable from therecord and which record is subject to regularinspection by the Excise Deptt. There is apparentlyno ground for taking a stand different from theexplanations given by the appellant’s counsel. Further the Assessing Officer has consideredfrom the details given by the appellant in thequantitative details filed with Audit Report, that theappellant had sold refined palm oil at 928853 Kgs.However, as already explained, the contention of theappellant is that these figures included 227900 Kgs.of refined palm oil which was sent for reprocessingand not sold, as considered by the Assessing Officer.The account of the appellant are audited. Thequantitative details replied upon by the Assessing Further the Assessing Officer has consideredfrom the details given by the appellant in thequantitative details filed with Audit Report, that theappellant had sold refined palm oil at 928853 Kgs.However, as already explained, the contention of theappellant is that these figures included 227900 Kgs.of refined palm oil which was sent for reprocessingand not sold, as considered by the Assessing Officer.The account of the appellant are audited. Thequantitative details replied upon by the Assessing Officer are also somehow given and certified by theAuditors only. Therefore, if as per these details theappellant was found to have sold 928853 Kgs. ofrefined palm oil as against that of 700954 Kgs.claimed by the appellant, the Auditors in my opinion,could not carry out the audit in the absence of detailsof sales of 227900 Kgs. In the absence of details ofalleged sales of 227900 Kgs. outside the books ofaccount which are otherwise, taken into account inthe quantitative details given by the same Auditors, inmy opinion, no Auditor could complete the auditbecause this position could not be reconciled in anymanner. However, as the Auditors themselves haveconsidered the sales of 700954 Kgs. of refined palmoil only in the books of account of the appellant, thecontention of the learned counsels deserves to beaccepted from that point of view also. Further, as already mentioned and contendedby the learned counsels also, the Assessing Officercould not point out any single instance of any sales orpurchase made by the appellant outside the books ofaccount. In the absence of such evidence, the ratioof decisions including the decision of the Hon’bleJurisdictional High Court in the case of K. C. Malhotra(supra) relied upon by the learned counsels, would goin favour of the appellant only. Keeping in view the above discussed position, Iam unable to agree with the line of thinking of theAssessing Officer and unable to persuade myself.The aid of Rs.1,00,93,691/- made by the AssessingOfficer is, therefore, deleted. This ground of appealis, therefore, allowed.” 3. The above findings have been affirmed by the Tribunal. 4. We have heard learned counsel for the appellant. 5.It is clear from the findings concurrently recorded bythe CIT(A) as well as the Tribunal that figure of sale shown by theassessee was in excess of figure of material recorded in thebooks of account. Thus, income declared was more than thefigure of material recorded in record. Even if there may bedeficiencies in the books of account, which may give rise tosuspicion for making addition, inference has to be justified onsame basis. When the sale figure was higher than the figure ofraw material recorded in the books of account or inferred, the CIT(A) and the Tribunal could certainly hold the addition to beunjustified. The findings recorded are based on appreciation ofevidence and are not shown to be perverse. 6. No substantial question of law arises forconsideration. 7. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE October 05, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE