Iapl/58/2013 Of The Commissioner Of Income Tax Kanpur v. M/S Kesarwani Sheetalaya Alld

-Court No. 35 [1] AFRReserved Case :- INCOME TAX APPEAL No. - 58 of 2013Appellant :- The Commissioner Of Income Tax KanpurRespondent :- M/S Kesarwani Sheetalaya Alld.Counsel for Appellant :- Krishna Agrawal,C.S.C.,Manu GhildyalCounsel for Respondent :- Umesh Chandra Kesharwani,Suyash Agrawal Hon'ble Bharati Sapru,J.Hon'ble Rohit Ranjan Agarwal,J. 1.This appeal under Section 260-A of the Income Tax Act,1961 (hereinafter called as ‘Act’) has been filed assailing theorder of the Income Tax Appellate Tribunal, Allahabad(hereinafter called as ‘ITAT’) dated 30.11.2012. 2.This appeal was admitted on 26.11.2013 on the followingquestion of law:- “(1) Whether on the ITAT erred in law as well as on factsin deleting the addition of Rs.23,31,28,321/- made onaccount of investment in potatoes in disregard of all theevidences on record, and the fact that this belonged toone of the partners Raj Kumar Kesarwani. (2) Whether the ITAT has erred in law as well as in thefacts and circumstances of the case in deleting theaddition of Rs.37,30,710/- made on account of differenceof cash balance as reflected in the balance sheet andcash as per seized documents on wrong appreciation offacts. (3) Whether the ITAT was justified in substituting it ownviews which were based on interpretation of word “either”as used by both the A.O. and C.I.T.(A) in coming toconclusion that case reflected was either bogus liability orunexplained cash. (4) Whether the ITAT has erred in law as well as in thefacts and circumstances of the case in directing the A.O.to re-decide the issue by considering the books of accounts produced by the assessee, ignoring theprovision of Section 142A.” 3.Thereafter two additional substantial questions of lawwere added which are as under:- “1. Whether the ITAT is legally justified in reversing theconcurrent finding of fact of the authorities below withoutappreciating the material on record ? 2. Whether the ITAT is legally justified in reversing theconcurrent findings of fact of the authorities below in thebalance of fresh material placed before it ?” 4.Respondent-assessee is a partnership firm engaged incold storage business having its Head Office at Sahson,Allahabad. The dispute relates to the assessment year 2008-09. It appears that action under Section 132(1) of the Act wastaken in group cases of Kesarwani Zarda Bhandar, Allahabadand its partners on 27.8.2009. 5.The Assessing Officer framed assessment under Section153-A of the Act on 28.12.2011 for the assessment year inquestion. The order of the AO was challenged before theCommissioner Income Tax (Appeals). The major challenge bythe assessee was for two additions and dis-allowances ofexpenses. As far as the challenge to addition by the assesseewas for Rs.37,30,710/- being the lesser cash in hand as perthe seized paper as compared with the books of account, inwhich the assessee has shown more cash in hand. The othermajor addition was of Rs.23,31,28,321/- on the ground that theassessee was engaged in the business of potatoes. TheCIT(A) accepted the addition so made by the AO. 6.Being aggrieved the assessee filed an appeal before theITAT which was allowed to the extent as far as the addition of [3] amount of Rs.37,30,710/- and addition of Rs.23,31,28,321/-are concerned, while the Tribunal remanded back the matter tothe Assessing Authority as far the addition of Rs.5,47,92/- onaccount of addition under the heading ‘building’. 6.Being aggrieved the assessee filed an appeal before theITAT which was allowed to the extent as far as the addition of [3] amount of Rs.37,30,710/- and addition of Rs.23,31,28,321/-are concerned, while the Tribunal remanded back the matter tothe Assessing Authority as far the addition of Rs.5,47,92/- onaccount of addition under the heading ‘building’. 7.Sri Manu Ghildyal, learned Counsel appearing for theRevenue submitted that ITAT was not correct in deleting theaddition of Rs.23,31,28,321/- made on account of investmentin potatoes in disregard of all evidences on record, and furtherthe papers seized during the search at the residentialpremises of one of the partners of assessee firm namely RajKumnar Kesarwani. He further submitted that the actual cashwith the assessee firm was only Rs.27,39,932/- whereas in theaudited balance-sheet, the amount was shown asRs.64,70,642/- Thus the difference of Rs.37,30,710/- wasconsidered as unexplained income by the Assessing Officerand the same was added. Lastly, it was submitted that ITATwas not correct to reverse the concurrent finding of factrecorded by the Income Tax Authorities without appreciatingthe material on record. 8.Per contra, Sri Ravi Kant, learned Senior Advocateassisted by Sri U.C. Kesarwani, learned Counsel for theAssessee submitted that no papers were seized from theresidential premises of the partners of the firm and thedocuments relied upon were seized from the residence of theChartered Accountant, an assessee being not the author of thedocument nor the same having been signed by any of thepartners, nor the Chartered Accountant examined at the timeof search or at the assessment stage. It was further contended [4] that the assessee had maintained the proper books of accountand the AO had wrongly relied upon the provisions of Section68 of the Act, which was not applicable in the case, andsubsequently in appeal, the Commissioner of Income Tax(Appeals) held that the provisions of Section 69A wereapplicable, which according to him, the First AppellateAuthority did not have the power to change the law to sustainthe addition. 9.He further submitted that the assessee firm is notengaged in the business of potatoes and the assessee isrunning a cold storage and the business is of storing potatoesfor which rent is realised from the farmers who storeagricultural produce in the Cold storage. 10.The assessee maintains complete record as far as thestorage of potatoes is done and the assessee maintains thestorage (bhandaran) and delivery (nikasan) register and issuesrent receipt for the period for which potatoes are stored. 11.Sri Ravi Kant, learned Senior Counsel further placed onrecord the U.P. Regulation of Cold Storage Act, 1976, whichregulates the functioning of the Cold storage in the State ofUttar Pradesh. 12.Section 2 (c) defines the ‘cold storage’, means anenclosed chamber insulated and mechanically cooled byrefrigeration machinery to provide refrigerated condition toagriculture produce stored therein but does not includerefrigerated cabinets and chilling plants. Further Section 2(d)defines the word ‘hirer’ means a person who hires on payment [5] of the prescribed charges spaces in a cold storage for storingagricultural produce. Section 2(f) defines ‘licensee’ means anyperson to whom a licence is granted under this Act. Section2(i) defines ‘receipt’ means a cold storage receipt including aduplicate receipt issued by licensee under this Act. Section 5of the Act provides restrictions on carrying on the business ofcold storage. 12.Section 2 (c) defines the ‘cold storage’, means anenclosed chamber insulated and mechanically cooled byrefrigeration machinery to provide refrigerated condition toagriculture produce stored therein but does not includerefrigerated cabinets and chilling plants. Further Section 2(d)defines the word ‘hirer’ means a person who hires on payment [5] of the prescribed charges spaces in a cold storage for storingagricultural produce. Section 2(f) defines ‘licensee’ means anyperson to whom a licence is granted under this Act. Section2(i) defines ‘receipt’ means a cold storage receipt including aduplicate receipt issued by licensee under this Act. Section 5of the Act provides restrictions on carrying on the business ofcold storage. 13.Section 12 of the Act provides for reasonable care ofgoods, while Section 13 is in regard to the duty to exhibit thecapacity of the cold storage. Section 19 is in regard to thedelivery of goods, where on the demand made by hirer, everylicensee shall deliver the goods stored in the cold storageprovided the hirer surrenders the receipt and pays all chargesdue to the licensee. Section 20 provides that the licensee isentitled to retain possession of the goods until the receipttherefor is surrendered and necessary charges are duly paid.Further Section 37 of the Act provides for penalty in casewhere any provision of the Act, or any rule, order or direction iscontravened, then on conviction punishment withimprisonment for a term which may extend to two years or finewhich may extend to Rs. 10,000/- or both shall be made. 14.Section 38 provides for the offences by companies, in theexplanation to the said section, ‘company’ means any bodycorporate, and includes a firm or other association ofindividuals, and ‘director’ in relation to a firm, means a partnerin the firm. Section 39 further provides for the cognizance ofthe offence punishable under the Act by the Court not inferior [6] to that of a Magistrate of the first class, who shall try any suchoffence. 15.Sri Ravi Kant, learned Senior Counsel laid emphasis thata cold storage cannot run without a licence being granted bylicensing authority and no agricultural produce in a coldstorage can be stored except in accordance with the termsand conditions of the licence. If, there is any contravention ofany provision of the Act, the licensing authority can takepunitive action as provided under the Act. 16.In the present case, no violation has been noticed or hasbeen brought on record by the Assessing Officer meaningthereby that the assessee did not violate any of the terms ofprovisions of U.P. Regulation of Cold Storage Act, 1976. Hefurther submitted that the addition is made merely onpresumption and no material or evidence has been brought onrecord to prove that assessee is engaged in the business ofpotatoes. As in a cold storage potatoes can only be stored andit cannot be used for any other purposes. It was also submittedthat the case of the assessee is only of bailee and thetransaction between the assessee and the constituents are thebailment i.e. the storage of potatoes and later on delivery. 17.We have heard learned Counsel for the parties andperused the material on record. 18.It is not in dispute that the assessee is running of a coldstorage, after being granted the licence as mandated underthe U.P. Regulation of Cold Storage Act, 1976. Under the saidAct, it is only the storage of the agricultural commodity for [7] which the licence is granted and no other business can becarried out by the licensee. The Act and the rules lay down theprocedure for the storage of agricultural commodity and alsothe maintenance of the necessary records for regulating thestorage of such commodity. 17.We have heard learned Counsel for the parties andperused the material on record. 18.It is not in dispute that the assessee is running of a coldstorage, after being granted the licence as mandated underthe U.P. Regulation of Cold Storage Act, 1976. Under the saidAct, it is only the storage of the agricultural commodity for [7] which the licence is granted and no other business can becarried out by the licensee. The Act and the rules lay down theprocedure for the storage of agricultural commodity and alsothe maintenance of the necessary records for regulating thestorage of such commodity. 19.In the present case, learned Counsel for the Revenuehas mainly relied upon the two deletion made by the ITAT ofthe addition so made by the AO as confirmed by the CIT (A).As to the addition made of Rs.37,30,710/-, which is lessercash in hand as compared with the books of accounts in whichthe assess has shown more cash in hand, the Tribunal heldthat it is neither a case under Section 68 of the IT Act norSection 69-A of the Income Tax Act. The Tribunal further wenton to hold that it was not a case where money is not recordedin the books of account of assessee, and in the present casecash in hand in the books of account was found to be morethan the actual cash found during the course of search. At themost, authorities could have presumed that assessee hasspent the difference of amount in question somewhere as percash in hand, as per books of account and lesser cash as perseized documents, but that would also not suffice to makeaddition under any of the above propositions. 20.As far as the other addition made of Rs.23,31,28,321/-,the assessee had challenged the same on the ground thatthey are not engaged in business of potatoes and the entriesin the seized register, gate pass and exit record were totallyignored by the assessing authority as well as by the first [8] appellate authority. The Tribunal being the last fact findingauthority recorded a categorical finding that the assessee hadsubmitted all the documents as well as all the entries of thebhandaran and exit register (nikasan) tallied with the stock, assuch the addition made by the authorities were wrong. 21.The argument raised by the counsel for the assessee asfar as no violation of the provisions of U.P. Regulation of ColdStorage Act is concerned, has force, as the Assessing Officerhas failed to bring on record any notice given by any of theconcerned licencing authority regarding violation of the Act orany proceedings pending against the assessee firm. 22.When this fact was confronted with the counsel for theRevenue, he failed to produced any document in regard to anyviolation made by the assessee, Cold Storage of theprovisions of the U.P. Regulation of Cold Storage Act. Once itis established that the assessee did not violate any terms ofprovisions of U.P. Regulation of Cold Storage Act, 1976, then,the finding recorded by by AO as well as the first appellateauthority that the assessee was in the business of potatoesand the addition so made by the Assessing Officer was merelyon the basis of presumption and assumption and without anymaterial on record. 23.The Tribunal has also recorded a categorical finding thatno evidence of purchase, sales or unaccounted stockbelonging to the assessee during the course of search orsurvey was found or established, thus, there was nojustification for the authorities to make or confirm the addition [9] 23.The Tribunal has also recorded a categorical finding thatno evidence of purchase, sales or unaccounted stockbelonging to the assessee during the course of search orsurvey was found or established, thus, there was nojustification for the authorities to make or confirm the addition [9] of the said amount. There is no doubt that the business ofrunning a cold storage is governed by the U.P. Act of 1976 andit is only after the grant of licence by the licencing authoritythat a cold storage can run according to the terms andconditions of the licence. Any violation of the terms of licencehas penal consequences as provided under Section 37 and 38of the Act, for which the Magistrate of I[st] Class is empoweredto take cognizance of any offence so made by the licenceholder. As, in the case in hand, during the search and surveyin the business premises of the assessee, no such violationwas found or recorded, nor any notice was given or action wastaken against the asssessee, as is evident from the perusal ofthe documents before us. Further, the counsel for the Revenuealso could not point out to any such violation made by theassessee of the U.P. Act of 1976. 24.Once it is established that the assessee had not violatedthe terms of licence, so granted by the licencing authority,merely on the basis of presumption and assumption from anydocuments or papers seized during search and survey cannotbe the basis for the addition of such an amount. 25.Having considered the facts and circumstances of thecase and going through the records of the case, we are of theconsidered opinion that the Revenue has failed to establishthat the order of the Tribunal is manifestly illegal and suffersfrom error apparent on face of the record. As the Tribunalbeing the last fact finding court has categorically recordedfinding that the authorities below had wrongly made the additions without any material on record on the basis of merepresumption and assumption. 26.The appeal is dismissed. The question of law is,therefore, answered against the Revenue and in favour of theassessee. Order Date :- 20.8.2019 S. Singh