The Pr. Commissioner Of Income Tax, Rajkot 2 v. M/S Parth Proteins Pvt Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 217 of 2019 =============================================THE PR. COMMISSIONER OF INCOME TAX, RAJKOT 2 VersusM/S PARTH PROTEINS PVT LTD ============================================= Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1============================================= CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAand HONOURABLE MR.JUSTICE A.C. RAO Date : 25/06/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Appellate Tribunal dated 26.11.2018 in ITA No.487/RJT/2005 for the Assessment Year 1998-99. 2.The Revenue has proposed the following questions as the substantial questions of law in its memorandum of the Tax Appeal : “[A] Whether the Appellate Tribunal has substantially erred in law and on facts in holding that the disallowance to the extent of inflated expenses will adequately cover the unexplained peak amount of investment made in the bogus purchase and no separate addition on account of unexplained investment could be made, thereby deleting the addition of Rs.1,33,16,112/- made on account of unexplained investments? [B] Whether the Appellate Tribunal has substantially erred in law and on facts in deleting the addition of Rs.22,04,897/- made on account of under valuation of stock? [C] Whether the Appellate Tribunal has substantially erred in law and on facts in deleting the disallowances of Rs.8437/- made on account of motor case expenses and depreciation?” 3.On the first proposed question, the findings recorded by the Tribunal are as under : “14. We have heard the rival submissions and perused the material available on record and considered the relevant facts. The perusal of the assessment order reveals that the AO found that the books of accounts maintained by the assessee were defective as the AO found that the production register of 5EGN on 11.05.1997 entry has been erased, similarly, entry dated 12.05.1997, 13.05.1997 were also erased. Further, the, production register also revealed that as against 10000kg of SEGN raw oil of which production was shown of 9500kg which was prima-facie unbelievable, because in normal course production cannot be in round figure which is major defect of books of accounts maintained by the assessee. Further, “14. We have heard the rival submissions and perused the material available on record and considered the relevant facts. The perusal of the assessment order reveals that the AO found that the books of accounts maintained by the assessee were defective as the AO found that the production register of 5EGN on 11.05.1997 entry has been erased, similarly, entry dated 12.05.1997, 13.05.1997 were also erased. Further, the, production register also revealed that as against 10000kg of SEGN raw oil of which production was shown of 9500kg which was prima-facie unbelievable, because in normal course production cannot be in round figure which is major defect of books of accounts maintained by the assessee. Further, the AO also noticed that register maintained by the assessee are defective on which rewriting and re-indicating is appearing. Further the Annexure 3CD4 & 3CD5 were also not satisfied by the auditors, signature on these Annexure are bearing of P.B.Damani on behalf of the company whereas in audit and its Annexures signature for the Director Shri S.P.Damani along with Shri P.P.Damani wee appearing. Further, the production of electricity consumed by the assessee is more as shown in the books of accounts which evident from the penalty of Rs.31,52,198/- imposed by GEB. Therefore, the CIT(A) has justified in holding the rejection of books of accounts on the basis of AO's finding. With regard to purchases from Ms. Santoshi Bhandar, it is noticed from the Sales Tax Authorities as well as DOT, Berhamur that said concern was not doing any business in oil cake nor it was found on the address given by the assessee, therefore in the light of preponderance of evidences available in the case of assessee and also the fact that Director of the assessee company was not able to explain the purchases from M/s. Santoshi Bhandar and his reply which has been reproduced by the AO at page 10 & 11 of the assessment order evasive, misleading and having with alterior motive, Therefore, findings of the CIT(A) that the assessee has not made any purchases from M/s. Santoshi Bhandar is found to be correct, accordingly, we concurred the view taken by the Lower Authorities. With regard to the purchase of OGS of Rs.6,65,80,561/- of 10631.250 kg of Ground Nut Oil Cake claimed to be made from M/s.Santoshi Bhandar are not found genuine. However, the assessee as exported the goods, therefore, the assessee might have purchased these goods locally from third party. The AO, therefore, estimated 20% of goods Rs.6,65,80,561/- for which worked out to Rs.1,33,16,115/- as unexplained investment and added the same as undisclosed income. The AO further quantified investment in of purchases at Rs.20,30,568/ as unexplained expenditure u/s.69C of the Act in respect of the aforesaid purchases by considering the rate of 191 per metric ton in respect of 10631.250 metric ton purchases. However, the CIT(A) found that the method adopted by the AO for quantification of disallowance for inflation of purchase price and addition for unaccounted investment for purchases is not scientific. Therefore, the CIT(A) considering the findings of ITAT in the case of Vijay Proteins(supra) observed that if 20% of total purchases of Rs. 1,33,16,112/- is considered then the appellant's, addition would be at Rs.20.30,568/ including peak amount, therefore, the CIT(A) has quantified the investment in purchase by taking purchase additions @ 20% of Rs.6.65,80,561/- which worked out at Rs. 1,33,16,112/- and transportation expenses @ 24.27% in the ratio of total purchases with respect to total expenses which worked out to Rs.7,88,978/-. Similarly octroi @ 2.05 of purchase of Rs.6,65,80,561/- was calculated at Rs. 1,66,451/- and packing material considered for 5 per pack at Rs.7.08,735/-. Accordingly the CIT(A) has quantified investment on purchases price at Rs.29,95,775/ considered the same for addition as unexplained expenditure as against the amount of Rs.20,30,568/ computed by the AO. The CITYA) further observed that in view of decision of ITAT in the case of Vijay Proteins Ltd., afor AY 1991-92 where the peak amount of purchase at Rs.10,08,844/-on 10.05.1997 is less than the confirmed addition, hence, the total addition was confirmed at Rs.29,95,775/- and balance addition out of Rs. 1,33,16,116/- was deleted. We find that these findings of the CIT(A) are correct as the CIT(A) has considered its findings by following the decision of Tribunal in the case of Vijay Proteins Ltd., (Supra) and allowed the setoff of peak amount worked out by the AO at Rs.10,08,444/-. In the light of these facts, we do not find any infirmity in the order of CIT(A) in confirming the addition at Rs 29,95,75/-as against the addition made by the AO at Rs. 1,33,16,112/- therefore, the appeal of the Revenue in respect of Ground No.1 is dismissed. Similarly, the Ground No. 1 to 3 of cross objection in which the assessce has challenged the confirmation of addition of Rs.29,95,775/- is also dismissed. In view of the aforesaid discussion, we do not find any reason to deviate with the findings recorded by the Id.CIT(A). Accordingly the Cross Objection has also dismissed.” 4.Thus, it appears that the Tribunal has followed the dictum as laid in the decision of this Court in the case of Vijay Proteins Ltd., Junagadh vs. ACIT, Circle, Jungadh in ITA No.1453/AHD/1996. In our opinion, the Tribunal committed no error in applying the dictum as laid in Vijay Proteins Ltd. (supra) in the facts of the present case. 5.On the second proposed question, the findings recorded by the Tribunal are as under : Ground No. 1 to 3 of cross objection in which the assessce has challenged the confirmation of addition of Rs.29,95,775/- is also dismissed. In view of the aforesaid discussion, we do not find any reason to deviate with the findings recorded by the Id.CIT(A). Accordingly the Cross Objection has also dismissed.” 4.Thus, it appears that the Tribunal has followed the dictum as laid in the decision of this Court in the case of Vijay Proteins Ltd., Junagadh vs. ACIT, Circle, Jungadh in ITA No.1453/AHD/1996. In our opinion, the Tribunal committed no error in applying the dictum as laid in Vijay Proteins Ltd. (supra) in the facts of the present case. 5.On the second proposed question, the findings recorded by the Tribunal are as under : “20. We have heard the rival submissions and perused the material on record. It is seen that the AO held that some of the items of closing stock have been valued at a price lower that cost and accordingly worked out under valuation of closing stock at Rs.27,66,485/- and made addition to the total income. However, in appeal the assessee has claimed that the AO has not considered the goods received in Gunny Bags were including cost of Gunny Bags. The assessee follows the practice of increasing the quantity of Gunny Bags thereby including the same in the Gunny Bags, therefore stock valuation of different items be done excluding the value of Gunny Bags from the amount, accordingly the CIT(A) has deleted the addition in respect of Gunny Bags at Rs.2242/- which we find in order. It was further noticed by the CIT(A) that the AO has taken value of goods to be exported on the basis of sale bills issued which is against the basic principle accountancy as the closing stock is to be valued. At cost or market value whichever is lower. The market value is not to be adopted as per sale price which includes profit and other cose. Therefore, the CIT(A) has rightly deleted the addition of Rs.9,85,032/- on account of value of closing stock of ground nut, hence we do not find any infirmity in deletion of this addition. Similarly, the CIT(A) has deleted the addition of Rs.11,26,513/- out of closing stock of Mustard Seed and Rape Seed on the ground that the closing stock of these items has been correctly shown by the assessee. We have gone through the orders and findings of the ld.CIT(A) and do not fins any reason the interfere with the same. Similarly, the CIT(A) after analysed details of Empty Tins and confirmed the addition of Rs.54,992/- on account of valuation in closing stock of Tins. We further find that the AO worked out closing of ground nut cake at Rs.41,382/- whereas the CIT(A) has that this should be at Rs.45,520/-, accordingly the valuation in respect of this item was enhanced to Rs.45,520/-. Similarly, addition on ground nut OGS was analysed by the CIT(A) and the stock of same was determined at Rs.4,31,663/- and the addition of under valuation in respect of these items of the difference was deleted. Similarly,the addition of Rs.29,413/- on account of under valuation in closing stock of Haxin was confirmed. Thus, we find that the CIT(A) has analysed the submissions of the assessee as well as findings of the AO and after arrived at a fair reasonable valuation of closing stock, hence the findings of the CIT(A) in reducing the closing stock to Rs.5,61,588/- from Rs.27,66,485A is therefore upheld. Consequently, Ground No.2 of the Revenue appeal is therefore dismissed and resultantly the Ground No.4 of the Cross Objections is also to be dismissed.” 6.The third question relates to deleting the addition of Rs.8,437/- made on account of the motor car expenses and depreciation. The Tribunal took the view that the CIT(A) correctly deleted the said addition. In such circumstances, the Tribunal thought fit not to interfere. 6.The third question relates to deleting the addition of Rs.8,437/- made on account of the motor car expenses and depreciation. The Tribunal took the view that the CIT(A) correctly deleted the said addition. In such circumstances, the Tribunal thought fit not to interfere. counsel appearing for the Revenue and having gone through the materials on record, we are of the view that no error not to speak of any error of law could be said to have been committed by the Tribunal in passing the impugned order. None of the questions proposed by the Revenue could be termed as the substantial questions of law involved in the present Tax Appeal. 8.In the result, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (A. C. RAO, J) Dolly