2015 (7) TMI 944 - AT - Income Tax

Assessee's Appeal Dismissed for A.Y. 2003-04, Revenue's Partial Success, A.Y. 2005-06 Appeal Dismissed

The assessee's appeal for A.Y. 2003-04 was dismissed. The revenue's appeal for A.Y. 2003-04 was partly allowed, and the appeal for A.Y. 2005-06 was ... Addition on confiscation of stocks of scrap Rail and scrap Cast Iron by the District Authorities against the dues of KESCO - Held that:- CIT (A) decided the issue against the assessee by holding that there is no dispute regarding the value of confiscated stock of ₹ 50,92,490/- for which only possession has changed but the right remains with the assessee only. Before us also, same argument is made without establishing that entire stock of 832.809 M.T. was auctioned for ₹ 2.03 lacs because on page 24 of the paper book, no quantity is mentioned and hence it is very much possible that this sale proceeds of ₹ 2.03 Lacs is for sale of only a small part of 832.809 M.T. and the remaining part is still unsold or was sold by the assessee prior to seizure. Moreover, this amount of ₹ 2.03 Lacs is said to have been adjusted against outstanding demand of KESCO of ₹ 71,21,300/-. If this demand of KESCO of ₹ 71,21,300/- or any part thereof is already accounted for in books, then the payment to KESCO is to reduce sundry creditor only and in that situation, sale proceeds of stock has to be considered as income only and the balance has to be considered as stock in absence of any evidence that entire stock was sold for ₹ 2.03 Lacs. If this demand of KESCO is other than liability as per books than also the assessee has to establish that deduction is allowable for the same but the assessee has not even explained the nature of the liability said to be payable to KESCO. Hence, we do not find any reason to interfere in the order of learned CIT (A) on this issue. - Decided against assessee. Addition on the basis of profit on sale outside books of excess stock shown in the stock statement ubmitted to the bank by the assessee - CIT(A) deleted the addition - Held that:- The present issue is covered in favour of the assessee by the judgment of Hon’ble Jurisdictional High Court rendered in the case of CIT vs. Khan & Sirohi Steel Rolling Mills (Supra). Learned CIT (A) has decided this issue by following this judgment and learned DR could not point out any difference in facts. Hence, we decline to interfere in the order of learned CIT (A) on this issue. - Decided against revenue, Unexplained investment made in the purchase of unrecorded stock - CIT(A) deleted the addition - Held that:- CIT (A) has given a categorical finding that purchase shown in the stock statement submitted to bank almost tallies with value reflected in books of accounts. He has also given this finding that books of accounts are not rejected and no other adverse circumstantial evidence is brought on record by the A.O. After making these observations, he has decided this issue by following this judgment of Hon’ble Jurisdictional High Court rendered in the case of CIT vs. Khan & Sirohi Steel Rolling Mills (2005 (1) TMI 680 - ALLAHABAD HIGH COURT). Learned DR of the revenue could not controvert these categorical findings of CIT (A) and he could not show as to how this judgment of Hon’ble Jurisdictional High Court rendered in the case of CIT vs. Khan & Sirohi Steel Rolling Mills (Supra) is not applicable. Hence, we decline to interfere in the order of learned CIT (A) on this issue also - Decided against revenue. Disallowance out of depreciation on plant & machinery which as per the assessing officer were not put in to use during the period under reference - CIT(A) deleted the addition - Held that:- none of the judgments followed by learned CIT (A) is applicable in the present case. Moreover, this is admitted position of facts that the industrial unit was not working and although it is claimed that some machines were used in course of trading but no evidence is brought on record in support of this contention. No evidence is brought on record in support of this contention also that the machines were kept ready for use. This also is not the case of the assessee that the operation of industrial unit has restarted even till now i.e. in the year 2015. Considering all these facts, we hold that the order of learned CIT (A) on this issue is not sustainable and therefore, we reverse the same and restore that of the A.O. - Decided in favour of revenue. Addition u/s 43B on account of penal interest charged by the bank and interest payable to bank - CIT(A) delted addition - Held that:- Disallowance was made by the A.O. on account of interest payable on cash credit account and on account of penal interest charged by the bank. Learned CIT (A) has given a categorical finding that in the relevant year, section 43B did not cover interest on cash credit account. He has also given a finding that the penal interest was for contravention of contractual obligation between borrower and lender and not for infraction of any law. Learned DR of the revenue could not controvert any of these findings of CIT (A). Hence, we find no reason to interfere in the order of CIT (A) on this issue. - Decided against revenue. Validity of assessment order u/s 143(3) - Held that:- Learned CIT (A) held that since the notice u/s 143 (2) was not validly served on the assessee within prescribed time, the assessment is void and he annulled the same. We find no infirmity in the order of CIT (A) in the facts of the present case and therefore, we decline to interfere in his order. See Anil Kumar Goel vs. ITO [2007 (2) TMI 260 - ITAT LUCKNOW-A ] - Decided against revenue. Issues Involved:1. Addition of Rs. 50,92,440/- on account of confiscation of stocks.2. Deletion of addition of Rs. 18,47,381/- based on profit on sale outside books.3. Deletion of addition of Rs. 24,39,059/- on account of unexplained investment in unrecorded stock.4. Deletion of addition of Rs. 18,96,399/- on account of disallowance of depreciation.5. Deletion of addition of Rs. 20,22,852/- under Section 43B on account of penal interest and interest payable to bank.6. Annulment of assessment order for A.Y. 2005-06 due to improper service of notice under Section 143(2).Detailed Analysis:1. Addition of Rs. 50,92,440/- on account of confiscation of stocks:The assessee challenged the addition of Rs. 50,92,440/- made by the Assessing Officer (A.O.) for the confiscation of stocks by the District Authorities against dues of KESCO. The A.O. noted discrepancies in the stock records and the lack of evidence to support the claim that the entire stock was seized and auctioned for Rs. 2.03 Lacs. The CIT (A) upheld the addition, stating that the stock remained the property of the assessee and the right to it did not transfer with mere possession change. The Tribunal found no convincing evidence from the assessee to prove the entire stock was auctioned for Rs. 2.03 Lacs and upheld the CIT (A)'s decision, dismissing the assessee's appeal.2. Deletion of addition of Rs. 18,47,381/- based on profit on sale outside books:The revenue's appeal contested the deletion of Rs. 18,47,381/- added by the A.O. based on the profit from the sale outside books, inferred from discrepancies in the stock statements submitted to the bank. The CIT (A) relied on the jurisdictional High Court's judgment in CIT vs. Khan & Sirohi Steel Rolling Mills, which favored the assessee. The Tribunal found no difference in facts from the cited case and upheld the CIT (A)'s decision, rejecting the revenue's grounds.3. Deletion of addition of Rs. 24,39,059/- on account of unexplained investment in unrecorded stock:The revenue's appeal also challenged the deletion of Rs. 24,39,059/- added by the A.O. for unexplained investment in unrecorded stock. The CIT (A) found that the stock statement submitted to the bank almost tallied with the books of accounts and no adverse evidence was presented by the A.O. The Tribunal upheld the CIT (A)'s findings, noting the reliance on the same High Court judgment, and rejected the revenue's grounds.4. Deletion of addition of Rs. 18,96,399/- on account of disallowance of depreciation:The revenue appealed against the deletion of Rs. 18,96,399/- disallowed by the A.O. for depreciation on plant and machinery not put to use. The CIT (A) relied on several judgments, including CIT vs. Swaroop Vegetable Products India Ltd., to allow the depreciation. The Tribunal, however, found that none of the cited judgments applied to the present case's facts, as the industrial unit was not operational and no evidence was provided to show the machinery was ready for use. The Tribunal reversed the CIT (A)'s decision and restored the A.O.'s addition.5. Deletion of addition of Rs. 20,22,852/- under Section 43B on account of penal interest and interest payable to bank:The revenue's appeal contested the deletion of Rs. 20,22,852/- added by the A.O. under Section 43B for interest payable on cash credit and penal interest. The CIT (A) found that Section 43B did not cover interest on cash credit in the relevant year and that the penal interest was for contractual contravention, not legal infraction. The Tribunal found no reason to interfere with the CIT (A)'s findings and rejected the revenue's grounds.6. Annulment of assessment order for A.Y. 2005-06 due to improper service of notice under Section 143(2):The revenue's appeal challenged the annulment of the assessment order for A.Y. 2005-06, arguing that the notice under Section 143(2) was served within time. The CIT (A) found that the notice was not validly served as it was received by unauthorized persons. The Tribunal upheld the CIT (A)'s decision, referencing a tribunal order in Anil Kumar Goel vs. ITO, and found no infirmity in annulling the assessment order due to improper service of notice.Conclusion:The assessee's appeal for A.Y. 2003-04 was dismissed. The revenue's appeal for A.Y. 2003-04 was partly allowed, and the appeal for A.Y. 2005-06 was dismissed.