M/s Sri Sumukhaveereswara Rice Mill, Yanam v. The ITO, Ward-2, Kakinada

ITSSA 1/VIZ/2009 | misc
Pronouncement Date: 13-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 125316 RSA 2009
Assessee PAN AAIFS0212L
Bench Visakhapatnam
Appeal Number ITSSA 1/VIZ/2009
Duration Of Justice 4 month(s) 29 day(s)
Appellant M/s Sri Sumukhaveereswara Rice Mill, Yanam
Respondent The ITO, Ward-2, Kakinada
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 13-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 13-05-2010
Date Of Final Hearing 18-03-2010
Next Hearing Date 18-03-2010
Assessment Year misc
Appeal Filed On 15-12-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.(SS)A. NO.1/VIZAG/2009 BLOCK PERIOD: 1988-89 TO 29.01.1999 SRI SUMUKHAVEERESWARA RICE MILL YAHAM VS. ITO WARD-2 KAKINADA (APPELLANT) (RESPONDENT) PAN NO.AAIFS 0212L APPELLANT BY : SHRI V. RAMA SUBBA RAO CA RESPONDENT BY : SHRI SUBRATA SARKAR DR O R D E R PER SHRI B.R. BASKARAN ACCOUNTANT MEMBER : 1. THE APPEAL OF THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 26.10.2009 PASSED BY LD CIT RAJAHMUNDRY U/S 263 OF THE ACT D IRECTING THE AO TO ADD A SUM OF RS.6 52 700/- TO THE UNDISCLOSED INCOME DETE RMINED IN THE HANDS OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD CIT THE AS SESSEE IS IN APPEAL BEFORE US. 2. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. CONSEQUENT TO THE SEARCH AND SEIZURE OPERATIONS CONDUCTED ON THE ASSESSEE A PARTNERSHIP FIRM IT FILED A BLOCK RETURN DECLARING AN UNDISCLOSED INCOME OF RS. 12 78 000/-. DURING THE COURSE OF SEARCH THE REVENUE STUMBLED UPON THREE DE LIVERY VOUCHER BOOKSRELATING TO THE SUPPLY OF PADDY OUT OF WHICH IT WAS FOUND THAT THE DELIVERIES OF PADDY FOUND RECORDED IN TWO VOUCHER BOOKS WERE NOT ACCOUN TED FOR IN THE BOOKS OF ACCOUNT. THE VALUE OF THE ABOVE SAID PADDY WAS WOR KED OUT AS UNDER: 2 DELIVERY PERIOD QUANT ITY RATE VALUE 30-10-1998 TO 13.11.1998 940.40 RS.490/- RS.4 60 796 13.11.1998 TO 20.11.1998 1 663.75 RS.490/- RS.8 15 237 ------------------ RS.12 76 033 ADD:- NET PROFIT @ 0.12% THEREON 1 531 ------------------ RS.12 77 564 SAY RS.12 78 000 ========= THE PARTNER OF THE FIRM AGREED TO DISCLOSE RS.12.78 LAKHS AS THE UNDISCLOSED INCOME OF THE FIRM AND ACCORDINGLY THE BLOCK RETURN WAS FILED. WHILE FINALIZING THE BLOCK ASSESSMENT THE AO MADE VARIOUS ADDITIONS WHICH INTER ALIA INCLUDED A SUM OF RS.6 52 700/- WHICH IS TOWARDS THE VALUE OF EXCESS INVESTMENT IN PURCHASE OF A SITE. BEFORE ITAT THE ASSESSEE TOOK A PLEA THAT THE ENTIRE VALUE OF UNACCOUNTED PADDY SHOULD NOT HAVE BEEN TAKEN AS THE UNDISCLOSED INCOME OF THE ASSESSEE INSTEAD ONLY THE PEAK INVESTMENT SHOULD HAVE BEEN CONSIDERED AS THE UNDISCLOSED INCOME. THE ASSESSEE ALSO PLEADED THAT THE ADDITION OF RS.6 52 700/- SHOULD BE TELESCOPED AGAINST THE UNDISCLOSED INCOME OFFERED BY THE ASSESSEE. THE ITAT FOUND MERIT IN THE CONTENTIONS OF THE ASSE SSEE AND ACCORDINGLY SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH EXA MINATION. IN THE SET ASIDE PROCEEDINGS THE ASSESSEE SUBMITTED THAT THE PEAK A MOUNT OF PADDY PURCHASE WORKS OUT TO ONLY RS.2 43 407/- AND HENCE THERE WAS EXCESS DECLARATION OF THE UNDISCLOSED INCOME TO THE EXTENT OF RS.10.32 LAKHS. SINCE THIS EXCESS DECLARATION IS SUFFICIENT TO COVER THE AMOUNT OF RS.6 52 700/- RELATING TO THE PURCHASE OF SITE IT WAS SUBMITTED THAT NO SEPARATE ADDITION IS REQUI RED. THE AO ACCEPTED THE SUBMISSIONS MADE BY THE ASSESSEE AND ACCORDINGLY DE LETED THE ADDITION OF RS.6 52 700/-. THUS THE UNDISCLOSED INCOME OF RS.1 2 78 000/- DISCLOSED BY THE ASSESSEE WAS ACCEPTED. 3 3. HOWEVER LD CIT FELT THAT THE ORDER PASSED B Y THE AO IN SET ASIDE PROCEEDINGS IS ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF THE REVENUE FOR THE FOLLOWING REASONS: A) THE INVESTMENT IN THE PURCHASE OF SITE WAS MAD E ON 16.10.1998. B) THE UNACCOUNTED PADDY RELATES TO THE PERIOD FR OM 30.10.1998 TO 20.11.1998. C) THUS THE INVESTMENT IN THE PURCHASE OF SITE HA S BEEN MADE PRIOR TO THE INVESTMENT IN UNACCOUNTED PADDY. IN THAT CASE THE FUNDS REALIZED ON THE SALE OF UNACCOUNTED PADDY AFTER 30.10.1998 COULD NOT BE AVA ILABLE FOR PURCHASING THE SITE ON 16.10.1998. ACCORDING TO LD CIT THE DECLARATION OF RS.12.78 L AKHS MADE BY THE ASSESSEE RELATE TO THE VALUE OF UNACCOUNTED PADDY ONLY. IN VIEW OF THE REASON THAT THE SAID FUND COULD NOT HAVE BEEN AVAILABLE TO THE ASSE SSEE FOR THE PURCHASE OF SITE THE LD CIT FELT THAT THE ASSESSEE COULD NOT BE GIVE N THE TELESCOPING FACILITY. ACCORDINGLY THE LD CIT DIRECTED THE AO TO WITHDRAW THE BENEFIT OF TELESCOPING GRANTED TO THE ASSESSEE. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERU SED THE RECORD. THERE APPEARS TO BE SOME CONFUSION IN INTERPRETING THE ORDER OF I TAT. NO DOUBT THE ASSESSEE OFFERED THE SUM OF RS.12.78 LAKHS ON THE BASIS OF T HE VALUE OF UNDISCLOSED PADDY FOUND DURING THE COURSE OF SEARCH. HOWEVER BEFORE ITAT THE ASSESSEE HAS TAKEN A PLEA THAT THE ENTIRE VALUE OF UNDISCLOSED P ADDY PERTAINING TO THE PERIOD FROM 30.10.1998 TO 20.11.1998 SHOULD NOT BE TAKEN A S THE UNDISCLOSED INCOME SINCE THE AMOUNT REALIZED ON THE SALE OF EARLIER P URCHASE WOULD HAVE BEEN USED TO MAKE SUBSEQUENT PURCHASES. ACCORDINGLY IT WAS C ONTENDED THAT ONLY THE PEAK OF UNACCOUNTED INVESTMENT SHOULD BE CONSIDERED AS T HE UNDISCLOSED INCOME. THE ITAT FOUND MERIT ON THE SAID PLEA OF THE ASSESS EE. SINCE THE AMOUNT OF PEAK INVESTMENT IN PADDY WAS EXPECTED TO BE LESS TH AN RS.12.78 LAKHS DISCLOSED BY THE ASSESSEE IN ORDER TO KEEP THE SAID DISCLOSU RE IN TACT THE ASSESSEE ALSO PLEADED THAT THE UNACCOUNTED VALUE OF SITE AMOUNTIN G TO RS.6 52 700/- SHOULD BE TELESCOPED AGAINST THE EXCESS AMOUNT OF UNDISCLOSED INCOME. THE ITAT 4 ACCEPTED BOTH THE PLEAS OF THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF CIT VS. NEEMAR RAM BADLU RAM (1980) 122 ITR 68 (ALL .). 5. HOWEVER THE LD CIT HAS INTERPRETED THAT TH E TELESCOPING FACILITY COULDBE GIVEN ONLY AGAINST THE INVESTMENT MADE SUBSEQUENT T O THE PERIOD OF SALE OF PADDY. THE SAID INTERPRETATION IN OUR OPINION DO ES NOT APPEAR TO BE CORRECT. ON A CAREFUL READING OF THE ORDER OF ITAT WE UNDER STAND THAT THE TELESCOPING FACILITY WAS SOUGHT BY THE ASSESSEE AGAINST THE EXC ESS UNDISCLOSED INCOME DECLARED BY IT AND NOT AGAINST THE VALUE OF UNDISCL OSED PADDY REALIZED BY THE ASSESSEE. 6. THE ASSESSEE HAS SUBMITTED BEFORE THE AO THA T THE PEAK LEVEL QUANTITY OF UNDISCLOSED PADDY WAS QUINTALS 496.75 KGS. ON 18.1 1.1998 THE VALUE OF WHICH WAS WORKED OUT TO RS.2 43 407/-. HOWEVER WE DO F IND ANY DISCUSSION ABOUT THE EXAMINATION OF THE VERACITY OF THE SAID SUBMISSION. THOUGH THE ASSESSEE HAS FILED COPIES OF LETTERS FILED BEFORE THE AO AND LD CIT T HE ASSESSEE HAS NOT ATTACHED THE STATEMENT CONTAINING THE PADDY QUANTITY AS APPE ARING IN THE DELIVERY VOUCHER BOOK WHICH WERE FILED BEFORE THE TAX AUTHORITIES. IN OUR OPINION THE FAILURE ON THE PART OF THE AO TO DWELL UPON THE DETAILS OF PEA K INVESTMENT IN THE PADDY HAS PROMPTED THE LD CIT TO INITIATE THE PROCEEDINGS U/S 263 OF THE ACT. 7. IN ORDER TO ARRIVE AT THE PEAK VALUE OF INVE STMENT IN THE INSTANT CASE IN OUR OPINION FOLLOWING METHODOLOGY SHOULD BE FOLLOWED T O ARRIVE AT THE PEAK VALUE OF INVESTMENT. A) THE NORMAL TIME PERIOD OF SALE REALIZATION OF THE PADDY SHOULD BE DETERMINED FIRST. B) FOR EXAMPLE IF THE NORMAL PERIOD OF SALES REA LIZATION IS TAKEN AS ONE WEEK THE PURCHASE OF PADDY FROM DAY 1 TO DAY 7 SHO ULD BE TAKEN AS THE INITIAL INVESTMENT. THE PURCHASE MADE ON 1 ST DAY SHALL BE REALIZED ON 8 TH DAY THE PURCHASE MADE ON 2 ND DAY SHALL BE REALIZED ON THE 9 TH DAY AND SO ON. HENCE THE COST OF INVESTMENT MADE ON THE 8 TH DAY SHOULD BE DEDUCTED BY THE SALE VALUE 5 REALIZED ON THE SALE OF PADDY PURCHASED ON THE 1 ST DAY. IF THE BALANCE FIGURE IS A POSITIVE ONE IT SHOULD BE TAKEN AS THE ADDITIONAL INVESTMENT. IF THE BALANCE FIGURE IS A NEGATIVE ONE NORMALLY IT MAY BE ADJUST ED IN THE VALUE OF NEXT PURCHASE. THE AGGREGATE FIGURE OF INITIAL INVESTMEN T AND THE ADDITIONAL INVESTMENT WILL BE THE PEAK VALUE OF INVESTMENT. 8. AS STATED EARLIER NEITHER THE AO NOR THE AS SESSEE DID CARRY OUT THE SAID EXERCISE TO ARRIVE AT THE PEAK VALUE OF INVESTMENT. IN OUR OPINION THE AO CAN EXTEND THE TELESCOPING FACILITY ONLY AFTER ARRIVING AT THE PEAK INVESTMENT AND AFTER SATISFYING HIMSELF THAT THERE WAS EXCESS DECLARATIO N. IN OUR VIEW THE LD CIT HAS INITIATED THE PROCEEDINGS U/S 263 SINCE THE AO HAS NOT ARRIVED AT THE PEAK VALUE OF INVESTMENT IN A SCIENTIFIC MANNER AND FURT HER THE AO HAS FAILED TO GIVE A FINDING THAT THERE WAS EXCESS DECLARATION AGAINST W HICH THE UNDISCLOSED VALUE OF PROPERTY COULD BE OFFSET. HENCE IN OUR OPINION T HE FAILURE OF THE AO TO CARRY OUT THE EXERCISE CITED ABOVE MAKES THE ORDER ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY WE MODIFY TH E DIRECTION ISSUED BY LD CIT(A) AND DIRECT THE AO TO DECIDE THE ISSUE OF TELESCOPIN G IN THE LIGHT OF THE PRINCIPLES DISCUSSED IN THE EARLIER PARAGRAPHS. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 13.5.2010 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 13 TH MAY 2010 6 A COPY OF THIS ORDER IS FORWARDED TO : 01 SRI SUMUKHA VEERESWARA RICE MILL D.NO.4-59 PIL LA RAYA STREET YANAM- 533 464. 02 THE ITO WARD-2 KAKINADA 03 THE CIT (A) RAJAHMUNDRY 04 THE CIT RAJAHMUNDRY 05 THE DR ITAT VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH