Pal Stone Industries Pvt. Ltd.,, ... vs Department Of Income Tax

Dy. Commissioner of Income Tax, vs M/s Pal Stone Industries Pvt. Ltd., Haldwani, Distt. Nainital, Bareilly Road, Haldwani, Uttarakhand-263139 Haldwani. (PAN No.AAACP9030C) (Appellant) (Respondent)

Appellant by: Shri Vivek Wadekar, CIT (DR) Respondent by: Shri Rahul Khare, Adv. Date of Hearing: 24.06.2015 Date of Pronouncement:

ORDER

PER C.M. GARG, JUDICIAL MEMBER

This appeal by the revenue has been preferred against the order of the

CIT(A)-II, Dehradun dated 14.01.2013 in Appeal No.140/HLD/2007-08 for

AY 2007-08. The grounds raised by the revenue read as under:-

"1. That the Ld. CITCA)-I1 has erred in law and on fact in allowing relief of Rs. 45,18,755/- on account of payment of royalty to Govt. against the addition of Rs. 48,21,163/- which was made on account of undisclosed investment in the expenses under the head of transportation and labor charges for obtaining illegal stock without considering the fact that the payment of Royalty to Govt. has no relation with the expenses of transportation and labour charges.

1 ITA No.1587/Del/2013 Asstt.Year: 2005-06 2. That the Ld. CIT (A) -II has erred in law and on fact in allowing depreciation of Rs. Rs. 86,348/- without considering the fact that the depreciation cannot be allowable merely because the assessee has acquired the vehicle during the year but it should have been put to use for business for availing the depreciation."

Ground No. 1 2. Apropos ground no. 1, we have heard arguments of both the sides and

carefully perused the relevant material placed on record. Ld. counsel of the

assessee submitted a copy of the order of ITAT 'G' Bench Delhi in ITA No.

4355/Del/2009 for AY 2005-06 in the case of Ms/ Swastik Stone Enterprises

and submitted that ground no.1, having similar set of facts and circumstances, is

covered by the order of the Tribunal. Ld. DR after perusing the copy of the

order of the Tribunal (supra) fairly accepted that the department has no serious

objection if the matter is remitted to the file of AO for a fresh consideration

after examination of appellate orders of District Magistrate, Nainital on the

issue.

3. On careful consideration of above submissions, from the impugned order

of the CIT(A), we note that the CIT(A) granted relief to the assessee with

following observations and conclusion:-

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"7.2 The averments of Ld. ARs and the finding of Ld. AO have been carefully considered. The Ld. ARs have also filed some documents from which the Ld. AO has arrived at the impugned figures of additions. A perusal of the facts reveal that the District Authorities have worked out the quantum of illegal mining on the basis of their own survey. Undoubtedly this matter has not attained finality and is still sub judice, however, the Ld. AO was right in relying upon he finding of the District Authorities in estimating undisclosed investment. To this extent the Ld. AO's action is worth supporting in principle. However, the alternative claim of allowing expenses against this deemed income has considerable force since the payment of royalty would go hand in hand with any assessment of income from illegally mined stock. Since this fact is evident from the same set of documents from which the Ld. AO has worked out the undisclosed investment, it would be only fair to allow relief of Rs.45,18,755/- against the impugned addition. Thus the Appellant gets relief of Rs.45,18,755/- from the addition of Rs.48,21,163/-. "

4. On vigilant reading of the order of the Tribunal in the case of M/s Swastik

Stone Enterprises (supra), we observe that in the similar facts and

circumstances, the issue of expenses under the head of transportation and labour

charges for obtaining illegal stock was remitted to the file of AO for a fresh

consideration in accordance with the appellate orders of the District Magistrate,

Nainital on this issue. The relevant operative part of the order of the Tribunal

dated 18.1.2013 reads as under:-

"3. In this case it is observed that a survey was conducted at the premises of the assessee by the Forest Department/PWD and Revenue Department of Uttarakhand. Subsequently, the joint enquiry committee consisting of officials of forest department, PWD and Revenue Department also surveyed the premises of the assessee company for verification of the stock. On the basis of findings as a result of survey, D.M., Nainital has passed an order dated 19.3.2005, wherein it has been held that the assessee 3 ITA No.1587/Del/2013 Asstt.Year: 2005-06

company has illegal transportation of 10,715 cubic meters of stone grits for which compounding fees of Rs.28,21,615/- have been levied. Based on these findings of DM, Nainital, the Assessing Officer has computed the sale outside the books of stone grits to the tune of Rs.28,00,472/- and by applying the rate of profit at 38%, such profit out of the undisclosed sale has been computed at Rs.10,64,179/-. In addition, the capital employed for running such business outside the books has been estimated at Rs.50,000/- and as a result an aggregate addition of Rs.11,14,179/- has been made.

4. Upon assessee's appeal Ld. Commissioner of Income Tax (A) noted that the objections were also raised before the DM, Nainital who after having regard to the entire facts of the case has passed a speaking order determining the illegal transport of goods i.e. minor minerals to the tune of 10,715/- cubic meters for which compounding fees of Rs.28,21,615/- was levied. Ld. Commissioner of Income Tax (A) noted that the against the above order of the DM, Nainital, assessee has filed the appeal before the Divisional Commissioner, Nainital, which is still subjudice before him. Considering the above, Ld. Commissioner of Income Tax (A) held that the as of now, since the DM's order indicates the conclusive finding of fact, he was not in a position to make a departure from the same because no fresh evidence has been led which can cause any interference towards the order of DM. Ld. Commissioner of Income Tax (A) concluded as under:-

"Since the forest department officials and the joint enquiry committee were the experts to determine the quantum of illegal transportation, the report of such authorities cannot be brushed aside. Further, DM, Nainital, being competent officer to evaluation such reports, I have no other fresh materials to differ from the finding of such authority and accordingly the addition made by the Assessing Officer towards the undisclosed profit and capital employed in the business to the tune of Rs. 11,14,179/- is hereby confirmed and no interference is called for."

5. Against the above order the Assessee is in appeal before us.

6. We have heard the rival contentions in light of the material produced and precedent relied upon. Ld. Counsel of the assessee submitted that the in identical circumstances in this

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tribunal in I.T.A. No. 419/Del/2009 for A.Y. 2005-06 of M/s Krishna Store Industries Pvt. Ltd. vs. DCIT vide order dated 23.12.2009 has remitted the matter to the file of the Assessing Officer. Hence, he prayed that accordingly, this matter should also be remitted to the file of the Assessing Officer. Ld. Departmental Representative on the other hand, relied upon the orders of the authorities below.

6.1 We have carefully considered the submissions and perused the records. We find that the in the case of M/s Krishna Store Industries Pvt. Ltd. vs. DCIT (Supra) the tribunal had adjudicated the matter as under:-

"4. In this case, the assessee company is engaged in the manufacturing and sale of stone grits. During the course of assessment AO noted that a survey was conducted on the premises of the assessee company by the forest department, PWD and revenue department. On the basis of material found during the survey DM, Nainital passed a order on 19.3.2005 holding that during the year the asessee has done illegal transportation (made undisclosed sale) of 10032.07 cubic meter of mineral. It was also held by the DM, Nainital that during the year assessee was found having illegal storage of 5045.93 cubic meter of stone which was brought from Gola River. Considering the facts the DM, Nainital vide order dated 19.3.2005 imposed compounding fee of Rs. 5,04,363/- on account of illegal storage of mineral of 5045.93 cubic meter. Then DM, Nainital further imposed compounding fee of Rs. 26,43,371/- on account of illegal transportation of 10032.07 cubic metres of minerals. AO further noted that after considering the objections which are similar to the objections made before him, the DM, Nainital rejected the petition and confirmed the amount imposed upon assessee. Thereafter, the assessee filed the petition before the Divisional Commissioner, Nainital where the matter is still pending for consideration. In this regard, AO held that since the assessee could not give evidence before the DM, Nainital and the DM, Nainital after considering all its objections has held that assessee was having illegal excess stock and had illegally transported minerals. AO made addition on account of illegal stock amounting to Rs. 5,39,418/- and on account of illegal transportation (undisclosed sales) amounting to Rs. 8,06,268/-.

5. Upon assessee's appeal ld. CIT(A) considered the issue and concluded that as of now, since the DM's order indicates the 5 ITA No.1587/Del/2013 Asstt.Year: 2005-06

conclusive finding of the fact, he was not in a position to make any departure from the same. He further found that DM, Nainital being the competent authority to evaluate such reports, he had no material to differ the finding of such authority. Accordingly, he confirmed the addition. On the same analogy he confirmed the addition of Rs. 8,06,268/- on account of illegal transportation (undisclosed sales).

6. Against this order the assessee is in appeal before us.

7. We have heard both the counsels and perused the records. It transpires that the decision of revenue authorities is solely made on the basis of the order of the DM, Nainital and the same has been said to be a matter of adjudication pending before the Divisional Commissioner, Nainital. Both the authorities had totally relied upon the order of the DM, Nainital. Since the same is pending before the Divisional Magistrate, Nainital, the same cannot be said to be final and conclusive.

7.1 In this view of the matter, we remit the issue to the files of the AO to consider the same afresh after examining the appellate orders of the Divisional Commissioner, Nainital on this issue. Needless to add that the assessee should be granted adequate opportunity of being heard."

6.2 A reading of the above shows that facts in the present case are identical to the one adjudicated by the tribunal in the aforesaid order. In this case also the matter for adjudication is pending before the Divisional Commissioner, Nainital. Both the authorities have totally relied upon the order of the DM, Nainital. Since the same is pending before the DM, Nainital, the same cannot be said to be final and conclusive. Accordingly, respectfully following the above precedent, we remit the issue to the file of the Assessing Officer to consider the same afresh, after examining the appellate orders of DM, Nainital on this issue. Needless to add that the assessee should be granted adequate opportunity of being heard."

5. In view of above, we respectfully follow the order of the Tribunal

(supra) and remit the issue to the file of AO to consider the same afresh after

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examining and considering the appellate orders of the higher authorities on this

issue. The AO shall allow adequate opportunity of being heard to the assessee

and shall decide the issue afresh without being prejudiced with the earlier

assessment order and impugned order of the CIT(A). Accordingly, ground no.

1 of the revenue is deemed to be allowed for statistical purposes.

Ground No.2

6. Apropos ground no.2, ld. DR submitted that the ld. CIT(A) has erred in

law and on fact in allowing depreciation of Rs. Rs. 86,348/- without

considering the fact that the depreciation cannot be allowable merely because

the assessee has acquired the vehicle during the year but it should have been

put to use for business for availing the depreciation. Ld. counsel of the

assessee, supporting the impugned order of the CIT(A), has drawn our

attention towards operative part para 5 and 5.1 of the impugned order and

submitted that once it is established that the asset was used for the purpose of

business, then it is to be presumed that it was put to use and ready for use in the

assessee's business set up and, therefore, the CIT(A) was correct in allowing

depreciation to the assessee. On careful consideration of above submissions,

we note that the CIT(A) granted relief to the assessee with following

observations and conclusion:-

7 ITA No.1587/Del/2013 Asstt.Year: 2005-06

"5.0 The fourth ground challenges the addition of Rs.1,46,098/-. The Ld. ARs have challenged only the addition of Rs.86,348/- made on the ground that the concerned vehicle was purchased from Lucknow on the last day of the concerned financial year and since the assesee had no business at Lucknow the depreciation claimed was disallowed.

5.1 The Ld. ARs have averred that Lucknow being the state capital there was considerable liaison that had to be done there. However, while this assertion may not be relevant since in the concerned Asstt. Year the State capital was Dehradun, it is worth considering that the asset came in possession of the Appellant within the financial year and was thus available for use in his business. Once it is established that the asset was for the purposes of business it has to be assumed that it was ready for use in the Appellant's business and would thus merit charging depreciation on. In view of this the Appellant gets relief of Rs.86,348/- from the total addition on this account."

7. In view of above, we hold that the asset was undisputedly purchased and

came in the possession of assessee within the financial year relevant to

assessment year under consideration in this appeal. The AO has not disputed

this fact that the vehicle was purchased during the financial year under

consideration for the purpose of business of the assessee and in this situation, it

can safely be presumed that the vehicle was put to use and ready for use in the

assessee's business organization and hence, CIT(A) was right in allowing

depreciation to the assessee deleting the impugned addition made by the AO.

Accordingly, we are unable to see any reason to interfere with the order of the

first appellate authority on the issue of depreciation and hence, ground no. 2 of

the revenue is dismissed.

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8. In the result, the appeal of revenue is partly allowed for statistical

purposes.

Order pronounced in the open court on 30.06.2015.

Sd/- Sd/-

(J.S. REDDY) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 30th JUNE 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt.Registrar

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