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TMI Blog2025 (5) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (i.e., finished goods) computed by the Id AO; when it is not actually weighed by search team; which is on the basis of 'volume' taken randomly by the DVO at 923.700 on sampling method in place of correct volume of 644.361 ; books of account has not been rejected; alleged presumptive addition is invalid, unjustified in absence of any independent corroborative material evidence brought on record for suppressed production of the alleged finished goods, is liable to be deleted." 2. On the facts and circumstances of the case and in law, the Id CIT(A) has erred in sustaining addition of Rs. 14,90,856 on the count of excess stock of 'Iron Ore' (i.e., raw material) computed by the Id AO; when it is not actually weighed by search team; which is on the basis of 'volume' taken randomly by the DVO at 3,031.630 without giving any working for such wild estimation on sampling method in place of correct volume of 2,520.109; books of account has not been rejected; alleged presumptive addition is invalid, unjustified in absence of any independent corroborative material evidence brought on record for unaccounted purchases of the alleged raw material, is liable to be delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not quashing the search assessment u/s 143(3) r.w.s. 153A for the search year, since the approval granted u/s153D as there is no application of mind on the part of the Jt.CIT and it has granted in a mechanical and hasty manner, merely a formality, an empty ritual; no satisfaction has been recorded by the Jt.CIT; all the responsibilities & duties has been shifted to the Id AO; the Id AO has power to act/ alter/ add/ amend as he thinks fit in the alleged 'assessment order'; in absence of a valid approval as mandated u/s153D as per sec 153B(l )(b), the alleged search assessment u/sl 43(3) rws 153A be treated as invalid, non-est, null & void-ab-initio and is liable to be quashed." ITA No. 08/RPR/2021 (Department's Appeal) 1. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition partly on account of excess stock, rejecting the valuation report of the registered valuer which was prepared on the basis of valuation done during the course of search, and that CIT(A) relied upon the valuation report of a valuer appointed by the assessee. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged unaccounted purchases of 'Iron Ore' (i.e., raw material); books of account not been rejected; sec145(3) not been applied; assessment made u/s143(3); without rejecting books of account & without making assessment u/s144, estimation of income is not permissible in the eyes of law, is liable to be deleted." 4. The brief facts of the case are that, a search & seizure action u/s 132 of the Act was conducted in the business and residential premises of M/s NR group of cases along with assessee's premises on 24.10.2017. Consequently, notice u/s 153A of the Act was issued, in response to the said notice, assessee company has filed its return of income for the AY 2008-09 to 2017-18 on 05.12.2019. However, the regular return for the AY 2018-19 was filed on 06.10.2018, declaring total income at Rs. NIL. In due course of proceedings, detailed questionnaire along with notice u/s 142(1) and notice u/s 143(2) for the AY 2012-13 to 2018-19 were issued through email. Subsequently, statement of Shri Rajesh Agrawal, Director of the assessee company were recorded on oath u/s 132(4) on 24.10.2017, so as to examine the genuineness of share capital and share premium money received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27/10/2017) Stock as per books of Account of the assessee (Closing Balance as on 27/10/2017 Difference QTY. IN M.T. RATE PMT VALUE QTY. IN M.T. RATE PMT VALUE 1 Sponge Iron 2275.073 15500 35263632 1399.042 11200 15669270 19594361 3 Iron Ore 7651.834 4000 30607336 5303.13 1352 7169832 23437504 4 Iron Ore Fines 6713.196 2000 13426392 5192.084 775 4023865 9402527 Total 79297360 26862967 52434392 Shortage SI. No. ITEMS Valuation as per report of Valuer as on 27/10/2017) Stock as per books of Account of the assessee (Closing Balance as on 27/10/2017 Difference QTY. IN M.T. RATE PMT VALUE QTY. IN M.T. RATE PMT VALUE 2 Ash Char 9167.049 2000 18334098 9306.836 100 930683 17403414 5 Coal 3804.941 3000 11414823 5201.081 2182 11348758 66064 Total 29748921 12279442 17469479 The valuation report of the registered valuer was confronted to the assessee for its comments. In response thereto the assessee companies viz. NR Ispat & Power Pvt. Ltd., NR TMT (India) Pvt. Ltd. and Seleno Steel Limited vide their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Difference QTY. IN M.T. RATE PMT VALUE QTY. IN M.T. RATE PMT VALUE 2 Ash Char 9167.049 100 916704.9 9306.836 100 930684 -13979 5 Coal 3804.941 2182 8302381.3 5201.081 2182 11348759 -3046377 Total 9219086 12279442 -3060356 Accordingly the excess of stock found during the course of search action is treated as unexplained investment amounting to Rs. 1,41,65,857/- is added back to the total income of the assessee. Similarly the GP at 5.50% based on the last three years' average is adopted for the shortage of stock. The value so arrived at Rs. 1,68,320/- is added back being undisclosed income. Tax on both is computed u/ 115BBE of the I.T. Act. Penalty u/s 271AAB(1A) for AY 2018-19 is also initiated. 6. Further Ld. AO., based on loose paper seized from the premises of M/s Seleno Steel Limited (subsequently changed its name as "NRVS Steel Limited", the assessee), Nayaganj, Raigarh, in which some handwritten non- accounted cash transactions were found, have asked the assessee, the nature of transaction and source of funds, also to reconcile the same with the books of accounts along with all the supporting documentary evidence. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the employees of the assessee company during the normal course of the business and also contains the budgetary estimates for the purpose of planning, thus, it does not have any financial impact on the books of accounts prepared by the assessee. The rough jottings are unsigned, do not bear any name and not even suggesting whether the assessee has received the payments or made the payments, hence, does not have any financial impact. The rough jotting amounts which are not accounted in books of account are as under :- Particulars Unexplained during search assessment 2016-17 2017-18 2018-19 Total Page No. - 1, LPS-5 650289 424202 1074491 M/s NRVS Steels Ltd. PAN-AAECM1456D A.Y-2012-13 to 2018-19 Page No. 59, LPS-5 275969 275969 BS-1 3869220 4005425 7874645 BS-2 4216134 4058478 8274612 BS-3 4070570 4070570 BS-4 3320000 3320000 Total 24890287 Since, the assessee company has submitted only written explanation only but it has failed to submit any documentary evidences, reconciled with books of account etc. Therefore, the undersigned is not satisfied with the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority, wherein the contentions of the assessee are discussed and deliberated at length by the Ld. CIT(A) and have partly allowed the appeal of the assessee. 8. Ld. CIT(A) have partly deleted the addition qua the difference in stock for Rs. 1,44,65,851/- made by the Ld. AO, after long deliberations on the issue, wherein the observations of the Ld. CIT(A) are as under: 4.5 Ground No. 8 to 10 :- Through these grounds of appeal the appellant has challenged the addition of Rs. 98,11,547/- on account of excess stock of Sponge iron Rs. 11,78,862/- on account of excess stock of Iron Ore Fines and Rs. 31,75,448/- on account of excess stock of Iron Ore. During the course of search operation, physical inventory of raw material, finished goods, spare parts and consumable items were prepared and the same was got valued by the Registered Valuer in respect of factory premises of M/s Seleno Steel Limited (NRVS Steels Ltd) situated at village Gourmudi, Raigarh. The valuation Report was received from the registered valuer and the valuation of each item was compared with the stock declared by the assessee group. On comparison of each item of inventory as valued by the Registered Valuer with that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock item is key factor for determining actual stock and varies from different lots/heaps. Therefore, the AO ought to have considered density calculated by M/s RVCPL which is based on physical quantification of stock and is also based on correct and prevailing rates of raw material in market (which has already been accepted by AO). Hon'ble Orissa High Court in the case of Utkal Alloys Ltd vs CIT (2009) 226 CTR 676 (Orissa HC) has held that no addition can be made on the basis of difference in stock arrived at by sampling method. Similar view was taken in the case of Haribhagat Agarwalla vs CIT (1982) 51 STC 355 (Orissa HC). Further, Hon'ble jurisdictional High Court in the case of Narmada Ginning & Pressing Factory (2007) 213 CTR 500 (MP HC), held as under: "4. the Tribunal found in the impugned order that the CIT(A) had rightly held that the variation in stock should have been worked out after taking into account the entire stock of all the group concerns found in the course of search commodity wise. The Tribunal also held that the addition of Rs.4,96,021 on account of such variation in stock as held by the CIT(A) was also not justified for the following reasons: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stock. 5. It was also submitted by the assessee that physical stock found at the time of survey was kept separately and the same was sold and the quantity of such stock sale was 250.703 MT. 11. The assessee is a dealer in Iron and steel. Survey u/s 133A was carried out on 12-7-11. As per the survey team the physical stock was quantified 617.183 MT whereas the stock recorded in the books of accounts was 85.433 MT. 12. Before us ld counsel for the assessee contended that there was no basis for taking above quantity. No weighment was done and only by an eye view above table was prepared. In fact it was also not possible to store huge stock of 617.183 MT in the factory premises of the assessee looking to the availability of space. The total area of land with the assessee unit is 10,000 sq.ft. as allotted by the Development Authority, Ujjain on which besides open area, godown, factory Building and works shop erected. The space available for storing of stock is approx. 6,000 Sq.ft. The nature of scrap stock, in terms of size & placing, is also haphazard. It is practically not possible to store 617.183 MT of scrap stock of haphazard shape in approx. 6,000 sq. ft. area. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that survey statement was recorded at late night. In the stock sheet estimated stock have been mentioned along with number of trucks whereas actually no such trucks was available at the survey site and therefore, the stock sheet prepared by the survey team does not look to be a full proof and perfectly prepared stock sheet at the time of survey. 15. We, further observe that the assessee in order to be a prudent assessee, in order to compute the actual unrecorded stock, claimed to have kept the physical stock found on the date of survey separately and as and when the goods were sold the details were prepared. The details of the quantitative details of stock before the date of survey and the date of survey during financial year 2011-12 and the details of stock sold to various parties post survey on the basis of which unrecorded stock of Rs. 33,00,000 is offered to tax are mentioned below : 25. In the instant case also no other incriminating material was found during the course of survey relating to unaccounted stock, excess physical stock was calculated by Revenue authority on estimative and presumptive basis. The stock statement prepared by the survey team on the date of surv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich lacks genuineness and correct estimation of stock. Therefore, the correct valuation of stock as per revised density of stock is as under :- S. No. ITEMS Valuation of stock as per report of M/s RVCPL Valuation shown by appellant in books of accounts Difference QTY. IN M.T. RATE PMT VALUE VALUE VALUE 1 Sponge Iron 923.699 x 1.832 =1692.21 11200 18952752 15669270 3283482 2 Iron Ore 3031.63 x 2.113 =6405.834 1352- 8660688 7169832 1490856 2 Iron Ore Fines 2861.559x1.828 =5230.929 775 4053970 4023865 30105 In view of the above discussion, addition made by the AO amounting to Rs. 32,83,482/- w.r.t excess stock of Sponge Iron Rs. 14,90,856/- w.r.t excess stock of Iron Ore and Rs. 30,105/- w.r.t excess stock of Iron Ore Fines is Confirmed and appellant gets relief of Rs. 65,28,065/- w.r.t excess stock of Sponge Iron Rs. 16,84,592/- w.r.t excess stock of Iron Ore and Rs. 11,48,757/- w.r.t excess stock of Iron Ore. Thus, addition made by the AO amounting to Rs. 48,04,443/- is Confirmed and appellant gets relief of Rs. 93,61,414/-. Therefore, appeal on these grounds is Partly Allowed. 9. The issue of estimated addition of Rs. 17,07,585/- on account of une ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - S. No. ITEMS Valuation as per report of (Valuer as on 27.10.2017) Stock as per books of Account of the assessee (Closing Balance as on 27.10.2017 Difference QTY. IN M.T. RATE PMT VALUE QTY. IN M.T. RATE PMT VALUE VALUE 1 Ash Char 9167.049 100 916704.9 9306.836 100 930684 -13979 2 Coal 3804.941 2182 8302381.3 5201.081 2182 11348759 -3046377 Total 9219086 12279442 -3060356 4.6.1 The valuation report of the registered valuer was confronted to the appellant for its comments. During the course of post search proceedings, the assessee has raised various objections against the impugned report of M/s FVCPL. The appellant has contended that the stock was not measured properly and was measured on sampling basis. The appellant also contended that the stock was estimated on presumption basis. The appellant during the course of appellate proceedings has not produced any evidence which shows that there is any irregularity in the stock measurement of Ash Char and Coal. It is seen that the stock of Ash Char and coal was found short. The appellant has failed to bring on record any justification for alleged shortage of stock. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of profit on sale of stock noticed during the course of search. On appeal, the ld CIT(A) has granted a part relief, against which the assessee as well as the department are in appeal before Your Honours. Vide ground no. 6 of the appeal, the assessee has challenged the approval granted by the Joint CIT u/s153D of the Act. The facts of the case qua the approval u/s153D of the act as available on the record and as further brought on record by the ld DR are as follows. The AO forwarded a draft assessment order vide his covering letter dated 28-12-2019. It is also noticed that the AO had earlier addressed a letter to the Department Valuation Officer raising certain issued in respect of valuation carried out by them. This was in pursuance to various objections raised by the assessee in respect of valuation done by the DVO. It has been confirmed by the ASSESSING OFFICER, during the course of hearing before the Hon'ble Bench on 27-9-2024, that such communication received from DVO was not forwarded to the Jt.CIT along with the draft assessment order. The Jt.CIT granted the approval on 30-12-2019 (PBP-48) in respect of the draft assessment order forwarded by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disposed of vide the response of FCPL on 28.12.2019, a copy of the letter of response from FCPL is furnished before us, the same is extracted as under: 15. Referring to the aforesaid communication from M/s FCPL, it is contended by the LD. AR that such communication from the DVO was not provided / confronted to the assessee, neither the same was placed before the Ld. JCIT, the sanctioning authority u/s 153D, for his perusal. It was the submission that the assessment order is also silent on this aspect that the objections of the assessee are disposed of by the DVO. Ld. AR further argued that as the crucial document having a strong bearing on the assessment framed was not brought to the knowledge of assessee or the sanctioning authority, therefore, the first presumption under which the sanction was granted found to be on wrong facts that proper opportunity of hearing was granted to the assessee, moreover there was no evidence to show that the report of valuer was placed before the sanctioning authority, under such circumstances, in absence of complete records placed before the sanctioning authority, the approval granted u/s 153D is at nullity. Such act on the part of Ld. AO makes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections of the assessee was placed before the Ld. JCIT, therefore, the approval was granted without perusing the complete assessment record by the Ld. JCIT, it shows that there was lack of application of mind on the part of Ld. JCIT and the approval was granted u/s 153D in mechanical manner, on this aspect Ld. AR placed his reliance on the judgment in the case of ACIT vs Serajuddin & Co. Kolkata in ITA No. 39-45 of 2022, decided by the Hon'ble High Court of Orrisa on 15.03.2023 wherein the relevant findings of the Hon'ble High Court are as under: 25 For all of the aforementioned reasons, the Court finds that the ITAT has correctly set out the legal position while holding that the requirement of prior approval of the superior officer before an order of assessment or reassessment is passed pursuant to a search operation is a mandatory requirement of Section 153D of the Act and that such approval is not meant to be given mechanically. The Court also concurs with the finding of the ITAT that in the present cases such approval was granted mechanically without application of mind by the Additional CIT resulting in vitiating the assessment orders themselves. 18. Ld. AR furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of draft assessment order before the Joint commissioner of Income Tax, central range, Raipur for approval u/s 153D. 1. The assessee company is mainly engaged in the business of manufacture and sale of MS Billets under the flagship entity M/s. NRTMT (India) Pvt Ltd, Raigarh. The head of the business group is Sanjay Kumar Agrawal, who is one of the directors of the assessee company. 2. Search and seizure action u/s 132 of the IT Act, 1961 was conducted at the business premises of M/s NR Group on 24/10/2017. 3. Consequently, notice u/s 153A of the Act dated 26/09/2019 was issued. Subsequently, assessment order under section 153A read with section 143(3) of the Income Tax Act, 1961 was passed on 30/12/2019 for the A.Ys. 2009-10 to 2017-18 and under section 143(3) of the Act for A.Y. 2018-19. 4. The AO has made addition of Rs. 2,89,20,981/- in AY 2018-19 on account of stock difference found in the factory premises of M/s NR TMT (India) Pvt., Ltd. And passed assessment order with the prior approval of the Joint Commissioner of Income Tax (Central), Raipur (C.G) communicated vide letter in F.No.JCIT(C)/RPR/153D/2019/348 dated 30-12-2019. 5. During the hearing, it was the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lysing hundreds of pages of dense legal material on a daily basis & in central charges specially going through the huge record, data, material is a routine matter on daily basis. In present case context, a range head is a senior officer and is eminently capable of carefully considering several hundred pages in a day. In fact, it a primary requirement of his / her job. 9. So far as the consultation / monitoring with the Range head is concerned, the approval by the Range head u/s 153D in all search cases, is merely administrative in nature. While giving such administrative approval, the Range head does not act as an appellate authority to allow or disallow the additions proposed by AO. 10. The CBDT Circular No. 3 of 2008 dated 12.3.2008, vide which the legislative intent may be gathered for enactment of new Sec. 153D, has only prescribed that assessment of search cases orders of assessment and reassessment are to be approved by the Joint Commissioner. Nowhere under the scheme of Sec. 153D, has the procedure and manner of granting approval u/s 153D been prescribed. Therefore, the approval u/s 153D by supervisory authority is merely administrative in nature to safeguard internal ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the draft assessment order after giving due opportunity by the AO. 15. Hon'ble Supreme court of India in Deepak Agro Foods Vs State of Rajasthan &Ors (2008) observed that in the light of the settled law, the assessments orders could not be held to be null and void on account of the stated irregularities and in case of an irregularity in assessment proceedings by the officer, at best, it was an illegality, which defect is capable of and can be set aside the order. The Hon'ble court also added that Proceedings for assessment under a fiscal statute are not in the nature of judicial proceedings, like proceedings in a suit in as much as the assessing officer does not adjudicate on a lis between an assessee and the State and, therefore, the law on the issue laid down under the civil law may not stricto sensu apply to assessment proceedings. There is a clear distinction between a "null and void" order and an "illegal or irregular" order. All irregular or erroneous or even illegal orders cannot be held to be null and void as there is a fine distinction between the orders which are null and void and orders which are irregular, wrong or illegal. In the instant case also the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al course of business but also in connection with letter dated 09.09.2016 which was issued by range head JCIT (C) Raipur to the same A.O. 20. Perusal of the approval letter dated 30-12-2019 also shows that range head returned the case record of the case along with the impugned approval letter which shows that the range head after applying his mind & going through the case records granted approval as desired by DCIT(C) - 2 Raipur with his letter dated 26-12-2019 (i.e.04 days before) granting approval to the A.O. 21. Above logic also gets strength from the fact that since the day assessment proceedings starts, not only the A.O. but the range head also is given one original copy of appraisal report by the Inv. authorities so that the range head officer going through the same supervises and guides the A.O. on regular basis. Appraisal report, questionnaire& draft assessment order on record also discuss the seized material in detail which were with the range head for considerable period. 22. In the instant case, Approval of JCIT(Central)Raipur which is only administrate in nature and is open for Judicial review in a limited way. Such judicial review is applicable only if the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has issued only one show cause letter on 27-12-2019 and fix the hearing on 28-12-2019 at 02.00 PM (copy enclosed). In the show cause the assessee was asked to offer its comments and show cause why the difference of stock amounting to Rs. 2,89,20,981/- should not be added u/s 69 of the Act. The show cause was being issued to follow the principal of Natural Justice by giving an opportunity to explain the comments given by Frontline consultation Pvt Ltd in relation to the valuation of stock made during the search proceeding. 21. On the basis of aforesaid report, it was the submission by Ld. CIT DR that the revenue had followed all the processes which are necessary and as mandated in the law. Referring to the report of Ld. AO, it is submitted that the Ld. AO was in constant touch with the range head, who was specially supervising the case, the approval dated 30.12.2019 was, therefore, clearly showing that the case records comprising of various notices issued, replies of assessee and seized material etc. were returned to the Ld. AO after approval, thus, are duly deliberated upon by the sanctioning authority. As per para 7 of the report of Ld. AO, it is clarified that the approval s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee), which was placed before the Ld. JCIT and since there was no change in the valuation in the case of NRVS, therefore, the same was not confronted to the assessee. For this reason, there was no change in draft assessment order, which is finally approved by the Ld. JCIT after deliberation, with due application of mind in a considerate manner. On the basis of aforesaid submission, it was the prayer of the revenue that approval u/s 153D granted by the Ld. JCIT dated 30.12.2019 was a valid, legal, rational, meeting with the requirement of law, therefore, the contention raised by the Ld. AR, challenging the validity of approval u/s 153D needs to be rejected at threshold and the matter may be decided on merits. 22. We have considered the rival submissions, perused the material available on record and the judicial pronouncement relied upon by both the parties. In present case, as per the facts on record, the case of assessee was picked up for assessment on account of search and seizure proceedings u/s 153A r.w.s. 143(3) for the AYs 2012-13 to 2018-19. In the process of assessment, as per mandate of law, Ld. AO had submitted draft assessment orders for approval u/s 153D to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved after considering the same, at this juncture, a question emerges qua the objections of the assessee which were responded by the valuer, why the same are not confronted to the assessee for its comments before culmination of the assessment. Another question arises that, if the report was furnished before the Ld. JCIT, who was the authority granting the approval u/s 153D, bearing a presumption that proper opportunity of hearing has been afforded to the assessee, whereas apparently, when there was no response of assessee on the report of valuer on record placed before the sanctioning authority, for the reason that the assessee was not even aware about the receipt of such communication from the valuer, how the sanctioning authority convinced himself that the required / reasonable / proper opportunity of hearing was granted to the assessee. Such observations led to a situation, wherein it can be plainly construed that either the complete set of records are not placed before the sanctioning authority or are not perused by the sanctioning authority or the failure in compliance of the mandatary proceedings could not be envisaged by the authority while granting the sanction u/s 153D. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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