2018 (2) TMI 500 - AT - Income Tax

Excess stock found at the premises of the assessee during the course of survey - Held that - A perusal of inventory of stock would indicate that the stock statement was prepared after physical verification. The partners have put their signatures after verifying the correctness of the stock statement. The assessee is simply denying about the availability of excess physical stock at the time of survey. They are harping upon the purchase bills and sales bills and entries made in the stock register. It is pertinent to observe that the surveys and searches are the last resorts with the Revenue to verify the actual position on the spot. The allegation against the assessee(s) is that they were not accounting total purchases in their books. That is why excess physical stock was available on a particular day when the survey was carried out. These allegations cannot be refuted by merely just saying that the alleged calculation made at the time of survey is wrong. The survey team was not having power to get declaration as well as arrest the assessee. The partners should have not put their signatures on the inventory of stock prepared by the survey team. Now, with the help of simple denial, they cannot say that excess stock was not found.- Decided against assessee Addition u/s 40(a)(ia) - Held that - Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT if the recipients have paid the taxes on the receipts on which TDS was not deducted, then, no disallowance be made in the hands of payer with the help of Section 40(a)(ia) of the Act. On due consideration of this contention, we deem it appropriate to set aside this issue to the file of the Assessing Officer. The learned Assessing Officer shall verify as to whether M/s. Nirala Roadways has included ₹ 52,730/- in their taxable receipts and, if it was included, then, no disallowance to be made. We make it more specific that the Assessing Officer shall issue summons to M/s. Nirala Roadways for verifying this fact Penalty u/s 271(1)(c) - excess stock in search - Held that - As discussed in the quantum appeal, was found at the premises of the assessee during the course of survey. The partners had put signatures on the inventory prepared by the survey team. That admission was never retracted. It failed to give any explanation about the source of excess stock. We have confirmed addition in the quantum appeal. In the penalty appeal, there is no explanation at the end of the assessee as to what prompted in the minds of the partners for not disclosing the excess stock admitted during the course of survey in the return of income. aking into consideration the above facts and circumstances of the case, we do not find any merits in this appeal. It is dismissed.

Summary

Issues Involved:
1. Confirmation of addition of excess stock found during survey.
2. Charging of interest under Sections 234A, 234B, and 234C.
3. Disallowance of freight expenses under Section 40(a)(ia).
4. Imposition of penalty under Section 271(1)(c) for concealment of income.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Excess Stock:
The assessees, engaged in wholesale trading of iron sheets, filed their returns for AY 2008-09. A survey conducted under Section 133A revealed excess stock valued at ?25,01,015/- for M/s. H S Steel and ?25,00,525/- for M/s. Volga Steel. The Assessing Officer (AO) added these amounts to the income. The assessees contended that the inventory was incorrect and lacked supporting material. They argued that statements made during the survey had no evidentiary value, citing judgments from the Kerala and Madras High Courts. However, the appellate authority upheld the AO's decision, stating that the addition was based on physical stock verification, not merely on statements. The Tribunal found no merit in the assessees' arguments, emphasizing the authenticity of the inventory signed by the partners.

2. Charging of Interest under Sections 234A, 234B, and 234C:
The assessees argued against the interest charged under Sections 234A, 234B, and 234C. However, they admitted that the charging of interest is consequential. The Tribunal rejected this ground due to the lack of substantive arguments.

3. Disallowance of Freight Expenses under Section 40(a)(ia):
M/s. H S Steel's AO disallowed ?52,730/- paid to M/s. Nirala Roadways for freight, citing non-deduction of TDS under Section 40(a)(ia). The assessee argued that the recipient had included this amount in their taxable income, referencing the Delhi High Court's decision in CIT Vs. Ansal Land Mark Township (P) Ltd. The Tribunal set aside this issue, directing the AO to verify if the recipient included the amount in their taxable income and, if so, to not make the disallowance.

4. Imposition of Penalty under Section 271(1)(c):
The AO imposed penalties on M/s. H S Steel for ?8,84,599/- for concealment of income, including undisclosed stock, unaccounted cash, and disallowed expenses. The CIT(A) confirmed the penalty. The assessee argued that similar penalties were deleted for M/s. Volga Steel and cited the lack of retraction of the admission of excess stock. The Tribunal upheld the penalty, stating that the assessee failed to explain the excess stock and could not benefit from the CIT(A)'s decision in the case of M/s. Volga Steel.

Conclusion:
The appeals related to the confirmation of excess stock addition, charging of interest, and penalty imposition were dismissed. The appeal concerning the disallowance of freight expenses was partly allowed for verification purposes. The Tribunal emphasized the importance of physical verification and the authenticity of signed inventory statements in upholding the AO's decisions.