2020 (9) TMI 618 - AT - Income Tax

Addition of interest - assessee has surrendered the amount of advance given - interest earned on these advances is not declared in the return of income - HELD THAT - AO has considered the whole of the year for which the amount was advanced and the CIT(A) has considered period of two months in case of Kiran Industries and in respect of other hundis, period starting from September till end of the financial year. The amount has been advanced which is not disputed by the assessee and we deem it appropriate to sustain the rate of interest of 12% per annum as applied by the AO which seems reasonable in the facts and circumstances of the present case except in respect of Aditya Minerals, where it should be calculated at the rate of 18% per annum. Further, in respect of transactions with Kiran Industries, Jai Jinendra textiles and MP Enterprises, the interest should be calculated for period of two months as evidence by the documents found during the course of search and in respect of other transactions, it would be reasonable to calculate the rate of interest from month of September till end of the financial year in absence of anything contrary brought on record which shows the date of maturity before the close of financial year. Addition on account of excess stock found during the course of survey - HELD THAT - As given that the survey was conducted during the middle of the financial year, it is quite likely that there could be some timing mis-match in terms of receipt of physical stock and entries made in the books of accounts and thereafter, once the entries are made in the books of accounts, and necessary reconciliation prepared and submitted, the same should have been examined by the AO and cannot be dismissed summarily. CIT(A) is also of the same view that the said action of the AO is not justified and where the assessee is able to show with evidence that admission made during survey was mistaken, the same should be examined on merits. CIT(A) has thereafter examined the reconciliation statement and has held that the assessee has only partly been able to substantiate the differences and reconciliation so submitted. As gone through the reconciliation statement and find that the assessee has reasonable explained the differences in the stock with its explanation and supporting documentation. In respect of point no. D, we find that valuation of stock has to be at cost price and not selling price and rate of gross profit of 10% has rightly been reduced to arrive at the correct stock valuation and the addition so made is hereby deleted. In respect of point no. E, the ld CIT(A) has granted relief of ₹ 92,082/- and sustained the addition of ₹ 6,705/- which is not pressed by the assessee. In respect of point no. F, the assessee has submitted the relevant purchase bills and affidavit of suppliers stating that the goods were dispatched and delivered to assessee prior to survey and invoices were delivered subsequently and the quantity and other particulars matches and therefore, there is no basis for such addition of ₹ 166,260/- which is hereby deleted. In respect of point no. G, the assessee has explained the reason for recording short opening stock and we find the said explanation satisfactory. In respect of point no. J and K, the assessee has reasonable explained the difference on account of product differentiation and the addition so made is hereby deleted. Ground of appeal is allowed.

Issues Involved:
1. Delay in filing the appeal.
2. Addition of ?80,250 on account of undisclosed interest income.
3. Addition of ?3,15,275 on account of excess stock found during the survey.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed 31 days late. The assessee attributed the delay to his regular tax consultant's busy schedule, which led to the misplacement of the appeal documents. The Tribunal condoned the delay, citing a reasonable cause and referring to relevant precedents, allowing the appeal to be admitted for adjudication.

2. Addition of ?80,250 on Account of Undisclosed Interest Income:
The assessee had surrendered ?8 lakhs during a search, representing advances given to various parties. The Assessing Officer (AO) added ?96,000 as interest income, assuming a 12% annual interest rate. The CIT(A) recalculated the interest at 18% per annum based on a specific "hundi" and calculated interest from September 2010 to March 2011.

The Tribunal found that each transaction should be considered individually, based on the specific terms and conditions documented during the search. It was deemed appropriate to sustain the AO's interest rate of 12% per annum, except for Aditya Minerals, where 18% per annum was justified. The interest for Kiran Industries, Jai Jinendra Textiles, and MP Enterprises should be calculated for two months, as evidenced by the documents. For other transactions, interest should be calculated from September until the end of the financial year. The Tribunal thus partially allowed the appeal, adjusting the interest calculations accordingly.

3. Addition of ?3,15,275 on Account of Excess Stock Found During Survey:
During a survey, the physical stock was valued at ?5,23,698, whereas the stock as per books was ?1,04,788, leading to an alleged excess stock of ?4,18,910. The assessee contended that the stock as per books was hastily calculated and provided a reconciliation statement during the assessment, which the AO rejected on procedural grounds.

The CIT(A) examined the reconciliation on merit and provided partial relief. The Tribunal further scrutinized the reconciliation and found the assessee's explanations and supporting documentation satisfactory. The Tribunal made the following observations:

- Point D: Valuation should be at cost price, not selling price, and a 10% gross profit rate reduction was justified. The addition was deleted.
- Point E: The CIT(A) granted partial relief, and the remaining addition of ?6,705 was not pressed by the assessee.
- Point F: The assessee's purchase bills and supplier affidavits substantiated the delivery of goods before the survey, leading to the deletion of ?1,66,260.
- Point G: The explanation for recording short opening stock was satisfactory.
- Points J and K: The product differentiation was reasonably explained, and the additions were deleted.

The Tribunal concluded that the reconciliation provided by the assessee was reasonable and supported by evidence, thus allowing the appeal on this ground.

Conclusion:
The appeal was disposed of with directions to adjust the interest calculations and delete the additions related to the excess stock, based on the detailed reconciliation and supporting evidence provided by the assessee. The order was pronounced in the open court on 11/09/2020.

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