2022 (6) TMI 1491 - AT - Income Tax

Difference in Stock of Sugar from the books - HELD THAT - There was no actual difference in stock but merely a discrepancy, which naturally and inevitably ought to occur when stock of a day of search when compared to opening stock of a day before. During the search, no other document was found, which could justify the difference of stock. Whereas, the purchase of raw material, its utilization and even the sales have been duly examined and no discrepancy has been found. It is pertinent to note that 5336 Qtl. 3746 Qtl. which was allegedly extra at Libberheri Barkatpur, respectively, is only 0.98 % is 0 .76% of the total sugar found during physical search, in the respective units. Even if it is assumed without admitting that the assessee- company had somehow been crushing producing unaccounted sugar, the same would not have been in such minimal quantity, which is less than a day s production During search neither any incriminating evidence, nor any other document was found which could justify such an allegation. We have also gone through the annual production and find that the production on the day of search has not been taken into account owing to the search operation conducted at the premises. The amount and the quantum of sugar are in tune with average daily production. In view of the entirety of the facts narrated above, we hold that no addition is called for on account of difference in the stock of sugar. Difference in Stock of Molasses from the books - The product in question is molasses which was found to be in excess at the aforesaid 4 units of the assessee- company is a highly volatile chemical which changes its shape, weight, and texture when in different temperature. When heated, while production would tend to show more quantity and would become more fluid, however, when kept cool, would compress into a thick jelly like substance. It is to be noted that while taking the stock in April, the weather was hot and the product under production and there is strong possibility of chemical reaction resulting in foaming in the molasses, which cannot be ruled out. The said fact of the discrepancy arising due to chemical reaction was even confirmed by the Chief Engineer at the time of search itself which could not be disputed. Molasses is kept under the control of the excise department and can be removed only under the supervision of the Excise Inspector who is stationed at the factory. Daily production records pertaining to daily production of molasses as on 07.04.2010, the date of search have also been taken into consideration. Therefore, there is no chance of excess production of Molasses or sugar, as is being alleged. Hence, we hold that no addition on account of difference in molasses is called for. Unaccounted Cash - difference between cash as per the books and physical cash found at different premises of the assessee-company - as submitted that certain vouchers pertaining to cash transactions undertaken on 06.04.2010 (day prior to search) were not updated in the cash book which led to the difference in cash found and the books - HELD THAT - The said fact of the vouchers not being updated in the cash book was even confirmed by an employee of the assessee- corporation, Sh. Mahesh Patel, at the time of recording of his statement u/ s 132 ( 4 ) itself. However, the same was not considered while making the assessment. The assessee before the AO and CIT( A) submitted a reconciliation justifying that there was no actual difference . As perused the reconciliation statements along with the details in the paper book. All these amounts are pertaining to expenses and transactions entered a day before the search which could not be updated as on the date of search. On going through the entire details, we find that the amounts to be reconciled except the amount received back from Sh. Kant, Libberheri plant against the imprest amount. The need and purpose of giving the imprest amount and the reason of receiving back the amount needs to be examined by the AO. Hence, the matter back to the file of the AO for limited purpose of examining the genuineness lending and receiving back from Sh. Kant. Addition of press mud being a very minor amount has been choosen to be left for the revenue by the ld. AR. Hence, not adjudicated.

Summary

Issues Involved:
1. Addition on account of Press Mud.
2. Addition on account of Sugar (difference between books of account and physical verification).
3. Addition on account of Molasses (difference between books of account and physical verification).
4. Addition on account of difference in cash as per books of accounts and physical cash balance.

Issue-wise Detailed Analysis:

1. Addition on account of Press Mud:
The assessee contested the addition of Rs. 30,966/- made by the AO and upheld by the CIT(A). The assessee argued that the daily manufacturing report was not considered. However, this ground was not adjudicated as the amount was minor and left for the revenue by the assessee's representative.

2. Addition on account of Sugar:
The AO made an addition of Rs. 2,65,46,540/- due to a discrepancy between the books of accounts and the physical stock of sugar at different units. The assessee argued that there was no actual difference in stock, but a discrepancy arose because the production on the day of the search could not be entered into the books, which were seized. The Tribunal found that the discrepancy was inevitable due to the timing of the search and the seizure of the stock register. The production of sugar is continuous, and the entry in the books is done for a day as a single entry. The Tribunal held that there was no actual difference in stock but merely a discrepancy due to the search operation. Hence, no addition was called for on account of the difference in the stock of sugar.

3. Addition on account of Molasses:
The AO made an addition of Rs. 9,79,336/- due to a difference in the stock of molasses. The Tribunal noted that molasses is a highly volatile chemical that changes its shape, weight, and texture with temperature changes. The discrepancy in the stock of molasses was attributed to the foaming effect caused by chemical reactions during the hot weather in April. The Tribunal held that there was no chance of excess production of molasses or sugar and no addition was called for on account of the difference in molasses.

4. Addition on account of difference in cash:
The AO made an addition of Rs. 13,10,388/- due to the difference between the cash as per the books and the physical cash found at different premises. The assessee explained that certain vouchers pertaining to cash transactions undertaken on 06.04.2010 were not updated in the cash book, leading to the difference. The Tribunal perused the reconciliation statements and found that all amounts were reconciled except for Rs. 10,45,508/- received back from Sh. Kant against the imprest amount. The Tribunal remanded the matter to the AO for examining the genuineness of lending and receiving back Rs. 10,45,508/- from Sh. Kant.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with the Tribunal directing the AO to examine the genuineness of the imprest amount. The addition on account of sugar and molasses was deleted, while the minor amount related to press mud was left for the revenue.