2019 (7) TMI 2040 - AT - Income Tax

Difference in stock of raw material found during the search operation - CIT(A) deleting addition made by the AO on account of value of excess stock - AO rejected the explanation of assessee observing that at the time of search, stock of raw material was taken in the presence of Kumari Dulari Mandal, employee and Shri Manish Sharma, family member of the assessee and that Kumari Dulari Mandal signed the inventory in presence of two witnesses in token of her being satisfied with methodology of taking stock - HELD THAT - Since stock records are not maintained in respect of these items, before making any addition, the AO was required to compare the value of these items with the value that could have been worked out on the basis of regular books of accounts, which exercise has not been done, even at this stage. It is true that the business of the assessee is an ongoing process and therefore it would be justified to presume that some quantity of such items would always be remaining in stock with the assessee as it would be covered by purchases recorded in regular books. Therefore, we observe that the AO made the addition arbitrarily. In respect of none of the years including the year under appeal, any finding has been rendered by the AO that books of accounts were not properly maintained or that they were not complete. The assessee has maintained regular books which have been audited year after year. It is also a fact that day to day stock register has been maintained by the assessee. Without pointing out any defects in the books and stock records and without having on record any corroborative material, no addition could have been made only on the basis of inventory prepared during search, especially when such inventory was claimed by the assessee to be not reliable and such a claim of assessee has remained uncontroverted. The contents of the two affidavits have remained unrebutted and therefore, has substantial bearing on the issue in dispute. Therefore, we are of the considered opinion that the stock inventory prepared during search is not reliable and that no addition could have been made by the AO only on the basis of inventory and learned CIT(A) was justified in deleting the same. Unexplained cash - When the assessee was called upon to explain the cash found, it was explained that cash balance of all family members of the group and of the business concerns was jointly kept and not kept with the respective owner as different members of the family looked after business transactions of all the family businesses - CIT(A) deleted addition - HELD THAT - As undisputed that during search, the cash balance was not identified with reference to particular assessee and no statement appears to have been recorded at the time of search to make enquiry in respect of the ownership of cash found during search, as we do not find, reference of any such statement either in the assessment order or in the arguments taken by either party. An accepted practice in business that the financial matters in a particular family or group are invariably in the hands of some of the persons of that family or group only and therefore, it would be reasonable to presume that cash balance of the group would be controlled by the persons who manage the funds and therefore, the best course of action is to see whether in an overall situation, there is excess cash or not. Thus overall cash balance only was required to be seen and since on the basis of such overall comparison, whatever was the excess cash balance has already been taxed in the hands of Shri Laxmikant Sharma, being the eldest family member, learned CIT(A) was justified in deleting the addition. Addition on account of loose papers found during search - AO observed that during search, loose papers were found from the business premises of the assessee for which no satisfactory explanation was submitted - HELD THAT - Having regard to the arguments of both the parties, the quantum of addition and in view of the fact that AO has not described as to what are the nature of entries in the loose papers, the explanation of assessee that the amount in the loose papers is covered by the withdrawals appears to be reasonable and therefore, learned CIT(A) was justified in deleting the same. Decided against revenue.

Summary

Issues Involved:

1. Deletion of addition of Rs. 66,94,273 on account of excess stock of raw material.
2. Deletion of addition of Rs. 4,05,552 on account of unexplained cash.
3. Deletion of addition of Rs. 970 based on loose papers found during search.
4. Interest charged under section 234A.
5. Allegation of the appellate order being perverse and passed without giving reasonable opportunity.
6. Non-adjudication of interest under section 234B in the cross-objection.

Detailed Analysis:

1. Excess Stock of Raw Material:
- The Revenue challenged the deletion of Rs. 66,94,273 made by the Assessing Officer (AO) due to discrepancies in the stock of raw material found during a search. The assessee contended that the stock was inaccurately recorded due to poor visibility and coercion during the stock-taking process. The CIT(A) found that affidavits submitted by the assessee's employee and family member, which claimed coercion and improper stock-taking methods, remained unchallenged by the Revenue. The CIT(A) concluded that the stock inventory was unreliable as it was not corroborated by any unrecorded purchases or sales and deleted the addition. The Tribunal upheld this decision, emphasizing the lack of corroborative evidence and the failure of the Revenue to conduct further inquiries into the allegations of improper stock-taking.

2. Unexplained Cash:
- The AO added Rs. 4,05,552 as unexplained cash found at the assessee's factory. The assessee argued that cash was pooled from various family members and business concerns and should be considered on an overall basis. The CIT(A) agreed, noting that cash was not inventoried per individual or business during the search and that the overall excess cash of Rs. 1,19,577 had already been disclosed as undisclosed income by a family member. The Tribunal affirmed this view, stating that in the absence of specific identification of cash ownership during the search, the overall cash balance should be considered.

3. Loose Papers:
- The AO added Rs. 970 based on loose papers found during the search, which the assessee claimed were covered by household withdrawals. The CIT(A) accepted the assessee's explanation due to the lack of detailed description by the AO regarding the nature of the entries in the loose papers. The Tribunal upheld the CIT(A)'s decision, finding the explanation reasonable given the small quantum and lack of specific details from the AO.

4. Interest under Section 234A:
- The issue of interest charged under section 234A was agreed by both parties to be consequential, thus requiring no separate adjudication. The Tribunal dismissed this ground of appeal.

5. Appellate Order Being Pervese:
- The Revenue's claim that the appellate order was perverse and passed without giving reasonable opportunity to the AO was not supported by specific arguments. Consequently, the Tribunal dismissed this ground.

6. Interest under Section 234B:
- The cross-objection by the assessee regarding non-adjudication of interest under section 234B was dismissed as academic, given that all additions made in the assessment were deleted.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s decisions on all issues. The Tribunal emphasized the lack of corroborative evidence and procedural lapses by the Revenue in handling the search findings and subsequent assessments.