2012 (8) TMI 33 - AT - Income Tax

Addition on account of excess stock and cash - survey u/s 133A - Held that - Sales tax authorities had carried out survey at the assessee s premises declaring excess stock to the extent of 34.310 mt. whereas IT dept. declared excess stock of 586.826 mt at survey conducted immediately after 3 days of survey by sales tax authorities - These three days included two holidays - as decided in CIT vs. Anandha Metal Corporation (2004 (7) TMI 49 - MADRAS HIGH COURT ) that return accepted by the Commercial Tax Department is binding on the I.T. authorities and the A.O. has no jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department - in favour of assessee. Addition on account of sundry creditors & advance against supply though trading liability - Held that - The assessee shows the advance from customers and sundry creditors as its liability in the balance sheet, thus merely because the liabilities are outstanding for many years, it cannot be inferred that the said liabilities have ceased to exist. The assessee has not written back the amount and the outstanding liabilities are still in existence would prove that the assessee acknowledges its liability as per the books of accounts - the Revenue has also not brought any material on record to prove that the purchases & advance are not genuine and the creditors have remitted the amounts due to them section 41(1)cannot be attracted there is nothing to suggest that the assessee has obtained any benefit either by way of remission or cessation of any liability while the aforesaid liabilities are continually admitted by the assessee in their balance sheet - in favour of assessee. Addition on account of belated payment of Provident fund and ESIC - Held that - As deduction of statutory liability towards Provident fund and other funds referred to in clause (b) of sec.43B is permissible if the payments are made by the assessee before the due date of submission of return u/s. 139(1) Addition on account of belated payment need to be deleted - in favour of assessee. Initiation of penalty u/s. 271(1) (c ) as the same is consequential the same is not adjudicated

Issues Involved:

1. Addition of Rs. 89,21,481/- to the total income.
2. Addition of Rs. 74,83,056/- on account of alleged excess stock found during survey.
3. Jurisdiction of A.O. regarding the value of closing stock declared by the assessee.
4. Addition of Rs. 2,88,124/- on account of sundry creditors.
5. Addition of Rs. 11,27,771/- on account of advance against supply.
6. Disallowance of Rs. 22,530/- due to belated payment of Provident Fund and ESIC.
7. Charging of interest by the A.O.
8. Initiation of penalty proceedings u/s. 271(1)(c).

Detailed Analysis:

1. Addition of Rs. 89,21,481/- to the total income:
The assessee contested the addition of Rs. 89,21,481/- made by the A.O., which was confirmed by the CIT (A). The total returned income was Rs. 15,75,070/-, while the A.O. determined the total income at Rs. 1,04,96,551/- for the assessment year 2005-06. The Tribunal did not provide a separate analysis for this specific issue but addressed it in the context of other grounds.

2. Addition of Rs. 74,83,056/- on account of alleged excess stock found during survey:
During a survey action u/s. 133A, excess stock worth Rs. 78,54,090/- and excess cash of Rs. 6,49,627/- were found. The assessee admitted this as additional income but later retracted the statement. The A.O. added Rs. 78,54,056/- to the total income, which was upheld by the CIT (A). The Tribunal noted that the stock was estimated and not weighed, and the assessee could not have purchased such a large quantity in a short time. The Tribunal cited the Madras High Court's decision in CIT vs. Anandha Metal Corporation, which held that the A.O. has no jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department. The Tribunal concluded that the addition was uncalled for and directed its deletion.

3. Jurisdiction of A.O. regarding the value of closing stock declared by the assessee:
The Tribunal emphasized that the A.O. cannot go beyond the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department, as supported by the Madras High Court's decision in CIT vs. Anandha Metal Corporation. The Tribunal found that the Revenue did not provide sufficient evidence to support the addition based on the estimated stock and thus directed the deletion of the addition.

4. Addition of Rs. 2,88,124/- on account of sundry creditors:
The A.O. added Rs. 2,88,124/- u/s. 41(1) due to the assessee's failure to provide addresses of the creditors, which was upheld by the CIT (A). The Tribunal noted that the liabilities were acknowledged in the balance sheet and had not ceased to exist. It cited the Supreme Court and Gujarat High Court decisions, stating that unless there is cessation or remission of liability, the addition u/s. 41(1) is not justified. The Tribunal deleted the addition.

5. Addition of Rs. 11,27,771/- on account of advance against supply:
The A.O. added Rs. 11,27,771/- u/s. 41(1) due to the assessee's failure to provide addresses of parties who gave advances. The CIT (A) upheld this addition. The Tribunal found that the assessee acknowledged the liability and had not written it back in the books. Citing relevant case law, the Tribunal held that the addition was not justified and deleted it.

6. Disallowance of Rs. 22,530/- due to belated payment of Provident Fund and ESIC:
The A.O. disallowed Rs. 22,530/- for belated payment of Provident Fund and ESIC, which was upheld by the CIT (A). The Tribunal noted that the payments were made before the due date of filing the return and cited the Karnataka High Court's decision in CIT vs. Sabari Enterprises. The Tribunal deleted the disallowance.

7. Charging of interest by the A.O.:
The assessee contested the charging of interest by the A.O., arguing that it was not anticipated due to the huge addition in total income. The Tribunal did not provide a separate analysis for this issue but addressed it in the context of other grounds.

8. Initiation of penalty proceedings u/s. 271(1)(c):
The Tribunal noted that this issue is consequential and did not adjudicate it separately.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the additions made by the A.O. and upheld by the CIT (A) on various grounds. The Tribunal emphasized the lack of evidentiary value of statements recorded u/s. 133A and the necessity of supporting material for such additions.

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