2012 (12) TMI 184 - AT - Income Tax

Addition made in respect of FDRs found at the assessee s premises in the course of survey question which was asked from one of the partners of the assessee at the time of survey and in reply, it was informed that the FDRs belonged to family members out of which some of them stated to be staying outside India. Since the funds of those relatives are managed by the assessee, therefore the FDRs were found in possession of the assessee - AO had not been able to conclusively prove that those FDRs were in fact the property of the firm - addition deleted In favor of assessee Difference in the stock of tobacco Held that - It was explained that 3915 bags containing 1,09,620 Kgs. of tobacco belonged to one M/s.Pinak Pani Traders and that firm was yet to lift the material - Due to the absence of a confirmation from the said party, the AO had rejected the explanation - assessee has placed the correspondence with those parties and the response of the Accountant of the firm as per his statement recorded - enquiry was made in respect of the stock lying in the three go-downs belonging to the assessee-firm. It was stated that stock belonged to Ambica Trading Co. out of the total sales made. It has also been stated that goods were sold to Pinak Pani Traders and part of the bags were yet to be delivered - appellant s claim of partial lifting of stock or partial delivery of stock was not contradicted by the AO - addition deleted In favor of assessee Addition on account of excess tobacco dust of 68,638 KG, short kandi stock of 8905 KG and short pashari stock of 16,655 KG Held that - Reconciliation has been filed in respect of the shortage of stock and that reconciliation was confronted to the AO during the course of remand proceedings but that explanation was not controverted. The assessee has undisputedly maintained quantitative details of purchases and sales, as is evident from the correspondence placed on record addressed to the AO - assessee has furnished a reconciliation statement to the AO. The said reconciliation was duly considered by ld.CIT(A) and, therefore, held that the said apparent difference was duly reconciled. Since the Revenue Department has not expressed any reservation in respect of the reconciliation addition deleted In favor of assessee

Summary

Issues Involved:
1. Deletion of addition made in respect of Fixed Deposit Receipts (FDRs) found during the survey.
2. Deletion of addition made towards unexplained stock found during the survey.
3. Deletion of addition made towards excess and shortage in stock.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made in Respect of Fixed Deposit Receipts (FDRs):

The Revenue challenged the deletion of Rs. 12,21,689/- made concerning 26 FDRs found at the assessee's premises during a survey. The Assessing Officer (AO) had taxed the entire amount of Rs. 32,99,383/- as undisclosed income due to the lack of corroborative evidence regarding the ownership of the FDRs. The CIT(A) deleted the addition, observing that the FDRs were managed by the assessee on behalf of friends and relatives, mainly staying abroad. The CIT(A) noted that the confirmations from the FDR holders were provided, and the AO did not raise any doubts about the ownership during the assessment proceedings. The CIT(A) concluded that the assessee had satisfactorily discharged the onus of explaining the FDRs, and the AO failed to bring any material evidence to suggest that the FDRs represented the assessee's income. The Tribunal found no fallacy in the CIT(A)'s decision, affirming that the FDRs belonged to friends and relatives, and dismissed the Revenue's grounds.

2. Deletion of Addition Made Towards Unexplained Stock:

During the survey, excess stock of 1,32,228 Kgs. of tobacco was found, which the assessee explained as partly belonging to M/s. Ambica Trading Co. and M/s. Pinak Pani Traders. The AO rejected the explanation due to the absence of confirmations from these parties and taxed the stock valued at Rs. 39,40,395/-. The CIT(A) examined the evidences, noting that the discrepancies were addressed during the survey and confirmed by the parties subsequently. The CIT(A) observed that the AO did not raise any doubts about the ownership of the stock in the remand report and that the payments received for the sales were not questioned. The Tribunal upheld the CIT(A)'s findings, noting that the AO did not contradict the appellant's claim of partial lifting or delivery of stock, and dismissed the Revenue's grounds.

3. Deletion of Addition Made Towards Excess and Shortage in Stock:

The CIT(A) deleted the addition made on account of excess tobacco dust and shortage in the stock of Kandi and Pashari, valued at Rs. 8,27,326/-. The CIT(A) observed that the apparent difference in stock noticed during the survey was reconciled by the assessee through a detailed working sheet, which was not contested by the AO. The Tribunal agreed with the CIT(A)'s view, noting that the reconciliation was confronted to the AO during the remand proceedings and was not controverted. The Tribunal affirmed the CIT(A)'s findings, holding that the addition was unfounded and unreasonable, and dismissed the Revenue's grounds.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the additions made concerning the FDRs, unexplained stock, and excess and shortage in stock. The Tribunal found that the assessee had satisfactorily explained the discrepancies, and the AO failed to bring any material evidence to support the additions.