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TMI Blog2013 (11) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... be made on account of excess stock u/s 69-B of the Act – It is fair and proper to set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. for deciding the same afresh after taking into consideration the explanation offered by the assessee in respect of excess stock found during the course of survey – Decided in favor of Revenue. Delayed payment of employees contribution to provident fund – Held that:- Reliance is placed upon the judgment in the case of Allied Motors (P.) Ltd. v. Commissioner of Income-tax [1997 (3) TMI 9 - SUPREME Court], wherein it was held that the amendment made in the proviso to section 43-B being clarificatory in nature is applicable with retrospective effect – The decision in the above case was followed and held that it is hereby deleted the disallowance made by the A.O. and sustained by the ld. CIT(A) on account of payment of employees contribution towards provident fund made before the due date of filing the return of income for the year under consideration – Decided against the Revenue. - ITA No.5282,4012/Mum/2010 - - - Dated:- 23-4-2013 - P M Jagtap and S T M Pavalan, JJ. For the Appellant : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds. Rs.6,30,17,390/- (on MRP basis) Excess stock i.e. physical balance ascertained being greater than book balance as per computer Rs.25,45,670/- (on MRP basis) The statement of Mr. Pankaj R. Shah, Executive Director of the assessee company was recorded during the course of survey wherein he gave the following reply to question No. 16 asked to him in respect of difference in stock found during the course of survey:- Q. No.16: Now I am showing you stock inventory in respect of stock available at your goodown located at Sea Land, Ruda Transport Nagar, Rajkot as well as in your office at Star Plaza. The stock inventory was prepared as per the guidance of your staff member and they have confirmed the authenticity of value and quantity of the stock available. Prima-face there is a huge difference between the inventory maintained as per your books of account available on computer. Now please explain the difference. Ans:- 1 have gone through the inventory prepared by your officers and confirm that the inventory is correct in terms of quantity and valuation. I also accept that there is a huge difference between the inventory as per our books of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our office remained present all through out. Stock verification: Suddenly during the late hours of second day s night, the survey team decided to take out computer prints for stock and went to our warehouse for stock verification without availing any assistance from any of our staff member concerned with stock maintenance on computer. In much haste, the survey team verified our stocks at our warehouse very haphazardly just within 2 to 3 hours of late night hours whereas normally it takes a minimum time of 6 to 7 days to verify large stock of different indents/models. As a natural consequence, the stock considered by the survey team was very much erroneous and did not reflect the correct position. Main reasons for discrepancy noticed in stock: The survey team noticed a big discrepancy, both in terms of quantity and amount, when haphazard physical verification was hastily compared with computer data. The discrepancy noticed was erroneous more particularly as the following pertinent facts and factors were not taken into consideration: a) At a time when IT team conducted survey proceedings, we had just recently started to develop, special software for st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajkot along with a detailed submission). From what was being internally discussed by the survey team, we apprehended that it we do not cooperate with the survey team for their target, they would seal our Boutique and warehouse which may have adverse effect in our sales on forthcoming Christmas season. Reconciliation in respect of discrepancy in stocks and submission to I. Tax Department. The survey team had completely messed up all the important records and all the important files and documents were scattered all over. It took us quite some time to set-right and coordinate the records to reconcile the stock position. As soon as this was clone, a report of the preliminary reconciliation was submitted to the Department vide our letter of 7th December 2005 along with all the supporting as also an Affidavit of Mr. Pankaj R. Shah. The copies of said letter of 07/12/05 and an Affidavit are enclosed herewith for your kind perusal. Thereafter our logistic team carried out an in-depth examination of all related aspects pertaining stock discrepancy. Subsequent to said exercise, a submission was made by us to the Income Tax Officer -1(1)(3), Mumbai vide o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the discrepancy of stock by filing its submissions dated 15th April, 2006 and 19th December,2008 and other submissions are of no help, because the same do not appear to be genuine and are the after thought made by the assessee; (b) The said documents are assessee s internal documents, appears to be selfmade and do not have any evidentiary value. (c) Having such a large force of qualified assistance available, it cannot be now said that huge stock of Rs.4,45,33,400/- remained to be considered. The AO accordingly held that the deficit in shock as found during the course of survey represented the undisclosed sales of the assessee and addition on account of such undisclosed sale was made by him to the total income of the assessee amounting to Rs. 6,30,17,390/-. Without prejudice to the same and in the alternate, The AO also made an addition of Rs. 2,10,29,660/- to the total income of the assessee by quantifying the same as under:- Sr No. Particulars Amount (Rs) (a) MRP value of deficit stock ascertained in the survey action 6,30,17,390/- (b) Less: Value of stock not verified by the survey team as per letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of letter dated 7th December, 2005. Rs.1,84,83,990/- (ii) U/s 69C on account of unrecorded purchases. Rs.25,45,670/- Total Rs.2,10,29,660/- (i) The addition made to the income inclusive of an alternate basis are in terms of MRP value. In the process, the A.O. has presumed as under:- (a) Value of deficit stock as determined by the survey team is entirely sold by the assessee in cash and that too at maximum retail price. (b) The excess stock as determined by the survey team at MRP value represents unrecorded purchases made at MRP without leaving any margin of profit for further sale. 7. The assessee also made further submission before the ld. CIT(A) in support of its case on this issue as under: (a) The survey team/the A.O. has not found/identified any incriminating document(s) or unaccounted cash at the premises surveyed to establish that the assessee was in fact indulging into making unrecorded sales and unrecorded purchases of the quantum added as income for the year. (b) The MRP represents maximum retail price and is indicative price for the customer of the maximum price, which can be char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. (b) Reconciliation representing items and quantity which are stated to have been consumed at free service camps, discarded unserviceable consumables, ascertained shortages and balance un-reconciled. In other words there is no corresponding physical balance available in relation to the said reconciliation after 30th November, 2005. At the first instance, the ld. CIT(A) dealt with the discrepancy represented by Deficit. In this regard, he accepted the Reconciliation of the discrepancy as explained in Annexure II-D forming part of compilation No. 1 covered by Annexure B, C, D, E, F, G, L and M having its consequential impact in reducing from the quantum of addition made by the AO to the income of the assessee for the year attributable to deficit in stock ascertained by the survey team. The ld. CIT(A) however did not accept the Reconciliation covered by Annexure H, J, K and treated the deficit in stock to that extent as unreconciled for the following reasons given in his impugned order: A. Unserviceable consumable items discarded: On a consideration of the requisite documents submitted, it is observed that several consumable items were discarded prior to the surv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal shortages. (d) Accordingly, such shortages represents loss sustained in the course of carrying on business by the assessee. I do accept contention of the assessee that keeping in view the quantum and the nature of the products dealt in by the assessee, there can be shortages and excesses on account of numerous reasons. But I fail to understand the reason why such shortages and/or excesses are not determined on a regular basis and not adjusted in the inventory records from time to time, being the normal practice followed by an enterprise engaged in the business. Hence, I reject the Reconciliation covered by Annexure K forming part of Annexure IID of Compilation No.1. D. Last category of Reconciliation is stated in the Annexure II-D of Compilation No.1 has remained unexplained. Hence, the ld. CIT(A) rejected the said as Reconciliation in so far as it relates to addressing deficit stock. 9. On the basis of above reasons, the ld. CIT(A) worked out the quantum of un-reconciled/unexplained deficit in stock found during the survey as under: Sl No. Particulars MRP (Rs) Cost (Rs) 1 Unserviceable consumable item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said statement was subsequently retracted by the assessee and an attempt was also made to reconcile the difference in stock found during the course of survey, the A.O. ignored the same in the light of the categorical admission made by the Director of the assessee company in his statement recorded during the course of survey. He submitted that the ld. CIT(A) however considered the reconciliation prepared and furnished by the assessee and allowed a substantial relief to the assessee on this issue relying on the said reconciliation. He invited our attention to the para No. 14 of the ld. CIT(A) s impugned order to show that the reconciliation of the discrepancy/deficit as explained by the assessee in Annexure II-D forming part of compilation No. 1covered by B,C,D,E,F,L M was accepted by the ld. CIT(A) without giving any justification or reasons whatsoever and substantial amount of relief thereby was allowed in respect of addition made by the A.O. on account of deficit in stock found during the course of survey. He submitted that although the remaining part of the reconciliation prepared and furnished by the assessee was not accepted by the ld. CIT(A) giving specific reasons in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of survey relying mainly on the statement of the Director of the assessee company recorded during the course of survey. She submitted that this action of the A.O. was not justified as rightly held by the ld. CIT(A) in the facts and circumstances of the case and the ld. CIT(A) therefore was fully justified in considering the reconciliation prepared and furnished by the assessee being relevant to the issue. She submitted that on such consideration, the ld. CIT(A) found that major part of the shortage in stock found during the course of survey was properly explained by the assessee and after having satisfied with the same, he deleted the addition made by the A.O. on account of excess stock to the extent of Rs. 5,21,58,270/-. She then took us through some of the items of the reconciliation which has been accepted by the ld. CIT(A) and tried to explain the same with the supporting evidence placed in the paper book. As regards the rejection by the ld. CIT(A) of the remaining part of the reconciliation prepared and furnished by the assessee which has resulted in the sustenance of addition made by the A.O. on this issue to the extent of Rs. 1,08,59,120/-, the ld. Counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered in the stock tally prepared and furnished by the survey team. He noted that Shri Pankaj R. Shah, Director of the assessee company was assisted by the staff as well as the Chartered Accountant and despite having such large source of qualified assistance available to him, Shri Pankaj R. Shah could not explain the deficit in stock found during the course of survey and admitted of having sold the items of stock found short in cash outside the books of account. He held that the efforts made by the assessee subsequently to reconcile the discrepancy in stock therefore were not genuine one and were the result of after-thought and such reconciliation based on the internal self made documents had no evidentiary value. He therefore added the entire deficit in stock at the MRP value of Rs. 6,30,17,390/- to the total income of the assessee. 17. The ld. CIT(A), on the other hand, accepted the stand of the assessee that the discrepancies in stock found on physical verification during the course of survey were always subject to reconciliation and the reconciliation statement prepared and furnished by the assessee to explain the discrepancies should be looked into. He also found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems was not accepted by the ld. CIT(A) observing that he really failed to understand why Mr. Pankaj R. Shah, Director of the assessee company did not bring this aspect to the notice of the survey team in his statement recorded during the course of survey. While doing so, he contradicted himself inasmuch as a substantial part of the reconciliation statement of the assessee was accepted by him despite the fact that the explanation offered in that part explaining the discrepancies found in the stock was not offered by Shri Pankaj R. Shah in his statement recorded during the course of survey. Having regard to all these aspects of the matter, we are of the view that the impugned order of the ld. CIT(A) on this issue is liable to be set aside and the matter should go back to the A.O. to decide the same afresh after verifying the reconciliation statement furnished by the assessee with all the supporting evidences brought on record. We therefore set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh after verifying the reconciliation statement furnished by the assessee as well as the documentar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock cannot be treated as unrecorded purchases and in any view of the matter, the provisions of Section 69C of the Act cannot be invoked as done by the A.O. Accordingly, I direct the A.O. to delete the said addition of Rs. 25,45,670/- . 20. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly submitted by the ld. D.R., the basis given by the ld. CIT(A) for deleting the addition made by the A.O. on account of excess stock found during the course of survey is not sustainable. Even if the addition on account of excess stock was made by the A.O. by wrongly referring to the provisions of section 69-C of the Act, the same itself cannot be the basis to delete the addition made on account of excess stock which is otherwise sustainable u/s 69-B of the Act. Moreover, when certain items of stock were found to be in excess at the time of survey, the onus in this regard was on the assessee to explain the said difference and if he has failed to discharge this onus successfully and satisfactorily, the addition can be made on account of excess stock u/s 69-B of the Act. The ld. counsel for the assessee has submitted i ..... 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