9911796707
TMI Blog2012 (5) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and repairing. Before filing return of income there was a survey u/s. 133A on 13.9.2007. The return of income was filed on 3.10.2007. The Assessing Officer made the assessment after scrutiny determining the income at ₹ 1,44,28,520. While doing so the Assessing Officer has made the following additions: Sl. No. Addition Amount (Rs.) 1. Unexplained investment in purchases 1,19,43,361 2 Profit on the above @ 5% 5,89,677 3 Disallowance u/s. 40A(3) 1,38,670 4 Excess cash balance 10,00,000 5 Unexplained investment in assets 1,17,600 6 Profit on undisclosed sales 92,000 3. The facts relating to the addition towards value of stock difference between the stock statement given to the bank and that was shown in the books as unexplained investment in purchases, the Assessing Officer addressed a letter to the Indian Overseas Bank, Nalgonda on 9.9.2008 and obtained the details of the monthly closing stocks furnished by the assessee to the bank in connection with availing the loan facility. When compared with the figures furnished to bank, the closing stocks shown to bank appear to be very high or not at all matching with the figures shown to the Department. When que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en Branch Manager, IOB, seeking confirmation of the letter of the assessee that the stocks were shown at enhanced figures and to confirm the fact that whether the stocks have been personally or physically verified on each month end either by himself or got verified through their bank branch personnel and found to be genuine or not. Shri. T. Ramanaiah, the then Br. Manager, IOB, Nalgonda, vide letter dated 22.9.2009 stated that they have inspected the stocks and found the stock were more or less equivalent to the stocks statements submitted to the bank. He confirmed that the stocks were available in the showroom/godown as per the stock statements submitted by them every month (and as per the copies of stock statements enclosed along with the Department letter). The statement given in their letter dt. 12.8.2009 is not correct. From the above, the Assessing Officer drew conclusion that the banks do not accept the inflated values of stocks and in case of any huge variation, details of stock will be called for. Further, in no case the bank authorities do not extent the credit facility to a particular party without verifying the stock position. He therefore, concluded that the assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2007 was ₹ 11,24,707 whereas as per the working of the Department, the balance should be ₹ 44,04,444, and hence, vide letter dated 15.7.2009 requested the assessee to explain the same. In reply vide letter dt. 31.7.2009, the assessee stated that the Assessing Officer had not considered the cash inflow by way of bank loan of ₹ 1,69,614. Wherever as per the assessee's statement purchases of ₹ 54,39,747 and unaccounted purchases of ₹ 10 lakhs was also there. The assessee further stated that the Assessing Officer had not considered cash out flow for the car loan repayment, income-tax payment, partner's drawings and assets purchased. The assessee had also filed a cash flow statement before the Assessing Officer. After considering the above statements, the Assessing Officer concluded that it is an established fact that there is an excess balance of cash available to the extent of ₹ 10 lakhs as on 31.3.2007. He further stated in the order that the Balance Sheet of the assessee does not depict any other liabilities except IOB, Nalgonda, and car loan for which the account copies have already been furnished and these amounts cannot be altered. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very first year it is not possible to have so much of profits. The Assessing Officer, however, has not accepted the same and has treated ₹ 1,19,43,361. While doing so the Assessing Officer in his order states that on 5.10.2009, he has shown a letter from the earlier Manager according to which the details of stock given by the Bank is after verification and that the assessee has simply stated that giving inflated stock is common practice. It is not correct to state that the assessee is allowed to go through the letter referred to by the AO of the then Branch Manager. He has only shown it stating that as per that letter the stocks were more. The assessee never read the contents of the letter. Otherwise it would have asked for cross examination and evidence for visit by the Manager to the assessee's premises. Even otherwise it is not right practice to put across some material and elicit opinion without providing sufficient time to understand the contents of the material. When some material is proposed to be used against the assessee it is duty of the Assessing Officer to provide such material in advance and elicit objections on the same. The AR further submitted that wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of the assessee cannot be a reason for making addition without evidence. The assessee is not maintaining any books of account and admitted income adopting provisions of Sec. 44AF. When during the survey they have not found any material to suggest that the statements given to bank could be correct it is not proper to rely on such statements and make addition. The AR submitted that the same may please be deleted. 12. The learned DR relied on the orders of the lower authorities and submitted that the contention of the assessee that the assessee was not allowed to go through the contents of the letter of the Branch Manager so as to offer his explanation is not correct. The letter of the Branch Manager was put forth to the assessee during the course of hearing on 05.10.2009 and again vide letter dated 11.11.2009 the Assessing Officer had given an opportunity to assessee to explain the unaccounted stock to the tune of ₹ 1,19,43,361/-. The assessee all along has been reiterating the stand that they have shown the inflated value of the stocks to the Bank for continuing the CC loan facility and the figures submitted to the bank were totally fictitious. However, the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urden cannot be said to be discharged by merely referring to the statement given by the assessee to a bank in connection with the transaction which is not directly related to the assessment and making that the sole basis for finding that the assessee had deliberately suppressed its income. 14. In the present case the Department did not bring on record anything to show that on physical verification the stock found was in excess of the stock recorded in the books of account. It was explained by the assessee that the stock statement furnished to the bank was on estimate basis. On the other hand, the stock shown in the assessment proceedings was based on actual physical verification. As such there was no reason to reject the books of account of the assessee and no addition is called for solely on account of the difference in value of stock submitted to the bank and value of the stock shown in the accounts presented for assessment. We place reliance on the following judgements. a) CIT v. Pioneer Breeding Farms (295 ITR 78) (Mad) b) CIT v. Udaipur Chemicals & Fertilizers (P) Ltd., 211 CTR 191 c) Coimbatore Spinning & Weaving Co. Ltd. v. CIT (95 ITR 375) (Mad) d) Dhansiram Agarwalla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment. The assessee has shown assets purchase in the cash flow statement as on 31.3.2007 at ₹ 1,17,600. According to the Assessing Officer the assessee has not produced the invoices towards purchase of these assets. In our opinion, non production of vouchers for purchase of assets would not result in addition u/s. 69 of the Act. Once the assessee is having enough sources to purchase the assets, the addition u/s. 69 of the Act is not possible. The Department having not doubted the availability of funds to purchase the assets, the addition cannot be made. Accordingly the addition is deleted and the ground raised by the assessee is allowed. 20. The next issue is with regard to addition of ₹ 92,000 towards unrecorded sales., The learned AR submitted that this addition was made without appreciating the fact that there could not have been very much difference in the stock in one day. It would have been sold earning profit. The Assessing Officer observed that there was a difference of ₹ 18.40 lakhs in the stock between the figures of the last two days of the month, i.e., between the stock at the end of the days 30.3.2007 and 31.3.2007. When it was questioned that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement that where the books of account have been rejected the revenue cannot rely on the same books of account for making any other addition. It was also held that when an estimate is made towards income of the assessee, it is in substitution of the income that is to be computed u/s. 29 and in other words, all the deductions which are referred to u/s. 29 are deemed to have been taken into account, while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account. It has been held in the concluding paras of 4 and 5 of the judgement of High Court cited supra, as follows: "4. The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income tax Officer may reject those books and estimate the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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