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TMI Blog2010 (12) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... maining grounds, the cruxes of the issues raised are reformulated, in concise manner, as under: (i) the AO erred in rejecting the claim to value certain stocks at market value which was below the cost valuation; - without prejudice, the AO erred in arriving at the difference in valuation at ₹ 1.78 crores when, in fact, the actual difference in valuation was at ₹ 1.62 crores; (ii) the CIT(A) erred in confirming the stand of the AO in holding that BMW motor cycle was not connected to the business and, further, disallowed the claim of depreciation of ₹ 1.02 lakhs; & (iii) the AO erred - (a) in not telescoping the cash available with the partner of the assessee against the invested/payments effect by the assessee; (b) in taking a stand that there being a short of stock of ₹ 300 lakhs in the case of Hindustan Granites (HG)- a sister concern - which amounted the same being unaccounted sales resulting in cash availability to the same extent; (c) in not considering the revised return furnished on 16.12.2008; (d) in assessing the income by an excess amount of ₹ 300 lakhs; & (iv) in levying of interest u/s 234B and 234C of the Act without adjusting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to substantiate its contentions, the assessee had insisted that it was consistently following the method of valuing the closing stock at the lest of the 'cost' or 'realizable (market) value; that the physical stock as on 31.3.2007 was valued according to that policy, however, it had failed to support with the evidences. However, it was argued that the basis for determination of the market value was based on the experience of its senior partner; - such being the case, at the time of taking the physical verification of the stock, the assessee should have pointed out that the value of the specific items had to be taken on the basis of the partner's experience; - the partner had agreed to the valuation of stock during the course of search as the valuation was in accordance with the method of accounting regularly followed by him; - no description of the material was given in the sales invoices as the sales were written as 'random sales' and as such the physical stock taken as on 31.3.07 could not be verified on the quantity terms as no particulars were mentioned in the sales invoices; - in the absence of quantity details, the only alternate was to determine the closing stock on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation of closing stock made by the assessee, a few of which, are that - (i) at the time of search u/s 132, the stock inventory was taken considering all the things into consideration with reference to the purchase invoice and also giving allowance for wastage, damages, broken corners, cracks etc., (ii) the assessee had shown the sales for the period 9.3.07 to 31.3.07 at ₹ 2.70 crores. The gross profit for the whole year is 30.67%. if this is adopted the cost of the goods sold come to ₹ 1.87 crores. If this taken into account, the closing stock as on 31.3.07 was arrived at ₹ 5.74 crores and debiting the closing stock shown at ₹ 3.50 crores, difference was arrived at ₹ 2.24 crores 6.2. Considering the difference between variation of income and the expenses incurred prior and post search etc., the AO treated as difference in valuing the closing stock at ₹ 1.77 crores. The Ld. CIT (A), for the reasons cited supra (5.1), found justification in the stand of the AO. 6.3. On a critical examination of the reasoning of the authorities below, we find that - - the AO says while taking stock inventory, giving allowance for wastage, damages etc., were k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cycle was purchased in the name of Ananda Reddy, even if the funds have been given from the firm, it does not prove that the vehicle has been used for the purpose of the business. 7.2. The contention of the Ld. A R was that the assessee owned a BMW motor cycle which was exclusively used for its business among other vehicles. The same was disclosed appropriately under the head 'fixed assets' in the balance sheet of the assessee and, accordingly, claimed depreciation as per the rates specified for such asset. It was, therefore, pleaded that the stand of the authorities below requires annulment. 7.3. We have carefully considered the submission of the Ld. A R and also diligently perused the relevant records. Chiefly, the vehicle in question, according to the AO, has been purchased in the name of one of its partners, but, the assertion of the assessee that it was being used for the purpose of the business of the firm. 7.3.1. However, the crucial aspect - whether the vehicle was put to use exclusively for the purpose of the business of the assessee? -has not been looked into by the AO. The CIT(A) had, in his impugned order, candidly remarked that 'even if the funds have been given fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the CIT (A) for relief, it was argued by the assessee that - - there was proceeding u/s 132 of the Act in the case of Hindustan Granites [HG] - sister concern - wherein the physical stock was valued at cost, the value of such stock was less by ₹ 3 crores compared with the book stock. The investigation team was of the view that the deficit stock represents sales not accounted in the books for which the assessee had offered ₹ 45 lakhs as income on ₹ 3 crores. However, while furnishing the return in the case of HG, it was noticed that there was no difference between the book stock and physical stock; - while finalizing the assessment in the case of M.G.Anand Reddy, the AO estimated the GP of ₹ 55.48 lakhs on the shortage of stock found; - it was explained in its letter dt.29.3.2007 that the creditors for purchase to the extent of ₹ 322.76 crores, a declaration of ₹ 15.99 crores was given, that the creditors for purchases was ₹ 22.76 crores against which sales outside the books was set off to the extent of ₹ 11.18 crores. On a similar basis, ₹ 3 crores available as cash should be set off by way of telescoping. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of giving set off to ₹ 3 crores on account of shortage of stock found in the case of HG doesn't arise. 8.3. After distinguishing the case laws - (i) Jagmohan Singh Arora & Others 101 TTJ 682 (Mum 'H'), (II) Umashankar Rungta 94 TTJ (Mum 'G') & (iii) Sathya Bushan 84 TTJ 165 (Bang) - on which the assessee had placed its strong reliance, the CIT (A) went ahead with the reasoning that it had been proved that the income disclosed in the return of income was the income according to the books of the accounts found during the course of search whereas the cash of ₹ 1 crore and cash deficit of ₹ 71.5 lakhs represented the unexplained sales and in view the above, the assessee was not entitled for the relief claimed. 9. Disillusioned with the stand of the CIT(A), it was contended during the course of hearing before us that - - during the course of action u/s 132 of the Act, it was noticed that book stock at Attibele Unit was ₹ 18.44 crores whereas the physical stock was ₹ 15.44 crores being a difference in stock of ₹ 3 crores for which it was explained that there could have been certain mistakes in taking the physical verification or in valuing the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther with no restrictions. - Relies on the case laws: (a) CIT v. K.S.M.Guruswamy Nadar And Sons reported in 149 ITR 127 (Mad) (b) Jagmohan Singh Arora & Others 101 TTJ 682 (Mum 'H') (c) Umashankar Rungta 94 TTJ 329 (Mum 'G') (d) Sathya Bushan 84 TTJ 165 (Bang) The Ld. D R present was duly heard. 9.1. We have carefully considered the rival submissions, meticulously perused the relevant records and also the evidences advanced during the course of hearing by the Ld. A R in the shape of paper books. 9.2. At the outset, we would like to point out that when there appears to be deficit after physical stock verification exercise in the closing stock which has naturally to be categorized as sales outside the books of the assessee. In that event, telescoping was evitable and rather permissible under the taxation law. No doubt, there was a deficit to the tune of ₹ 3 crores in the closing stock which has been brought to tax net. When a sum of ₹ 3 crores was considered as the value of deficit stock, admittedly, this being sales outside the books of the assessee. 9.3. Though Hindustan Granites and Hindustan Marble and Granites were different entities, it was an un-denying fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 13 of the Indian Income-tax Act, 1922, after rejecting the books of account of the assessee as unreliable." The Supreme Court, however, proceeded to say that (p. 197) : "Where there is an unexplained cash credit, it is open to the Income-tax Officer to hold that it is income of the assessee, and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that, even if the cash credit represents income, it is income from a source which has already been taxed." As per the decision of the Supreme Court, it is open to the assessee to prove that the cash credits came from the suppressed profits towards which an addition has already been made, and, therefore, there should be telescoping of one with the other. The decision of the Supreme Court in CIT v. S. Nelliappan [1967] 66 ITR 722, also, in a way, supports the case of the assessee. In that case also there were two additions, one towards bogus cash credit and the other towards profits suppressed. It was found by the Tribunal that there, is a connection between the profits withheld by the assessee in the account books and the cash credit e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nducted independent enquiries to follow up the confessional statements made during the searches and found out corroborations of such statements in some way or other. In the instant cases, however, the present AO did not conduct any enquiry from any of the parties whose names appear in the seized documents and simply based his findings on the initial statements of Shri Jagmohan Singh Arora given at the time of the search and also the statement of Shri Achnani. In that matter again, the principles of natural justice were clearly violated inasmuch as no due opportunity was afforded to Shri Arora for cross-examination and that the opportunity actually provided was just a farce as has been stated by the A R and found to be correct by us. There was again no statement given by Shri J.S. Arora regarding on-money. On the contrary he denied the same. The said statement (about on-money payment) was given by a third party. We also agree with the contention on behalf of the assessee-group that the assessee after denying such cash payments several times ultimately agreed to the statement of the above said third party under the compelling circumstances as stated by the A R.. The statement cannot, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceeding. No doubt, the AO will be in his realm either to accept or reject the claim/stand of the assessee. However, the AO was expected to record his reasoning of accepting or otherwise of the claim put-forth by the assessee during the course of assessment proceedings. 9.6. As per the provisions of section 139 (5) of the Act - "(5) If any person having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment which is earlier." As could be seen from the impugned order the AO, as highlighted supra, the AO had failed to consider the claim put-forth by the assessee. 9.7. In an over all consideration of the facts and circumstances of the issue on hand and also in conformity of the findings of the Hon'ble Madras High Court and the Hon'ble Tribunal of Mumbai Bench referred supra, the authorities below have failed to consider the assessee's prayer for telescoping the deficit stock of ₹ 3 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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