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TMI Blog2018 (3) TMI 1650X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer s action making addition of ₹ 5,28,94,800/- on account of unexplained investment in closing stock. It emerges from the CIT(A) s order under challenge that he has discussed the entire issue at length as under: 6. The first ground of appeal is against addition of ₹ 5,28,94,800/- u/s 69 of the IT Act holding on the basis of stock statement submitted by the appellant to the bank- that the assessee has suppressed the stock. 6.1 The appellant has submitted the following on the issue: a) It is pertinent to note that the appellant was utilizing bank facilities by way of cash credit limit as well as term loan and accordingly it was required to submit stock statement on a monthly basis as per the requirement of the bank to its bankers. The appellant is engaged in manufacturing CI . SGI Castings and accordingly it is required to purchase dies, moulds, chillers, etc. on a regular basis because of the fact that the said dies, moulds and chillers are having a shorter life, and therefore it had to constantly upgrade it/maintain it or purchase it. However, considering the fact that the classification of dies, moulds and chillers is to be taken as fixed assets and acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uditor had started valuing the stock statement it has been found out that the expenditure of the job work has not been debited to the profit and loss account and therefore the material given on job work basis should be valued at the raw material cost instead of finished goods cost. Therefore, he had neither debited any expenditure nor increased the value of the material given for job work basis and to that extent there was a difference in the stock amount reflected in the balance sheet vis-a-vis the stock amount reflected in the bank statement. This being the factual difference and only because of nonavailability of adequate details with the Ld. AO, the above amount has been added while finalizing the assessment proceedings for the Assessment Year 2009-10. However, from the records enclosed herewith, it is evidently clear that no amount is required to be added and the entire addition made by the Ld. AO requires to be deleted. In response to the specific questions raised and details asked as discussed earlier in Para 5 of this order, the appellant filed the following further submissions: Stock as per the bank statement and stock as per the balance sheet: Details of fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce sheet because valuation of material sent for job work was valued at raw material cost in the balance sheet but the same was valued at finished goods price in the stock statement. As the addition^ was on account of not understanding the factual position, the said difference is required to be deleted. 6.2 The AO has submitted the following in his report: AO's comments: The plea of taken by the assessee is factually not correct. Though the value of raw material as per balance Sheet is equal to the stock statement furnished to the Bank, there exists a variation of valuation of WIP as submitted to the bank and as appearing in the Balance Sheet. The valuation of WIP as per Balance Sheet is shown at ₹ 18,95,53,803/- where as valuation submitted to Bank is shown at ₹ 24,24,48,603/-. Further, the contention of the assessee that the inventory submitted to the Bank also included the dies, moulds etc. which has been shown under the head fixed asset is not found to be acceptable. As per the statement placed before the Bank the rate of Chillers, Dies, Bottom Box etc. have been shown at ₹ 50 per piece, only which again is not believable, since, mould, dies use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken as a part of the WIP stock in the statement to bank. More so, the AO has never disputed that the chillers, dies, etc. are part of plant and machinery. The rate of dies, tools, chillers, etc., given to the bank has been misunderstood to be per piece whereas the quantities and rates have been given with reference to kilograms. The cost to the appellant averages around ₹ 50/- kg only. On the explanation on value of stock sent for fob work; the appellant has submitted that the AO has not accepted the argument of the assessee only by stating that the assessee made an in vain effort to establish the correctness of the stock. However, the Ld. AO has not made any efforts to verify that the assessee had neither debited the expenditure of the job work charges to its profit and loss account and accordingly the WIP stock should have been valued at WIP price instead of finished goods price. 6.4 I have carefully considered the facts, the stock statement given to bank, the audited balance sheet, the explanations and submissions of the appellant and the remand report. As far as the issue of inclusion of dies, chillers, moulds, etc., in the work-in-progress in the stock st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance sheet. The approach adopted by the appellant, for valuing the work-in-progress in the final accounts is the correct approach as per the principles of accountancy. The mistake claimed of including the cost of job work done but bills not received in the statement of work-in-progress given to the bank is also supported by the evidences of goods sent which were lying with these parties as on 31/3/2009, submitted by the assessee in the form of challans evidencing the goods sent and details of bills raised by them subsequently. All the evidences were also forwarded to the AO. No discrepancy has been found in the claim made by the appellant. The mistake claimed is not only a plausible explanation but is also supported by the evidences submitted by the assessee. The explanation is therefore accepted in this respect also. 4. We have heard learned CIT.D.R. vehemently reiterating Revenue s grievance in seeking to revive the impugned addition. We make it clear that the Revenue itself is fair enough in filing a paper book comprising of 49 pages including various notices as well as stock statement and three remand reports dated 01.02.2013, 07.03.2013 and 14.03.2013; respectively. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprise. On this issue, the assessee had submitted a confirmatory letter from Indra Enterprise stating that the firm had applied and allotted share of Shaifali Steel Ltd. however, it has not been clarified as to during which Financial Year, the application was made and shares were allotted. Further, the assessee had produced only a copy of receipt of Return of income filed by Indra enterprise. However the issue may kindly be decided on merits keeping in view the decision of Hon'ble Supreme court in the case of Lovely Exports. 7.2 I have gone through the facts of the case, the accounts of share application money and share allotment, other evidences and the report of the AO. The following pertinent observations are made on the issue: i) The only new share application -money, i.e. ₹ 79 lac during the has been received from Shri Vipulkumar Mahendrabhai Shah, Prop. Mahavir Enterprise. The total share application money in his name, including opening balance became ₹ 1,50,00,000/-. He has been allotted shares of the same sum. -The return of Shri Vipulkumar Mahendrabhai Shah, Prop, Mahavir Enterprise has been filed to prove the creditworthiness. There is tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now the assessee had furnished the copy of R/I of Sangita Shah and a copy of A/c Bleachchem. So far as the loan from Sangita Shah is concerned, the assessee had furnished a copy of her R/I for A.Y. 2009-10. As such the explanation offered by the assessee seems acceptable so far as the confirmation of loan is concerned. However, in respect of loan from Bleach chem, on verification of copy of A/c furnished by the assessee, it is seen that the account of Bleach chem shows an outstanding balance of ₹ 10 lakhs. As such, the fresh loan of ₹ 5 lakhs as mentioned in the assessment is not correctly verifiable from the copy of account furnished by the assessee. Further, confirmation, copy of R/l in respect of Bleach Chem has also not been furnished. Under the circumstances, the assessee's plea that the loan stands explained is not acceptable. In respect of unexplained loan from m/s Jagdish j. Patel, no paper/documents has been furnished by the assessee to establish the genuineness's of the deposit. In view of the above, the contention of the assessee seems unacceptable and not sustainable in respect of loans obtained from these two persons. 8.3 I have gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. The CIT(A) observes in para 8.3 that Ms. Shah s amount of ₹ 1lakh has been found to be in order as per the above remand report. He thereafter concludes that the assessee has filed all confirmations and PAN details of ₹ 5lacs pertaining to M/s. Bleech Chem indicating this party to be a regular assessee taking recourse of banking channel without pointing any doubt on genuineness issue. There is no material on record at Revenue s behest to controvert all these findings of fact. We thus affirm the CIT(A) s action deleting the impugned addition of qua this instant issue as well. 7. Revenue s third substantive grievance seeks to revive Assessing Officer s action disallowing/adding amount of ₹ 60,62,940/- on account of interest payment as deleted the lower appellate proceedings with the following detailed discussions: 10. The next ground of Appeal is against disallowance of interest expenditure, holding that the loans taken for which interest has been paid, has been diverted to advances for non-business purposes. 10.1 The appellant has submitted the following on the issue: Interest expenses: The AO has disallowed interest of ₹ 60,62,908/- consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Thus the AO had rightly made the interest income not offered by the assessee for A.Y. 2009-10 on loan and advance. 10.3 I have gone through the facts of the case, the submissions of the appellant and the remand report. The appellant had not submitted specific details during the assessment proceedings and therefore the addition was justified at that stage. The AO has also in his remand report, only justified the disallowance as the appellant had not submitted specific details during the assessment proceedings. However, in the appellate proceedings, the appellant has given the details of the advances outstanding. It has shown how these pertain to Taxes lying with the government, CENVAT/Excise duty receivable, advances for purchases, advances to employees etc. There- is no justification now remaining for holding that the interest was not for business purposes (except for disallowance required as per section 14A as discussed and decided earlier). The disallowance made is therefore directed to be deleted. 8. It has come on record that the amounts in question pertains to various Government tax/CENVAT/excise duty receivables, purchases advance, employees advance etc. remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons; in case he had doubts about them. He insisted that the entire payment of commission is genuine and should be allowed. 11.2 I have gone through the facts of the case, the submissions of the appellant, the remand report and the rebuttal of the AR as summed up in the previous paragraph. It is observed-that the appellant is correct that the copy of ledger account forwarded to the AO clearly showed that the entire commission payments were made to the same party, viz., Pachlis Glystias Greece. The AO has failed to appreciate the fact. He has accepted on the basis of sample evidence that commission paid to the tune of ₹ 3720 USD(INR-Rs. 1,53,004/- to Pachlis Glystias Greece seems justified. Prima facie, the payment of entire commission being on same lines and to the same party seems acceptable. However, in my view, the certificate from the bank certifying that payment has been remitted to the party, through banking channels; is the clinching evidence. The AO is directed to call for the certificates from the bank certifying that payment has been remitted to the patty as claimed; while giving effect to this order and allow those expenses only where the appellant is able ..... X X X X Extracts X X X X X X X X Extracts X X X X
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