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TMI Blog2020 (6) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... on conducted at his premises. (iii) That the addition has been conferred despite the same having been made totally indulging in surmises and conjectures. 3. On the facts and circumstances of the case, the learned CIT(A) has erred in sustaining the disallowance of Rs. 2,32,193/- being loss claimed by assessee on account of theft of goods. 4. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the disallowance of Rs. 11,00,469/- on account of excess stock of certain item & short stock of certain item found during the survey. 5. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the disallowance of Rs. 44,800/- on account of short stock found during the course of survey." 2. With the consent of both the parties, the present appeal, along with two other appeals in ITA Nos. 555 & 556/JP/2016 was taken up for adjudication on 30.01.2020. The other two appeals have already been disposed off vide order dated 12.03.2020, however, this matter couldn't be pronounced within the prescribed time due to current situation prevailing in the country on account of Covid-19 Pandemic and non-functioning of the Benches a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by following persons in M/s Raghuveer Metal Industries Ltd. Sh. Achin Agarwal Rs. 5,04,690/- Smt. Geeta Agarwal Rs. 15,45,312/- Sh. Pradeep Agarwal Rs. 36,32,837/- M/s Pradeep Kumar Agarwal & sons (HUF) Rs. 26,24,986/- Total Rs. 83, 07, 825/- As such amount of Rs. 1,66,92,175/- was the unaccounted income of the assessee company. However, the assessee company has not included in its income for the year 2008-09 any amount out of Rs. 2.5 crores surrendered on its behalf by Sh. Pradeep Agarwal, Director. In view of it, the assessee company was asked to explain vide notice u/s 142(1) dated 11.11.2010 why it has not included the amount surrendered during search as discussed above in its income for the year 2008-09 relevant to A.Y 2009-10. The assessee company has replied in its letter dated 27.11.2010 that the company was not aware of any such letter submitted by Sh. Pradeep Agarwal to the Assistant Director of Income-tax (Investigation-II), Jaipur nor has the board of Directors of our company ever given sanction to any such letter nor has ever authorized Sh. Pradeep Agarwal to surrender any income as there was no undisclosed income it has further contended that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by Sh. Pradeep Agarwal on behalf of the company is also binding on it. ii) Even if, there is a dispute with Sh. Pradeep Agarwal, it cannot be denied that he was not the director of the company when he made submission before the Assistant Director of Income-tax (Investigation- II), Jaipur, therefore the admission made by him as discussed in para above, is binding on the company. iii) Submission of the assessee that the document seized at Page no. 21-23 of annexure A-5 were neither seized from the premises of the company nor the papers were explained by the company, is no ground for denying the contents of the documents. If a document indicating its ownership by the company is seized from the residence of the Director of the company, the company cannot deny its contents only for the reason that it was not seized from the business premises of the company but from the residence of its Director. It is very normal for the Directors to carry business activity of a company from its residence also. Therefore, finding of documents related to the company from the residence of the Director is not something unusual. Therefore, in the case of the assessee company if a document relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigation-II), Jaipur on 02.12.2008. It was submitted that the said letter was executed on the letter head of the Counsel of Sh. Pradeep Agarwal signed by the Counsel himself and thereafter, Sh. Pradeep Agarwal authorized contents of the said letter on 20.01.2009. It was further submitted that another letter was filed by the Counsel of Sh. Pradeep Agarwal on 15.12.2008 which was again executed on the letter head of the Counsel and signed by the Counsel himself and thereafter, the contents of the letter were authorized by Sh. Pradeep Agarwal on 20.01.2009. 8. Further, our reference was drawn to the submission filed by the assessee company before the AO vide letter dated 27.10.2010 in response to the notice issued by the AO u/s 142(1) dated 11.11.2010 and the contents of the said letter read as under:- "To, The Asstt. Commissioner of Income Tax Central Circle, Alwar, Rajasthan Ref: M/s Raghuveer Metal Industries Ltd. 21, Adrash Nagar, Ajmer Sub: Notice u/s 142(1) of the Income Tax Act, 1961 for the Assessment Year 2009-10. Dear Sir, In this regard, we would like to submit the following documents/clarifications/explanations required by your good self. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In Para-2 he has submitted "That the assessee has arranged loans in the name of various persons in his personal files and also directly in the books of M/s Raghuveer Metal Industries and all such loans and other credits are appearing as capital in annexure A-5 Page 21 to 23." From the above it is apparent again Mr. Pradeep Agarwal may have arranged loans etc. and M/s Raghuveer Metal Industries did not have any undisclosed income. 3. In Para-3 he has submitted "In the group case of Shri Pradeep Agarwal as per Balance Sheet of various individual files on the date of search. The following loans are appearing which have been routed through/introduced in the books of M/s Raghuveer Metal Industries:- Sr. No. Particulars Amount (a) In the file of Shri Achin Agarwal Rs. 5,04,690/- (b) In the file of Smt. Geeta Agarwal Rs. 15,45,312/- (c) In the file of Shri Pradeep Agarwal Rs. 36,32,837/- (d) M/s Pradeep Kumar Agarwal & sons (HUF) Rs. 15,45,312/- Total Rs. 83, 07, 825/- All the above loans appearing in the books of above individuals are unaccounted money was introduced directly or indirectly in the books of M/s Raghuveer Metal Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring may be granted before any adverse view is taken again us. Thanking you Yours Truly, For Raghuveer Metal Industries Pvt. Ltd. (Authorized Signatory)" 9. Further, our reference was drawn to the affidavit of Sh. Sunil Pokhrana, director of the assessee company which was filed before the ld. CIT(A) and the contents of the said affidavit read as under:- 1. "That I Sunil Pokhrana S/o Sohan Lal Pokhrana R/o 21, Adarsh Nagar, Ajmer solemnly affirms that I am director of M/s Raghuveer Metals Industries Ltd. and I am fully aware about the facts and transaction of this company and I am also competent to file explanation and affidavit on behalf of said Raghuveer Metal Industries Ltd. 2. That I solemnly affirm that in the case of M/s Raghuveer Metals Industries Ltd. & also in the case of Shri Pradeep Agarwal, a search & seizure operation u/s 132 of the Income Tax Act, 1961 was carried out on 17.09.2008 and on the date of search, the deponent, Shri Sunil Pokhrana, Shri Pradeep Agarwal Shri Ashish Agarwal & Shri Vijesh Karnwal were the directors of M/s Raghuveer Metals Industries Ltd. 3. That I solemnly affirm that M/s Raghuveer Metals Industries Ltd., now it shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by a hostile director cannot be taken as a ground conclusive enough for making an addition on the assessee company. His intent being malafide towards the assessee cannot be doubted. Even otherwise on the basis of a handmade ledger found in the premises of a third party and the third party's statement cannot be taken as a ground for making any addition in case of assessee and in support, reliance was placed on the following decisions: * CIT vs. Anil Khandelwal (ITA No. 247/2015 & 248/2015 & 248/2015) * DCIT vs. Yash Pal Narendra Kumar (ITA No. 5340, 5341 & 5342/D/2012) * Shri Ketan V Shah and Others vs. ACIT (ITA No. 2321 & 2322/Mum/2013) 11. It was further submitted that no addition could be made on the basis of loose papers found in the premises of a third party and in support, reliance was placed on the following decisions: * Add. CIT vs. Lata Mangeshkar [1947] 97 ITR 696 (Bom) * Kantilal L. Lunkad, L/H Smt. Pushpa K. Lunkad vs. DCIT (ITA No. 725 & 726/PUN/2014) * ITO vs. Shri Pukhraj Soni (ITA No. 585/Ind/2015) 12. Without prejudice to above, it was submitted that even if the calculation is done as per the method followed by the AO and confirmed by CIT(A) for mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch party or the department during the course of search, therefore it cannot be said that Sh. Pradeep Agarwal was not competent to make such disclosure of income. On perusal of such letters dated 2.12.2008 and 15.12.2008 it may be noted that the contents of such letters are very specific. In letter dated 02.12.2008 it is mentioned that on the basis of page no. 21 to 23 of Annex. A-5 which is revalued balance sheet of M/s Raghuveer Industries Ltd. as on 30.06.2008 and in this balance sheet the total capital of both the directors are mentioned at Rs. 262632985/- (129882027 and 132750958). Against such capital, fixed assets were shown at Rs. 179866704/- whereas in the books of accounts of M/s Raghuveer Metal Industries Ltd. the total capital + loan fund was for Rs. 136650000/- and fixed assets were for Rs. 78928394/-. Accordingly, the capital as per loose papers was at Rs. 262500000/- whereas the capital as per books was at Rs. 136650000/- and accordingly, extra capital as per loose papers was shown for Rs. 125850000/-. The reason for extra capital was revaluation of fixed assets for the purpose of the partition between both the directors namely Sh. Pradeep Agarwal and Sh. Anil Pokhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty but on the basis of incriminating documents/ papers one of the director made very specific disclosure of undisclosed income and such admission of unaccounted income may not necessarily be as per the parameters and procedures for revaluation of assets but simply non-adherence of procedural requirement may not be a valid ground of negate the authenticity of valid disclosure of income. The other objections of the appellant are broadly of academic nature without any way affecting the validity of surrender of undisclosed income. The ultimate fact remains that on the basis of incriminating documents found from the premises of main director of company, one of the main director admitted undisclosed income. There is nothing on record that such surrender was made under duress or coercion, in fact the admission of unaccounted income was absolutely voluntary act by the main director. It may also be mentioned that though technically the surrender of income was not under sec. 132(4) of IT Act but such surrender was in consequence to search and based on specific incriminating documents and therefore such surrender of income can definitely be said to be similar to surrender of income made u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im, Sh. Anil Pokharna, Sh. Tarsen Singh and their family members were also share holders and directors in the assessee company. 17. Thereafter, in his another statement recorded u/s 131 on 19.11.2008, in response to Question No. 53 wherein he was shown Annexure A1 to A10 which were seized during the course of search from the residence of Sh. Ashish Agarwal who was incharge of Khamdenu Industries, he has stated that these loose papers are relating to his companies and business establishments which may include accounted and unaccounted transactions, he will give detail information about this transactions latter on and he further stated that on such unaccounted income, he will pay taxes and surrender for income tax purposes. Further, in response to Question No. 56 wherein he was shown pages 23 and 60 of Annexure-A5, he has stated that page 23 shows the balance sheet of M/s Raghuveer Metal Industries Ltd on 30.06.2008. He further stated that the said balance sheet contains both unaccounted and accounted transactions of the actual business of the company. Further, he has stated that according to the said balance sheet whatever profits have not been shown in the books of accounts, he wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaccounted transaction of the assessee company as on 30.06.2008, whatever profits have not been shown in the books of accounts, he will pay the taxes by accepting the unaccounted income of the current financial year. However, as we have seen above, there are no efforts which have been made by the Assessing officer to verify the contents of the said documents with the books of accounts of the assessee company and to determine the profits which have been reported as on 30.06.2008 and the profits which remain unaccounted. Therefore, merely relying on the statement of Shri Pradeep Agarwal on a standalone basis without any corroborative evidence to show that there is any unaccounted income in the hands of the assessee company will not satisfy the requirements of law to make the addition in the hands of the assessee company. 20. Now, in terms of subsequent developments in the matter, there are two letters dated 02.12.2008 and 15.12.2008 addressed to the ADIT (Investigation-II), Jaipur by Shri S L Poddar, Counsel for Shri Pradeep Agarwal which have been taken note of by the Assessing officer during the assessment proceedings. It would be relevant to refer to the contents of the said let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 of the Act. In his statement recorded u/s 131 of the Act, he has stated that the said document shows the balance sheet of accounted and unaccounted transaction of the assessee company as on 30.06.2008, whatever profits have not been shown in the books of accounts, he will pay the taxes by accepting the unaccounted income of the current financial year. However, as we have seen above, there are no efforts which have been made by the Assessing officer to verify the contents of the said document with the books of accounts of the assessee company and to determine the profits which have been reported as on 30.06.2008 and the profits which remain unaccounted. Now, merely going by the contents of these two letters, the Assessing Officer held that out of total undisclosed income of 2.5 crores, Sh. Pradeep Agarwal has surrendered Rs. 83,07,825/- in the individual hands of his family members and HUF on account of unaccounted income introduced in M/s Raghuveer Metal Industries and the balance amount of Rs. 1,66,92,175/- was therefore considered as unaccounted income of the assessee company. We therefore find that the Assessing officer has merely gone by the statement of Shri Pradeep Agarwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the company shared by both the directors and credited in the capital account was at Rs. 24850000/- (125850000-101000000) and accordingly surrender of Rs. 2.50 Cr. was made as undisclosed income/unaccounted income of M/s Raghuveer Metal Industries Ltd. to purchase peace of mind." As per the aforesaid findings returned by the ld CIT(A), there is thus an extra capital which is represented by revaluation of fixed assets for the purposes of partition between the two directors. Such extra capital has been credited in respective capital account. To our mind, revaluation of fixed assets generate corresponding reserves in nature of revaluation reserves and thereafter, the assessee company can use such revaluation reserves for specified purposes including distribution to the shareholders at the time of liquidation of the company. However, merely revaluing the fixed assets doesn't generate any profits and that too, unaccounted profits which can be brought to tax in the hands of the assessee company. Though the assessee company is disputing any such revaluation exercise as actually been conducted and thereafter implemented by passing appropriate entries in the books of accounts, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings and which were not considered and appreciated by the lower authorities. 29. Per contra, the ld. DR relied on the findings of the lower authorities and submitted that a theft had occurred in the premises of the appellant for goods amounting to Rs. 2,32,193/- for which an FIR was lodged before the police authorities. However subsequently such stolen goods of Rs. 2,32,193/- were recovered by the police and handed over to the assessee. In this circumstances, there was no case for claim of such amount as business expenditure because loss on account of theft in as much as there is no loss as the stolen goods were recovered and received back by the appellant. Therefore, there is nothing wrong in the finding of the AO and confirmation by the ld CIT(A) in rejecting the claim of the appellant for Rs. 2,32,193/- and making addition accordingly. He accordingly supported the findings of the lower authorities. 30. We have heard the rival contentions and perused the material available on record. On perusal of records, we find that goods worth Rs. 5,98,965/- were initially lost and out of which, goods worth Rs. 3,66,772/- were recovered and the remaining goods worth Rs. 2,32,193/- were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short stock surrendered has been declared. In view of it, you are required to explain why an addition of Rs. 11,00,469/- on account of excess stock admitted during the Survey and Gross profit on short stock considering it to sales out of books, should not be made to the income of the company of the year 2008-09. The assessee has replied in its submission filed on 04.12.2010 that the excess stock found during the course of survey operation has been sold during the normal course of business and the total sales consideration was included in the sales reflected in the books of account in the company. In the absence of proper documentary evidence like Profit & Loss account upto the period of survey i.e. upto 17.09.2008 and P & L account for the period 18.09.2008 to 18.03.2010 mere statement that the excess stock has been sold during the normal course of business and sales have been properly accounted for does not explain that the excess stock has been included in the income of assessee. In view of it, an addition of Rs. 11,00,469/- is made to the income of the assessee. 6.3 As regards addition of Rs. 44,800/- on account of shortage of stock the findings of the AO are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO's case is that such short stock of Rs. 4,48,005/- indicated that the stock has been sold in unaccounted manner and the AO accordingly applied GP rate of 10%. The appellant has not disputed application of GP rate of 10%. The appellant also did not dispute such short stock for Rs. 4,48,005/- as also why the stock was found short to such an extent. In this background when neither the value of short stock is disputed nor the application of GP rate of 10% is disputed. The action of the AO determining profit of Rs. 44,800/- appears to be fair and reasonable in as much as short stock indicated that such stock sold in unaccounted manner. The action of the AO is accordingly confirmed." 32. During the course of hearing, the ld. AR submitted that the surrender was made during the survey and in the absence of trading account when the assessee could not substantiate that the excess amount of stock was duly sold with other sales and hand infact formed part of the P & L a/c. Without prejudice to the above, the GP rate on the said undisclosed stock be applied, GP of the assessee for the year under consideration is 1.25%. Books of the assessee has not been rejected, this stand has been ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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