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TMI Blog2020 (9) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of other transactions, it would be reasonable to calculate the rate of interest from month of September till end of the financial year in absence of anything contrary brought on record which shows the date of maturity before the close of financial year. Addition on account of excess stock found during the course of survey - HELD THAT:- As given that the survey was conducted during the middle of the financial year, it is quite likely that there could be some timing mis-match in terms of receipt of physical stock and entries made in the books of accounts and thereafter, once the entries are made in the books of accounts, and necessary reconciliation prepared and submitted, the same should have been examined by the AO and cannot be dismissed summarily. CIT(A) is also of the same view that the said action of the AO is not justified and where the assessee is able to show with evidence that admission made during survey was mistaken, the same should be examined on merits. CIT(A) has thereafter examined the reconciliation statement and has held that the assessee has only partly been able to substantiate the differences and reconciliation so submitted. As gone through the reconcilia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and facts hence, kindly be deleted." 2. At the outset, it is noted that there is a delay in filing the present appeal by 31 days. In this regard, the ld. AR submitted as under:- "1. That in the aforesaid matter, the impugned order was passed by CIT(A)-2-Udaipur, on dated 23.07.2019, which was received on dated 02.09.2019. Accordingly, the appeal was to be filed on/before 01.11.2019 however, the same has been filed on dated 02.12.2019. Thus, delay of 31 days has occurred. 2. In this connection, it is submitted that, after receipt of the said order, the assessee handed over the same to his regular tax consultant Shri Ramesh Chand Goyal Sharma (Chartered Accountant) for further action if any. Unfortunately, however, at that point of time Sh. Ramesh Chand Goyal was busy in Audits so he placed the papers in/with some other files/papers, not related to this matter and even forgot to complete the task given to him. 3. That it is only sometime in the third week of November, after completion of audit the staff was arranging the audit files with relevant audit working papers, then only this order came in the notice of Shri Ramesh Chand Goyal. After receipt of this order, immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prayed that the addition of interest for the entire year is unjustified. During the course of appeal proceedings, ld.CIT(A) accepted the contention that the amount have been advanced in the month of September, 2010, however, the contention of assessee that the amounts have been given for two months only, supported by seized material, remained unadjudicated and the interest was calculated from September, 2010 to March, 2011. Further, the Ld. CIT(A) enhanced the rate of interest adopted by AO at 12% p.a to 18% p.a. on the basis of one hundi in the name of M/s Adiya Mineral. 8. In the above factual background, the ld AR submitted that the action of ld.CIT(A) in enhancing the rate of interest from 12% p.a. to 18% p.a. has resulted into the enhancement made by the CIT(A) and the enhancement has been made without following the mandatory requirement of law i.e. issuing notice u/s 251(2) . No such show-cause u/s 251(2) has been issued by the CIT(A), hence the complete enhancement has been made without providing a reasonable opportunity which is against the mandatory requirement of section 251(2) and principle of natural justice, hence the enhancement made by CIT(A) deserves to be deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned in the seized papers that the interest of two months is paid means the amount has been given for two months only. Thus, calculating the interest till 31.03.2011 is contrary to the facts and unjustified. 2.7 During the course of appeal proceedings, Ld.CIT(A), on the basis of one hundi i.e. Aditya Mineral Products, wherein rate of interest of 1.5 per month was mentioned drawn an inference that all the loans have been given at the rate of 18%, whereas on the other hand various hundisspecifically mentioned period of two months as pointed out in Para 2.3 above, this contention was ignored that all the loans were of two moths duration only. At the one hand, hundi of Aditya Mineral Products has been completely relied upon but the fact mentioned on that hundi itself that interest of ₹ 5600/- with respect to this has been received in advance and this proves that it has been the practice of the assessee to receive interests in advance was ignored. In the case of Aditya Mineral interest of ₹ 5600 was paid and by working out the interest at 1.5% per month the duration of this hundi come out less than two months (around 1 months and 24 days), still ignoring this fact interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of maturity. The AO has considered the whole of the year for which the amount was advanced and the ld CIT(A) has considered period of two months in case of Kiran Industries and in respect of other hundis, period starting from September till end of the financial year. However, the fact of the matter is that the amount has been advanced which is not disputed by the assessee and we deem it appropriate to sustain the rate of interest of 12% per annum as applied by the AO which seems reasonable in the facts and circumstances of the present case except in respect of Aditya Minerals, where it should be calculated at the rate of 18% per annum. Further, in respect of transactions with Kiran Industries, Jai Jinendra textiles and MP Enterprises, the interest should be calculated for period of two months as evidence by the documents found during the course of search and in respect of other transactions, it would be reasonable to calculate the rate of interest from month of September till end of the financial year in absence of anything contrary brought on record which shows the date of maturity before the close of financial year. The ground of appeal is disposed off accordingly. 11. In Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on a purely legal ground by holding as under: "these details were not bring in to the notice of department during survey nor during post survey proceedings, statement recorded etc. The inventory of stock was signed and confirmed by the assessee himself in the statements recorded during survey proceedings and also during post search proceedings. As this fact was never brought to the notice of survey/search party during search/survey proceedings nor during post search proceedings, the plea of the assessee is not found to be acceptable and addition of ₹ 4,18,910/- is made on account of excess stock found during survey operation". 14. The assessee preferred an appeal before the CIT(A) against the action of the AO and it was pleaded before the CIT(A) that the action of the AO is unjustified in not accepting the contention of the assessee purely on the premises that the details, although admitted without finding any fault but not granted the relief, as the same were not filed during the course of survey proceedings. Thus, the issue for adjudication before the CIT(A) was limited to the issue whether addition can be made presupposing that once surrender is made u/s 131 then addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsive evidences and at the end of the reconciliation statement, Ld. AO made the opening remark that the "the submissions of the assessee has been carefully considered". The Ld.AO has not found any fault in the reconciliation statement. Moreover, when CIT(A) herself accepted the plea of the assessee that admission is subject to factual verification by observing that "the action of the AO in rejecting the reconciliation (of stock found during survey with the stock as per books) filed by the assessee during the assessment proceedings, without examining the same on merits, is not found justified". Under the facts and circumstances, Ld.CIT(A) failed to appreciate the basis of addition, plea and grounds before her and facts of the case. Ld.CIT(A) further erred while dealing the reconciliation statement on merit, while confirming the addition observed that relevant supporting is not placed before her. It is a case where all supporting evidences were filed before AO as evident from assessment order and submissions made before CIT(A). The filing of evidences was not in dispute, it is also clear that Ld.AO considered all the documents filed before him as evident from the order itself and poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile the discrepancy with positive material, in that event, the A.O. should give relief to the assessee. In the present case, the Ld. Counsel for the assessee has taken us through the various pages of paper book to support his contention that the stock is duly reconciled. We find that the A.O. has taken into account sales but the purchases of udad which was not recorded in the books and subsequently recorded after drawing a fresh trading account, no specific defect in such reconciliation is pointed out by the A.O. Under these facts, we are of the view that the A.O. is not justified in making the addition. Therefore, the A.O. is directed to delete this addition. " 16. It was further submitted that without prejudice to the above, the lower authorities have accepted the books of accounts of the assessee and profit declared therein but at the same time addition towards alleged excess stock has been made. At the one hand he accepted the amount of closing stock declared in books of accounts and on the other hand addition on account of unexplained investment u/s 69 has been made without rejecting the books of accounts. In view of these facts and circumstances addition towards unexplained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoices were seized during the course of survey/search. Copy of trading account prepared during course of survey is not furnished. No basis given for 10% profit rate to substantiate this contention. After verification of sales bills placed. It was an admitted fact that the stock has been valued at sales price and only objection raised by the CIT(A) was with respect to GP rate, therefore, at the outset CIT(A) is unjust by not allowing credit for GP Rate at all (Nil Rate) and confirming the value of stock at the time of survey at selling price. For an instance in the inventory of stock prepared at the time of survey, for items placed at entry No.12,13,23 value has been taken at ₹ 42, whereas the sale price of these items is ₹ 30 only which is evident from the sale bills placed. The assessee adopted GP rate of 10% and this was not accepted for want of trading account prepared during the course of survey to verify this GP rate. At the outset it is submitted that the trading account prepared during the course of survey proceedings was already submitted before the AO. Further, the trading account was part of assessment record and documents seized and already available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 93 dated 12.10.2010, was not entered in the books of accounts, which was later on entered in the books of accounts, copy of the same bill is enclosed herewith. Resultantly stock as per books will increase by ₹ 1,66,260/- Further, an affidavit in support of the fact duly sworn by the vendor is enclosed herewith stating that goods were sent to assessee before sending the invoice. No evidence such as delivery challan/transportati on documents to show that goods mentioned in the said bills only were received prior to search has been furnished substantiate this contention. The assessee had submitted the relevant bills of said purchases and affidavits of suppliers who duly sworn that the said goods were sent to the assessee before sending the invoices and no faults were found in these bills and affidavits. Ld.CIT(A) did not appreciate the fact that : (i) The assessee is carrying out the business at a small town of Beawar and purchases are made from local market only as evident from the bills submitted and which are from nearby shops. In most of cases supplies have been made in the vehicle of supplier and vehicle number is mentioned in the invoices, therefore no such separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 (differential rate i.e. ₹ 70-₹ 60) ] No specific bill referred to substantiate this contention. Contention before CIT(A) was that there are several entries of the same items according to their placement, however, different rate has been taken and more particularly item listed at entry number 32 & 33 has been valued at ₹ 70 per pipe, which is the sales price of 8*6 as evident from copy of invoice field before her whereas the item under consideration is having size of 7*6 , therefore, contention of the assessee of overvalued to the extent of ₹ 7750/- is substantiated with the facts. K During the course of physical stock taking valuation of pipe piece of size 6"*6" at entry no. 12,13,23 of the annexure of inventory dated 13/10/2010 has been made at ₹ 42/- but actually the prevailing rate is ₹ 30/- which is verifiable from various sale bills enclosed herewith for your kind verification. Accordingly stock is overvalued by ₹ 12,240/- [ 1020 pipes multiplied by ₹ 12 (differential rate i.e.₹ 42- ₹ 30)]. No specific bill referred to substantiate this contention. The pipe having size of 6*6 was valued at ₹ 42 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made in the books of accounts and thereafter, once the entries are made in the books of accounts, and necessary reconciliation prepared and submitted, the same should have been examined by the AO and cannot be dismissed summarily. The ld CIT(A) is also of the same view that the said action of the AO is not justified and where the assessee is able to show with evidence that admission made during survey was mistaken, the same should be examined on merits. The ld CIT(A) has thereafter examined the reconciliation statement and has held that the assessee has only partly been able to substantiate the differences and reconciliation so submitted. We have also gone through the reconciliation statement and find that the assessee has reasonable explained the differences in the stock with its explanation and supporting documentation. In respect of point no. D, we find that valuation of stock has to be at cost price and not selling price and rate of gross profit of 10% has rightly been reduced to arrive at the correct stock valuation and the addition so made is hereby deleted. In respect of point no. E, the ld CIT(A) has granted relief of ₹ 92,082/- and sustained the addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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