9911796707
TMI Blog2022 (3) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... sposed of. 3. Ground No. 3 & 4 are general in nature so do not require any comment on our part. 4. Vide Ground No. 1 the grievance of the Department relates to the deletion of addition of Rs. 2,49,01,874/- made by the A.O. on account of bogus purchase of rice husk. 5. Facts of the case in brief are that the assessee is a domestic Private Ltd. Company and was engaged in the business activity of manufacturing of paper. The return of income was e-filed on 30/09/2011 declaring an income of Rs. 1,11,05,644/-. Later on the case was selected for scrutiny. 5.1 During the course of assessment proceedings the A.O. noticed that the assessee had shown purchases worth Rs. 14,35,20,713/- of rice husk and that the some verification made regarding the genuineness of the purchases of rice husk made by the assessee, revealed that the assessee had shown bogus purchases at large scale. The A.O. observed that the assessee was arranging only purchase bills without getting the delivery of rice husk just to inflate its manufacturing expenses and made bogus purchases through two of its sister concerns, the proprietor of each of those were the directors of the assessee company. The A.O. observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... How it is possible that your sister concern at the same station would purchase husk in a different trucks and would deliver the same husk to your concern in different trucks. Besides difficult task of loading and unloading of husk, there are heavy loading and unloading expenses are also involved . This is humanly not possible in a transactions among the sister concern. 2 Most of the truck numbers mentioned on the sale & purchase bills are bogus . For instance truck Numbers quoted on bill No. 027 truck No. PB11AC9935 and PB11 P 4512 are Motor Cycles , bill No. 033 .truck No. PB11T4976 is Moped. 3 Dates of purchase by your sister concerns and dates of sale to you by your sister concerns are different which is not acceptable in the case of sale and purchase of husk as neither any Godowns were maintained by your sister concerns nor by M/s Jai Maa Kali foods. 4 Sh. Ajay Malik intimated that he had no godown & was doing only billing work. M/s Suraj Bhan & Brother & M/s Babu Ram Ram Gopal has also not shown any godown. M/s Suraj Bhan & Brothers and M/s Babu Ram Ram Gopal have not claimed any loading and unloading charges. 5.4 The A.O. observed that the assessee had claimed to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have received payments against sale of husk from our company. We are enclosing herewith notarized solemn affirmations from proprietors of these two concerns. (Page No. 1 to 2). They have again confirmed sale of husk to our company in this relevant period. 4. Please refer your office letter dated 21.03.2014, we respectfully submit that the statement of one Sh. Ajay Malik son of Sh. Rakesh Malik should have been addressed to proprietors of M/s. Suraj Bhan & Brothers Patiala and M/S Babu Ram Ram Gopal Patiala rather than to our company. We have not purchased any goods from Sh. Ajay Malik son of Sh. Rakesh Malik of M/s Jai Maa Kali Foods, Patiala. The goods have been purchased by our company from M/s Suraj Bhan & Brothers Patiala and M/s Babu Ram Ram Gopal, Patiala and these parties have confirmed sale of husk to our company. We are not privy to the contract between Sh. Ajay Malik and both these concerns. All the contents of the statement of Sh. Ajay Malik should be addressed to the proprietors of these concerns. The proprietors of these concerns should be summoned in your office and by your office for making necessary enquiries in this regard. We are ready to produce these proprie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egards to furnishing of details of consumption of husk for the immediate preceding two years vis-a-vis consumption of raw material and production, the details are enclosed. (Page No. 17). Hope the entire quarries have been explained and your honour shall be kind enough in appreciating the respectful submissions made in this reply letter." 5.5 However the A.O. did not find merit in the explanation of the assessee for the following reasons : i. Assessee's contention that M/s Suraj Bhan & Brother and M/s Babu Ram Ram Gopal were not their sister concerns is totally misleading as two directors of the assessee's company were running these concerns under their proprietorship. ii. Assessee's submission that neither Sh. Suraj Bhan nor Sh. Vidya Sagar had substantial interest in the assessee company because they were not having voting power more than 20% is baseless. Both Sh. Suraj Bhan and Sh. Vidya Sagar are the Directors of the company. They are involved in day to day functioning of the company. The assessee has not mentioned the share holding held by them even though it does not make much difference if they were having less than 20% share holding. Both the directors ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alik. The counsel of the assessee, however, declined the same for reasons best known to him or the assessee. x. Further, the perusal of the Income Tax returns of M/s Suraj Bhan and Brothers, M/s Babu Ram Ram Gopal and Sh. Ajay Malik show sales made by these concerns at Nil which further proves corroboratively that these concerns never supplied rice-husk to the assessee. xi. The assessee company could not bring anything on record such as stock register, gate register, weighment slips, proof of payments for freight and labour to substantiate that the goods actually landed at its business premises. 5.6 The A.O. treated the assessee's purchase from M/s Suraj Bhan & Brother and M/s Babu Ram Ram Gopal as bogus purchases which were shown to increase the production cost and thereby to reduce the profits. He accordingly made the addition of Rs. 94,38,395/- on account of bogus purchases made from the aforesaid two concerns. 5.7 The A.O. also observed that the assessee purchased the husk amounting to Rs. 69,69,553/- from M/s Sharthi Commission Agent, Shop No. 157 B , New Grain Market Sunam but there was no concern on the said address with the name of M/s Sharthi Commission Agent. He the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has shown purchase of husk worth Rs. 69,69,993/-. In the absence of any evidence regarding the genuineness of purchase, the said purchase of Rs. 69,69,993/- is disallowed. Accordingly, an addition of Rs. 69,69,993/- is made to the returned income of the assessee on a/c of disallowance of bogus purchases of husk by the assessee. 5.9 The A.O. further observed that the assessee had shown purchase of rice husk amounting to Rs. 22,50,396/- from M/s Abhishek Enterprises, Lalhari Road, Near Rly Fatak, Khanna. He issued a notice under section 131 of the Act to said party which had been received back undelivered with remarks given by the postal department " Not Known". The A.O. asked the assessee to prove the genuineness of the said purchases. In response the assessee submitted as under: "With regards to purchases f rom M/s Abhishek Enterprises, Khanna, it has been stated in your office letter dated 26.03.2014 that the summons under sect ion 131 (1) had been received back to your office with the remarks " incomplete address and not known" , it is respect fully submitted that we need time to ascertain the reasons for non-delivery of office letter at the said address. We are enclosing her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Kumar & Brothers, he could not furnish any evidence regarding the source from where he arranged the trucks for supply of husk to the assessee . No weighment slips were available with the assessee and there was no evidence of loading and unloading. The said concern could not produce any evidence in support of purchase of husk to the extent to which he has shown sale to M/s Vishal Paper Industries Pvt. Ltd, Village Khusropur. b) No evidence of freight payment was available with these concerns whereas according to sale bills they supplied husk to the assessee on F.O.R basis. As such the very basis of evidence of transportation of the goods was missing c) None of them was having godown for the storage of the husk still there was time gap between purchase of husk by them and sale of husk to the assessee. d) None of them were having weighment slips which could be an evidence in support of loading/ unloading of the husk e) The purchase of husk was shown by them in different vehicle numbers and the same were shown to have supplied to the assessee in different numbers which is quite unusual in this trade and the assessee has offered no explanation for the same. f) The most of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rothers & M/s Babu Ram Ram Gopal Patiala worth Rs. 94,38,495/- as bogus on the following grounds which are devoid of any merit. a) The learned A.O. has drawn adverse inference from the fact that the proprietors of M/s Suraj Bhan & Brothers & M/s Babu Ram Ram Gopal from whom the assessee purchased rice husk were directors of the company and were actively involved in the functioning of the company (Para (/) & (ii) on page 20 & 21 of order u/s 143(3)). It was brought to Learned. A.O. s notice that neither Sh. Suraj Bhan nor Sh. Vidya Sagar proprietor of the said concerns was substantially interested in the company nor they were actively involved in the functioning of the assessee company. Anyhow, no adverse inference can be drawn legally simply due to the fact that Sh. Suraj Bhan & Sh. Vidya Sagar were directors in company since nowhere in the law purchases from the directors by the any company are prohibited. Only restriction placed is under section 40A(2) wherein it is provided that services rendered by persons substantially interested in the company are to be disallowed if any expenditure incurred on such purchases or services is excessive or unreasonable having regard to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier assessment years. The LD A.O. did not consider the said chart perhaps due to the fact that he was somehow or other bent upon making the addition. e) The LD A.O. has drawn adverse inference on account of the fact that audited accounts were signed by Sh. Vidya Sagar which indicates that he had a vital role in the functioning of the assessee company (Para (vii) page 23). As already submitted, Sh. Vidya Sagar has no substantial interest in the company. Moreover, signing of the audit report of the company cannot make purchases from his concern bogus when he has emphatically admitted the sale to the assessee company and sale tax record of his concern also prove the same. f) The LD A.O. has drawn adverse inference since the vehicles in which rice husk was supplied to the assessee company were different from the vehicles in which rice husk was supplied to M/s Suraj Bhan & Sons and M/s Babu Ram RamGopal. The LD A.O. held that there were no reasons with them to change the vehicle when the delivery was to be given to the assessee company at the same station (Para (viii) of page 23). In this connection it is submitted that if the LD A.O. had any doubt he could record the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and the only obligation remained was to make the payment. It was further stated that the assessee did not have to recover money from those parties, hence he was not required to confirm on their credit worthiness and hence sit over to investigate the genuineness of the parties or their business transactions. It was also stated that the assessee as a business man had taken due care in getting necessary details which were produced before the A.O. during the assessment proceedings but the A.O. failed to appreciate that the assessee had been purchasing rice husk from M/s Babur Ram Ram Gopal and M/s Suraj Bhan & Bros in the earlier year i.e; A.Y. 2010-11, the assessment of which was completed under section 143(3) of the Act and there was no issue regarding purchases of rice husk from the said party. 6.2 Ld. CIT(A) after considering the submissions of the assessee deleted the addition of Rs. 94,38,395/- by observing as under: 5.4 I have considered the assessment order and submissions made by the appellant and other material available on record. The case laws relied upon by the counsel of the appellant has also been perused. On appreciation of material on record, it is evident from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition made by the AO is unsustainable. The reliance was placed on the following case laws: * CIT Vs. Ashish International in ITA No. 4299 of 2009 (Bom) * Nikunj Eximp Enterprises (P.) Ltd. Vs. CIT [2013] 216 Taxman 171/35 taxmann.com 384 (Bom). 6.3 As regards to the addition of Rs. 69,69,993/- from M/s Sarthi Commission Agent the assessee submitted as under: "ii ) The LD A.O. held purchases of Rs. 69,69,993/- from M/s Sarthi Commission Agent, Sunam bogus on the ground that assessee has failed to produce any person from M/s Sarthi Commission Agent in support of his contention that purchases were genuine. That on inquiry made vide telephone number 92556- 44009 mentioned on sale invoice of M/s Sarthi Commission Agent, Sunam, it was gathered that no such business activity was done by the person holding this telephone number. That the inquiry made by the Inspector of Income Tax from the locality reveals that no such concern has ever operated from the address of the business premises given by the assessee and shown in the purchase bills during last 10 years (Para 5 of page 34 & 35). The assessee was only informed that no such concern was presently working at 175-B, New Grain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (1987) 168 ITR 493(Cal.) 6.5 The Ld. CIT(A) after considering the submissions of the assessee and the report of the A.O. deleted the addition of Rs. 69,69,993/- by observing as under: "6.4 I have considered the assessment order and submissions made by the d other material available on record. The case laws relied upon by the counsel of the appellant have also been perused. On appreciation of material on record, it is evident from order of assessment that it is primarily on the basis of appellant's inability to produce the supplier in person before A.O. that the A.O. held the said purchases amounting to Rs. 69,69,993/- as bogus. It is also the case of A.O. that as per verification, no such party in the name of M/s Sarthi Commission agent existed at the given address. At the same time the appellant has stated that A.O. never confronted the appellant the result of the verification/enquiry of the said supplier. The appellant was only informed that no such concern was presently working at 157-B, New Grain Market, Sunam, the address given on the sales invoices issued by M/s Sarthi Commission Agent, Sunam. The A.O. was supplied VAT number of the party as per VAT records of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises the assessee submitted before the Ld. CIT(A) as under: "iii) The LD A.O. held purchases of Rs. 22,50,396/- from M/s Abhishek Enterprises, Khanna on the ground that notice u/s 131 of the I. T Act, 1961 was issued to the said person was received un-served with the postal department remarks "Not Known". That assessee has failed to produce evidence regarding genuineness of purchase from the said concern (Para g of page 36 & 37 of order u/s 143(3)). A letter dated 26.03.2014 was received from the learned A.O. on 26.03.2014 informing the assessee that notice u/s 131 of the Income Tax Act posted on the address of M/s Abhishek Enterprises, Khanna was received back without service with the remarks "Incomplete Address and Not Known". The assessee was asked to show cause as to why the purchases made from the said concern should not be disallowed as bogus. The case was fixed for 27.03.2014 at 11:00 a.m. (copy of letter enclosed). A written reply was filed on 27.03.2014 informing the assessing officer that we need time to ascertain the reasons for non delivery of notice at the said address. A copy of account of the said concern in our books of account was filed and the LD A.O. was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt confirm the factum of sales of rice husk to the assessee company. Under the circumstances, it is requested that addition of Rs. 22,50,396/- may kindly be deleted." The reliance was placed on the following case laws: * Nikunj Eximp Enterprises(P.) Ltd. Vs. CIT[2013] 216 Taxman 171/35 Taxmann.com 384 (Bom). * CIT vs. Nangalia Fabrics (P.) Ltd. [2014] 220 Taxmann 17/[2013] 40 taxmann.com 206(Guj). * CIT Vs. M.K. Bros. [1987] 163 ITR 249 / 30 Taxman 547 (Guj). * Asstt. CIT Vs. Akruti Dyeing & Printing Mills(P.) Ltd. [Tax Appeal No. 997 of 2008, dated 27/01/2009]. * Diagnostics Vs. CIT [2011] 334 ITR 111/[2012] 20 taxmann.com 692 (Cal.) * ITO Vs. Totaram B. Sharma [ Tax Appeal Nos. 1344/2008 & 1355 / 2008, dated 09/02/2010. * Dy. CIT Vs. Adinath Industries [2001] 252 ITR 476/[2002] 120 Taxman 822 (Guj) * CIT Vs. Precious Jewels Corpn. [2012] 17 taxmann.com 264/205 Taxman 22 (Raj.) 6.7 The Ld. CIT(A) forwarded the submissions of the assessee for comments of the A.O. who mainly relied on the assessment order. The Ld. CIT(A) after considering the submissions of the assessee deleted the addition of Rs. 22,50,396/- by observing as under: 7.4 I have considered the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase bills, sales tax record and evidence of payment through banking channel. Moreover, when the payments for the said purchases are through proper banking channels and no evidence is brought on record by the AO to establish that the said payments were routed back to the appellant, the action of the AO in brushing aside these evidences cannot be accepted and the addition made by him is unsustainable. Hence, the addition of Rs. 22,50,396/- is directed to be deleted. 6.8 As regards to the disallowance of Rs. 62,43,90/- the assessee submitted before the Ld. CIT(A) as under: "The LD A. O. has stated that on some sale bills number of trucks mentioned by which husk was supplied to the assessee were found to be fake. That on bill number 354 dated 03.08.2010, the truck number mentioned is PB 11T 7760 but as per enquiry made from the DTO Patiala the said vehicle number is of motor car. Similarly, vehicle number PB 11AJ 8283 mentioned on bill no. 361 dated 06.08.2010 is of motor car and the vehicle number PB 11 AC 9029 mentioned on bill no. 359 dated 04.08.2010 is of car. That M/s Mandeep Kumar & Brothers could not furnish any evidence regarding the source from where he arranged the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases has been made on the basis of surmises and conjectures only as all the persons from whom purchases have been made are identifiable, payments have been made through account payee cheque only and sales have been shown by them in their sales tax returns. The Hon'ble Supreme Court in the case of Dhiraj Lai Girdhari Lai V/s CIT reported at 26 ITR 736 has held that an assessment based on mere conjectures, surmises or suspicion or irrelevant and inadmissible evidence and material is invalid and unsustainable in law. Under the circumstances it is requested that addition of Rs. 62, 43,090/- may kindly be deleted keeping in view the legal and factual position explained supra. The aforesaid submission of the assessee were referred to the A.O. who relied on the assessment order. 6.9 The Ld. CIT(A) after considering the submissions of the assessee deleted the addition of Rs. 62,43,090/- by observing in para 8.3 of the impugned order as under: 8.3 I have considered the assessment order and submissions made by the appellant and other material available on record. The case laws relied upon by the counsel of the appellant have also been perused. On appreciation of material on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and unsustainable in law. Thus, the action of the A.O. is not sustainable and the addition made is directed to be deleted. 7. Now the Department is in appeal. 8. The Ld. CIT DR strongly supported the order passed by the A.O. and reiterated the observations made therein. It was further submitted that the assessee was engaged in the business activity of manufacturing of paper and during the year consumed the electricity of Rs. 80 Lac while purchases of rice husk worth Rs. 14,35,20,713/- was shown. It was contended that the assessee purchased the rice husk from the commission agents and not from the industrial enterprises and that no closing stock of the rice husk was shown which is not believable. It was further stated that the assessee was getting the electricity supply from the State Electricity Department and also had its own arrangement for production of electricity but there was variation in consumption of electricity units for per MT of production of finished goods. It was stated that the A.O. pointed out specific defects on account of purchases, consumption of electricity etc. and made the specific addition that is why the books of accounts were not rejected. 8.1 It was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from M/s Sharthi Commission Agent in support of its contention and the inquiry made by the Income Tax Department revealed that no such concern had operated from the address of the business premises given by the assessee and shown in the purchase bills for the last ten years. Therefore the addition made by the A.O. was justified and the Ld. CIT(A) was not justified in deleting the same. 8.4. As regards to the third addition amounting to Rs. 22,50,396/-, the Ld. DR submitted that the assessee had shown purchase of rice husk amounting to Rs. 22,50,396/- from M/s Abhishek Enterprises, Khanna. However the notice under section 131 of the Act issued to the said party returned undelivered and the assessee could not produce any person to prove the genuineness of the purchase of rice husk from M/s Abhishek Enterprises. Therefore the addition of Rs. 22,50,396/- was rightly made by the A.O. 8.5 As regards to the another addition of Rs. 62,43,090/- being 5% of the remaining rice husk purchased worth Rs. 12,48,61,829/-. 8.6 The Ld. CIT(A) submitted that the assessee was in a habit of booking bogus expenses in its books of account by giving fake vehicle number on some of the bills which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Return of the suppliers alongwith evidence of payment through banking channels to prove the genuineness of the transactions relevant to the purchases of rice husk, those evidences furnished by the assessee were not found to be fabricated or false by the A.O. and nothing was brought on record by the A.O. to substantiate that the payments made by the assessee were routed back to it. It was submitted that books of account maintained by the assessee were not rejected as the same were not doubted and even consumption of rice husk was not doubted. The Ld. Counsel for the assessee referred to the order of the ITAT for the A.Y. 2010-11 in ITA No. 829/Chd/2014 wherein no such addition was made by the A.O. in the preceding year wherein the purchases were made by the assessee from the same parties. 9.3 It was stated that the similar purchase made by the assessee from the same parties in the preceding years were not disputed by the A.O. therefore the addition of Rs. 98,34,495/- made by the A.O. was rightly deleted by the Ld. CIT(A). 10. As regards to the second addition of Rs. 69,69,993/- made by the A.O. on account of M/s Sarthi Commission Agent which was deleted by the Ld. CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the supplier had not complied with the summon under section 131 would not itself suffice to treat the purchase as bogus. 12. As regards to the remaining adhoc addition of Rs. 62,43,090/- @ 5% of the remaining purchases of rich husk amounting to Rs. 12,48,61,829/-,the Ld. Counsel for the assessee submitted that the said addition was without any basis as the A.O. made certain inquiries by selecting only few suppliers, however, those inquiries were never confronted to the assessee and that any material collected and inquiries made behind the back of the assessee could not be used against the assessee, unless the assessee was informed of the evidences collected and given an opportunity to explain the same. Moreover no addition could have been made on adhoc basis without rejecting the books of account and the A.O. did not point out any specific discrepancy in the books of account maintained by the assessee. It was also stated that the A.O. made the inquiries from few selected suppliers and did not make the inquiries from all the suppliers. Therefore the addition based on surmises and conjectures was invalid in the eyes of law and the Ld. CIT(A) rightly deleted the same. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales were made to the assessee by M/s Sarthi Commission Agent therefore the Ld. CIT(A) rightly held that the mere fact that during the F.Y. 2014-15 it was found that the said party M/s Sarthi Commission Agent closed its business at that time was not enough to draw any adverse inference for the F.Y. 2010-11 relevant to the A.Y.2011-12 under consideration. In the present case, when the identity of the party was established purchases / sales were vouched and payments were made through banking channel by the account payee cheque, we are of the view that the impugned addition made by the A.O. was rightly deleted by the Ld. CIT(A). 15. As regards to the another addition of Rs. 22,50,396/- made by the A.O. on account of bogus rice husk purchased from M/s Abhishek Enterprises which was deleted by the Ld. CIT(A) by holding that the A.O. had not brought on record any material evidence to conclusively prove that the said purchases were bogus is concerned, it is noticed that the A.O. made the said addition only on this basis that notice issued under section 131 of the Act to the supplier was received back unserved with remarks "Incomplete Address and Not known". It appears that the A.O. wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not match with the stock as per your books of account. The position of the stock available in your regular books of a/c and stock position as per hypothecated stock statement is reproduce below :- In view of the above details, there is huge difference in stock as on 31.03.2011 for which you have not furnished any explanation. You are required to show cause as to why the addition of difference amount may not be made to your returned income. 18.1 In response to the said letter the assessee submitted before the A.O. as under: a. Our company has filed stock statement as on 31.03.2011 in State Bank of India Civil Lines Branch, Ludhiana. The stock statement given to the bank match with stocks as per our books of accounts which includes day to stock registers maintained in the regular course of business as prescribed under the Central Excise Act & Rules. The facts & figures given in the stock statement and our books of account are explained hereunder: a) Waste paper: As per stock statement, we have shown 371 MT of waste paper (imported) 2072 MT (Indian) and the same tallies with our stock position as on 31.03.2011 in our stock register prescribed under the Central Excise Act & Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k and its basis of valuation during the previous dates of hearing. So the difference in valuation of finished and semi-finished goods stands explained. The valuation in books of accounts is proper and genuine. d) Production: There is no difference in quantity of production shown in the stock statement and the books of accounts including stock registers. The sale proceeds have been shown at Rs. 5967.02 Lacs in the stock statements whereas the sales in the books of accounts have also been shown Rs. 5967.02 Lacs. Your honor has adopted the figure of Rs. 5997.81 Lacs which includes export incentive of Rs. 30.79 Lacs which have been shown as income under the head other income. So there is no difference in terms of sale shown in the stock statement and the books of accounts. Stock position chart as on 31.03.2011 as per stock statement and as per stock register and there valuation as per books of accounts is enclosed to support above explanations. Copy of stocks of waste paper, finished goods and semi finished goods shown in the stock registers maintained under the Central Excise Act & Rules are enclosed. " 18.2 The A.O. after considering the submissions of the assessee observed that f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the LD A.O. after making following observation: i) The assessee has not offered any explanation regarding the cost price of valuation of closing stock. ii) No working of the basis of valuation of these items has been disclosed by the assessee either to the bank or shown in the books of accounts. iii) That addition on account of excess stock shown to the bank is called for in the light of decision of the Hon'ble Punjab & Haryana High Court in the case of B . T. Steels Ltd. vs. CTT decided on 06.10.2010. (Please refer pages 47 to 50 of order u/s 143(3)) The LD A.O. s observation: i) That assessee has not offered any explanation regarding the cost price of the valuation of the closing stock is incorrect and vehemently denied. During the course of assessment proceedings the assessee company has filed charts indicating that the valuation of closing stock as per account books was made on cost price in the case of raw material and consumables and on cost of production in the case of semi finished and finished goods (copies of chart filed enclosed). It is unfortunate that LD A.O. has made observations which are totally false and baseless only for making addition. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock can be made if the same is valued at cost price. The relevant decisions are as under: CTT vs. Woodward Governor India Pvt. Ltd. 312 ITR 254 "While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase in profits before actual realization" Chainroop Sampatram V/s CIT 24 ITR 481 (SC) "Though loss due to fall in price below cost is allowed even if such loss has not been actually realized. No question of charging the appreciated value of closing stock and notional profit can arise. It is a misconception to think that any profit arises out of valuation of the closing stock" ALA Firm V/s CTT 189 ITR 285 (SC) "But on no principle can one justify the value of the closing stock at a market value higher than cost as that will result in taxation of notional profits which the assessee has not realized" Keeping in view the factual and legal position in this case as explained above; addition of Rs. 52.12 Lac may kindly be deleted." 19.1 The said submission furnished by the assessee was forwarded to the A.O. who in his remand report mainly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books which were accepted by him and that he had given no adverse findings regarding purchase and sale and any unrecorded transaction, therefore, the action of the A.O. in holding that the stock statement furnished to the bank for availing higher limit reflected the true stock position could not be upheld. Accordingly the Ld. CIT(A) deleted the addition of Rs. 52,12,000/- made by the A.O. The reliance was placed on the following case laws: * CIT Vs. Sanspareils Greenlands Private Limited (2013) 85 CCH 0113 (All) * India Motor Parts & Associates Pvt. Ltd. Vs. CIT 60 ITR 53 (Mad) * CIT Vs. Apcom Computers Pvt. Ltd. 292 ITR 630 (Mad) 20. Now the Department is in appeal. 21. The Ld. CITDR strongly supported the assessment order passed by the A.O. and reiterated the observations made in the assessment order. The reliance was placed on the following case laws: * N.K. Proteins Ltd. Vs. DCIT (2017) 84 Taxman.com 195 (SC) * M/s Lunawat Gems Corp, Jaipur Vs. CIT Jaipur, ITA No. 272/2018 judgment dt. 29/03/2019 of the Hon'ble Rajasthan High Court * B.T Steels Ltd. Vs. CIT (2011) 196 Taxman 362(P&H) 22. In his rival submissions the Ld. Counsel for the assessee reiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the stock statement furnished to bank was inflated and that statement also included the stock of the agriculturists lying in the godown of the assessee, was not controverted by the Assessing Officer addition made by the Assessing Officer only on the basis of the stock statement submitted to the bank was not justified. It is well settled that there is a real difference between pledging and hypothecation because in the case of the pledging, the goods remain under the lock and key of the bank and, therefore, are liable to be physically checked and examined but in the case of hypothecation such goods remain int eh custody of the assessee and the physical verification of the goods hypothecated to the bank is normally not done. The figures reported to the bank authorities cannot be taken at their face value as true and correct and the Assessing Officer cannot make additions on such basis. It is evident that the statements submitted to the bank were on estimate basis for hypothecation of goods and not for pledging of goods. There was no justification on the part of the Assessing Officer to make addition particularly when no apparent mistakes in the books of account maintained by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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