9911796707
TMI Blog2023 (1) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... ven if same tally data is considered to be the premise for addition made by AO, then the addition could not have been added u/s 69 as the same did not pertain to AY 2018-19. Accordingly, the addition is directed to be deleted. There are various double additions as pointed out by Ld. Counsel which itself goes to show that the tally data is not reliable which is evident from the submission of Ld. Counsel as incorporated herein above. Further AO has adopted a formula by applying balance (+) purchases (-) sales. The value of the closing stock has to be arrived at after reducing the profit element from the sales made by the assessee and further the value of closing stock has to be adjusted as per the relevant accounting standard applicable for valuation of closing stock. The AO is adopting formula for calculating quantitative details and not the valuation of stocks. This itself shows the error in working of the AO. As the tally data of the stock summary of the graphite division for the period 01.04.2017 to 17.11.17, as noted above, which is also evident from the submission of Ld. Counsel that there are various defects in the entry in the said tally data or were incomplete or incorrect w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has not issued summons to any parties. Apart from that, it was submitted that this not a case where the purchase parties have been found to be non-genuine on account of inquiry conducted by sales tax authorities, DIT(Inv.) or where the parties have admitted in course of search or statement that the sales made by them are non-genuine. In respect of two parties, the Assessing Officer has relied upon the information received from DIT 10(2)(2). On perusal of the information, it is quite evident that the same pertains to the proceedings for A.Y. 2011-12 and 2012-13 and does not pertain to the year under consideration. The assessee has never admitted during the course of search that purchases from these parties are not genuine. It was further submitted that the assessee has not blocked its own capital for making the purchase. The assessee has first received sales consideration from which it has paid for purchases. During the relevant previous year, the assessee has traded in food grains and HR plates and Food grains are exempt from GST. In respect of HR plates, GST is chargeable at 18%. However, the assessee has traded in HR plates hence GST has been levied both on pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re he has stated in his statement that purchases are bogus. He has mentioned only about the SOP followed for purchases. Before us, Ld. Counsel has submitted that nothing incriminating has been found during the course of search which show that these purchases are bogus. AO has mainly relied on outside information and which cannot be treated as incriminating material found during the course of search and AY 2014-15 being the non-abated year. He further submitted that here in this case there is one to one nexus between the purchase and sale of goods. The copy of which has also been placed before us vide covering letter dated 13th September 2022, where assessee has given bill wise, date wise purchases which shows the exact quantity and amount and also corresponding sales of the same quantity and same amount which are duly recorded in the books of account. This fact has also been noted by Ld. CIT (A) also. This detail has been filed in response to query raised by us during the course of hearing by us to furnish the date wise detail of trading account showing the gross profit percentage in respect of alleged bogus purchases and other purchases and apart from that, details of bill wise sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee that there is one to one co-relation of purchases and sales not only quantity wise but also bill wise details. All these purchases and sales are duly recorded in the books of account and AO has not distributed the sales at all. Once the sale of the same quantity has been accepted, then it cannot be said that the entire purchases are bogus. Accordingly, we are of the opinion that the entire purchases cannot be added. 18. With regard to assessee's appeal that Ld. CIT (A) has not justified in importing gross profit of 10% on such alleged bogus purchases. Before us, Ld. Counsel has demonstrated that the assessee before placing the purchase order had buyers and based on the demand of buyer assessee use to place the order. Thus, after getting the sales order, assessee has made the purchases on credit and immediately after the purchases received, assessee makes the corresponding sales on the same day or next day, which fact has been noted by Ld. CIT(A) and has also been demonstrated and filed before us. Thus, there was no working capital or investment which has been blocked for alleged bogus purchases. From the details furnished before us and also before Ld. CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,19,21,996/- u/s. 69 - For alleged discrepancy in stock value of Carbon of America, ZIRCAR, local graphite, etc. Rs. 3,17,90,089/- u/s. 69 - For alleged discrepancy in stock value of Graphite division Rs. 2,44,83,670/- TOTAL Rs. 13,76,21,050/- 15. The brief facts qua the issue are that, a survey action u/s 133A of the Act was carried out in case of assessee and M/s. Nickunj EDM Wires and Consumables P. Ltd. at the Rabale Godown, Navi Mumbai on 16.11.2017. Statement of Shri Vithal Gopal Patil was recorded u/s 133A of the Act on 16.11.2017. During the course of survey, details of stock of raw material and finished goods and tally data extract of stock register were provided. 16. During the course of assessment proceedings, the Assessing Officer issued a notice dated 01.10.2019, wherein he stated that physical verification of stock was done in presence of Shri Vithal Gopal Patil and he also provided the tally data from the system. He further stated that there is huge discrepancy in stock and in the closing balance maintained in computer accounting system as against actual calculation of closing balance. He pointed out following discrepancies in the data taken from the tally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck is calculated as per the applicable accounting standards. It was further submitted that the sales amount would also contain the profit element hence the said formula cannot be applied. The assessee also submitted that the closing balance as on 31.03.2017 i.e. A.Y. 2017-18 of graphite division as per seized tally data was Rs. 9,82,98,208/-, however as per the audited financial it was Rs. 7,38,14,644/-. It was submitted that the data was pending to be updated as on date of search and was subsequently updated post search. It was further submitted that tax audit was under process and was not finalized as on the date of search. 20. The Assessing Officer did not agree with the contention of the assessee. He stated that the assessee has not given any scientific way to calculate the correct valuation of stock and has not reconciled the difference in stock. He further stated that the gross profit of assessee is 10.97% and even if stock is adjusted for, still the discrepancy is much higher, hence the argument of assessee is not acceptable. He concluded that the assessee has not been able to explain discrepancy in stock. Accordingly, the Assessing Officer added Rs. 13,76,21,050/- (Rs. 4,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity Rate Value Quantity Rate Value Quantity Rate Value Quantity Rate Value 1. ALB SALES 402 kgs 3,759 15,12,997 -402 kgs 2. Bay Carbon 20 Nos 724 2,480 1000Nos 753 1,53,000, -980 Nos 2 2,480 3. CARBONE LORRAINE 78,487 78,487 4. CARBON OF AMERICA 6,01,87,448 1,38,72,061 4,97,44,801 5,62,36,704 5. CARR REINFORCEMENT 28,532 750 mtrs 7472 10,59,581 1005 mtrs 2,024 20,34,450 -3,24,661 6. Ce Tech Co. Ltd 2,25,834 70,800 3,01,361 2,33,737 7. CHINA UNION 1,77,845 83,264 91,800 1,81,156 8. CZ-Carbon 14 mtrs 79495 2,88,534 2 Nos 17,371 2,88,534 9. Euro Carbon 1 5 mtrs 476 6,240 -15 mtrs 10. FMI INC 21,41,294 1,05,18,175 2,13,60,706 18,92,562 11. Formosa 635 kgs 584 3,71,078 1750 kgs 2702 47,28,593 124 kgs 7,974 2,44,855 2261 kgs 2799 49,74,153 12. G. Angeloni SRL 190 mtr 70,663 1,64,640 190 mtr 13. Gansu Hoshi - China 4 Nos 5740 22,963 4 Nos 5740 22,963 14. Gaode Equipment 112sq.mtr 232 26,091 101 sq.mtr 446 45,100 11 sq.mtr 794 2,134 15. Graphite Carbon Technology 5,93,386 5,93,386 16. Graphite - Import 19,071 1,99,052 2,76,609 1,33,486 17. Haoshi Carbon 6 Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,36,704 [closing value of 'carbon of america' (sr. no. 4)] is included in Rs. 9,82,98,208 (total closing value). Hence, amount of Rs. 3,19,21,9967- has been added twice by the Assessing Officer. It is further evident from Pg no 2; para (i) of the chart that the Assessing Officer has added Rs. 4,94,25,2957- and Rs. 2,44,83,6707-. The manner in which the said additions have been made has been explained in the chart. It is evident that the Assessing Officer could either have added Rs. 4,94,25,2957 or Rs. 2,44,83,6707- since starting point of both additions is the total closing stock value appearing in the seized tally statement i.e. Rs. 9,82,98,2087-. 27. He further pointed out that the Assessing Officer has arrived at the value of closing stock by applying the formula; opening balance + purchases - sales. It is submitted that the formula adopted by Assessing Officer for arriving at the value of closing stock is incorrect. The value of closing stock is arrived at after reducing the profit element from the sales made by assessee. Further, the value of closing stock is to be adjusted as per the relevant Accounting Standards regarding valuation of closing stock applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above data Rs. 3.34 cr. - Rs. 0.17 cr. (Rs. 3.31 cr. + Rs. 1.31 cr. - Rs. 4.45 cr.) = Rs. 3.17 cr. 30. Ld. Counsel pointed out that the figures appearing in the row of 'Grand Total' in the said stock summary match with the figures as mentioned by the Assessing Officer in table (c) on Pg no. 16 of the assessment order. He submitted that the seized tally data is incomplete and incorrect. For eg. in sr. no. 1 the opening balance is Rs. 8,18,695, inward of Rs. 10,51,075, outward of Rs. 1,70,06,146. However, the closing value is Rs. 7,99,300/-. In sr. no. 5, the opening value and closing value is same even though there is an outward value of Rs. 7,950/-. Thus, he submitted that seized data can be relied for making addition provided the contents of the seized data are true and correct. In the present case, it is evident that the seized data relied upon by the department for the period 01.04.2016 to 31.03.2017 and 01.04.2017 to 17.11.2017 is incomplete and incorrect. Hence, the seized tally data cannot be relied upon for making addition. He further submitted that the addition of Rs. 3,17,90,089/- is not based on mismatch in physical stock but is on the basis of formula ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epancy was found:- (figures in Rs.) Sr. N0. Particulars Opening Balance Inward Outward Closing Balance Actual Figures of closing balance 1 Carbon of America 81695 1051075 17006146 799300 (-)15136376 4 FMI Inc 927781 5238818 9196754 1635059 (-)3030155 10 Local Graphite 24165411 6218272 11117284 24093516 19266399 11 Sichuan AerospcaTuo Xin 201654 120215 173972 81434 12 ZIRCAR 2057641 1846554 1628541 211087 Total 3,31,61,314 1,31,35,820 4,45,95,295 3,34,91,927 17,01,839 33. From the aforesaid extract, AO has found that the value of the closing balance has to be calculated by applying the formula i.e. opening balance (+) purchases (-) sales applying that formula. According to him, the closing balance would be; i) Rs. 4,88,72,9137- (Rs. 9,62,97,239 + Rs. 4,03,86,542 - Rs. 8,78,10,868) in respect of table (a) and; ii) Rs. 2,43,14,7087- (Rs. 6,01,87,448 + Rs. 1,38,72,061 - Rs. 4,97,44,801 in respect of table (b). He was of the view that the difference of Rs. 4,94,25,295/- (Rs. 9,82,98,208 -Rs. 4,88,72,913) and Rs. 3,19,21,9967- (Rs. 5,62,36,704 - Rs. 2,43,14,708) should be added u/s 69 of the Act. 34. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same did not pertain to AY 2018-19. Accordingly, the addition of Rs. 10,58,30,961/- is directed to be deleted. 37. Apart from that, there are various double additions as pointed out by Ld. Counsel which itself goes to show that the tally data is not reliable which is evident from the submission of Ld. Counsel as incorporated herein above. Further AO has adopted a formula by applying balance (+) purchases (-) sales. The value of the closing stock has to be arrived at after reducing the profit element from the sales made by the assessee and further the value of closing stock has to be adjusted as per the relevant accounting standard applicable for valuation of closing stock. The AO is adopting formula for calculating quantitative details and not the valuation of stocks. This itself shows the error in working of the AO. 38. In so far as the tally data of the stock summary of the graphite division for the period 01.04.2017 to 17.11.17, as noted above, which is also evident from the submission of Ld. Counsel that there are various defects in the entry in the said tally data or were incomplete or incorrect which has been demonstrated by him as incorporated above. Here the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company had himself done weighing and provided details, therefore the same cannot be treated as falls or incorrect. 43. After considering the aforesaid submission and on perusal of the impugned orders as well as details of stock, it is seen that survey team has taken the quantity of graphite block of 18612.637 kg approximately, whereas assessee has recorded the stock in the books at 17317.8 kg. Before the AO and Ld. CIT (A), assessee contended that it is very difficult to measure actual weight and it has been done purely by taking the length, breadth and height of the blocks which cannot be accurate basis. We agree with the contention of the Ld. Counsel because even if the dimension may be accurate, however the density and the weight may vary depending on grade to grade and the quality. Nowhere it has been brought on record that these stocks was actual weighed but the weight was taken on approximation by calculating length and breadth without factoring into density and it would not be possible for physical verification of almost 18 Mt. of graphite depending upon various shapes and sizes, therefore such estimation based on approximation cannot be basis for making addition on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs 32910916/- up to 17/11/2017. We have enclosed here the Profit & Loss account of Whiton Chem P Ltd for the period 01/04/2017 to 17/11/2017 as per audited books. Annexure- "M" 46. Further it was submitted that assessee had made purchases of raw materials and finished products and also avails machining services from Whiton. Therefore, it cannot be said that whether the details given by the Whiton pertains to labour charges only. The assessee has made payment as per the invoices raised by Whiton from whom assessee has availed services. As nothing on record or any enquiry of Whiton that assessee has made payment over and above recorded in the books nor can it be inferred that payment has been made in cash to Whiton. Another point which has been raised is that, the accounts of Whiton were not finalized and many other expenses of stock vouchers and general entries were pending to be recorded at the time of search and also due roll over GST regime w.e.f. 01.07.2017. Thus, simply relying on accounting entries in the books of Whiton, no addition can be made. Therefore, the same is directed to be deleted. 47. In so far as ground no. 8 for levy of tax @ 60% on additions made u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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