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TMI Blog2023 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of purchases, but the total purchases from appellant sister concerns during the financial year relevant to assessment year 2014-15 is much lower than the amount of deficit stock quantified by the survey team. Therefore, from the above it is difficult to accept the reasons given by the AO to treat deficit quantified during the course of survey is on account of inflation of purchases. The assessee has explained the difference and according to the assessee, physical stock was taken at cost price, whereas the value of stock in Vahini software was at selling price. We find that, there is a force in the arguments of the assessee for the simple reason that, if you go by the nature of business carried out by the appellant, the arguments advanced by the Ld. Counsel for the assessee appears to be bonafide and acceptable. Each item of goods are created with a tag price which includes purchase price plus mark-up of the appellant. Otherwise, at the time of sales, it is difficult for the sales people to ascertain cost price of each product. If you go by the general practice of the trade, the arguments of the assessee that the value as per Vahini software was at selling price is accepta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the assessee, the said excess stock should be considered as part of closing stock of the assessee for the impugned assessment year and should be carry forward as opening stock for subsequent assessment years. Therefore, we direct the AO to consider additions made towards excess stock found during the course of survey for the impugned assessment year as closing stock and also carry forward to subsequent year as opening stock in trade of the assessee. Addition made towards inflation of purchases - only on the basis of sworn statement without there being any corroborative evidence - HELD THAT:- It is well settled principle of law by the decision of CIT vs S. khader Khan Son [ 2007 (7) TMI 182 - MADRAS HIGH COURT ] that additions cannot be made solely on the basis of confession statement recorded during the course of survey, unless said statement is supported by corroborative evidence. In the present case, except statement from partner, no evidence with the Assessing Officer to prove that purchases from group/sister concern are bogus in nature. CIT(A), after considering relevant facts has rightly deleted additions except additions towards purchase from made from M/s. Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the goods were also as per bar codes. Therefore, there was no variation in the method of valuation adopted while ascertaining the variation. 3. On the facts and circumstances of the case the learned CIT(A) ignored the fact that assessee had, while finalizing the books of account, adopted the inflated value of stock as a result of fictitious purchase being booked, resulting in escapement of income of Rs. 7,14,48,417I-. 4. The Hon'ble ITAT is requested to delete the order of the learned CIT(A) and restore that of the assessing officer 3. The assessee has raised the following grounds of cross objections: 1. The CIT (Appeals) erred both in Law and on the facts of the case, in sustaining the sum of Rs. 3 1,46,788/-. 2. He erred in ignoring the fact that the appellant had furnished the assessment particulars of the parties in respect of which the addition has been made. 3. The appellant, therefore, prays that the addition of Rs. 3 1,46,788/- may be deleted. 4. The brief facts of the case are that, the assessee company is carrying on textile business in Coimbatore and branches in the State of Tamilnadu. The assessee has filed its return of income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that, there is no difference as quantified by the survey team. The Assessing Officer, however was not satisfied with explanation furnished by the assessee and according to the Assessing Officer, the arguments of the assessee that value in the Vahini software was at selling price and the physical stock was at cost price, is only an afterthought without any supporting evidence. Further, during the course of survey, the Director of the assessee company itself has admitted that the company has inflated purchases and created tag in Vahini software, without actual goods and his statement was further strengthened by facts gathered during the course of survey, where it has been clearly identified that another group company of appellant was indulged in making bogus sales bills to appellant companies and other group companies and therefore, rejected arguments of the assessee and made additions towards deficit stock in trade as inflation of purchases and added back to the total income of the assessee. 6. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee has reiterated its arguments made before the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide this issue, it is first necessary to fully appreciate the facts and the background of this issue emanating from the survey u/s 133A. I have also gone through the Survey file requisitioned from the Assessing Officer, in order to appreciate the facts better first-hand. 5.2 There was a survey in this case on 20.03.2014. It appears that during the Survey, the Survey team made an inventory of the physical stock and arrived at a value of the physical stock as Rs. 11,65,76,455/-. Further, the survey team also noticed that the value of the stock as per the customized software maintained by the assessee viz. 'Vahini Software' was Rs. 18,80,24,872/-. This led to a working out of deficit in stock of Rs. (-)7,14,48,417/-. 5.3 During the survey, when a question was posed to the Partners of the firm, they explained that the firm was in the habit of getting bogus purchase bills from sister concerns for which no stock was actually received. This apparently led to the deficit in physical stock on the date of the survey. For this reason, on this issue, an offer of additional income was made by the Partners. 5.4 Now, this was the position as on the date of the survey, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn as sold off at discounts varying from 50% to 100%. This had the net effect of inflating the value of purchases-by 509% to 100% (difference between the Cost Price and Selling Price of such bogus purchases). 5.10 On the basis of the above findings, the survey team concluded that the difference between the physical stock and the stock as per 'Vahini Software' represented the inflation of purchases (Rs.(-)7,14,48,417/-) and as a corollary, income to this extent was suppressed. 5.11 This then, was the regular modus operandi of the assessee group to suppress their income. In such an event, all the Assessing Officer was required to do was to ascertain if the bogus purchases' from sister concerns were eliminated in the books of accounts finalized for that year, on the basis of which the return of income would be fled. If this had been done, the income would stand automatically restored to its correct level and no intervention would be called for by the Assessing Officer. If not, which meant that the assessee had persisted with the modus operandi exposed in the survey, the Assessing Officer would be required to intervene and make an addition on this issue. 5.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38,22,300 53,53,125 14,80,300 Arun Tex 39,41,625 53,62,100 14,79,075 Balaji Textiles 83,66,699 1,10,45,947 -- Jagadish Fabrics HO 23,09,750 1,84,58,105 -- Jagadish Fabrics HO 48,29,425 36,03,575 11,39,650 Jayasree 38,34,200 51,49,875 13,37,225 Total 2,61,03,999 4,88,72,727 54,36,250 5.17 This being the case, a question ought to have immediately arisen in the mind of the Assessing Officer, as to how the inflation in purchases can be in excess of this amount of Rs. 54,36,250/-, leave alone an amount of Rs. 7,14,48,417/- . Therefore, logic dictates that the difference in stock noted during the survey and which formed the basis for the addition by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Vahini Software even on the date of the survey only offered a clue as to the modus operandi and could not be relied upon by itself as a source of addition. 5.21 The AO did not attempt to ascertain the purchases made during this time and then reconcile the closing stock shown in the books as on 31.03.2014, with the physical stock as on the date of survey. In his letter dated 22. 12.2016 addressed to the AO, the AR has clearly mentioned that the assessee had included the disputed items in the closing stock to facilitate early completion of the assessment and to avoid protracted litigation. The AO has not rebutted this claim of the appellant in a Convincing manner. 5.22 The AO has simply added the difference relying merely on the statement of the Partners at the time of the survey, without any reference to the books of accounts. The objections raised by the assessee to this treatment proposed by the AO, were brushed aside. Once the facts stated in the statement given during the survey are rebutted with specific reference to the accounts, then the onus is on the AO to prove the correctness of the survey statement before making any addition on the basis of such statement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the assessee has adopted closing stock as on 31.03.2014, as per audited statement at Rs. 22,92,25,185/-. The assessee has included disputed items in the closing stock to facilitate early completion of assessment. If assessee disputed that closing value as per Vahini software is incorrect, the assessee could not have continued to adopt the value of closing stock as per the Vahini software as on 31.03.2014 in the audited financial statement. A survey was carried out on 20.03.2014. The audit report is dated 29.08.2014. Thus, the assessee has five months to make correction, if any. The assessee s conduct proves that the stock as per Vahini software is correct. The ld. DR, further submitted that during the survey, the director have admitted in their statement that the purchases are inflated, in order to neutralize the effect of the bogus/inflated purchases, post the date of survey, the assessee ought to have adopted the correct value of the closing stock and then proceeded to ascertain the closing stock as on 31.03.2014, by not revising the stock value downward by Rs. 7,14,48,417/-, at the end of the financial year. The assessee has availed the benefit of bogus/inflated purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 417/-, when compared to stock in trade as per Vahini software. It is also an admitted fact that there is no difference in quantity of stock in trade found during the course of survey and quantity of stock in trade as per Vahini software. In fact, the Assessing Officer never disputed this fact. The difference is only on account of valuation of stock in trade. According to the Ld. Counsel for the assessee, the survey team has taken physical stock at cost price as on the date of survey at Rs. 11,65,76,455/-. The value of stock in trade as per Vahini software as on the date of survey was at Rs. 18,80,24,872/-. Thus, there is a deficit of Rs. 7,14,48,417/-. A statement of oath was recorded from Shri. R. Srinivasan, Director of appellant company and in response to question no. 19, he had stated that the appellant company was restored to inflation of purchases, by entering tags without goods, which resulted in the deficit stock and said inflation of purchases was effected through its sister concerns. Except statement recorded from the Director of the appellant company, there is no other corroborative evidence with the Assessing Officer to justify his findings that the assessee has restore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer has not quantified any difference in quantity of stock in trade found during the course of survey and stock in trade as per books of accounts, in our considered view, reconciliation submitted by the assessee explaining difference in stock in trade appears to be bonafied and acceptable. The ld. CIT(A), after considering relevant facts has rightly held that additions made by the Assessing Officer towards difference in stock in trade is unwarranted. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue. CO.No. 77/Chny/2019: 13. The only issue that came up for our consideration from cross objection filed by the assessee is addition towards unproved purchases to the extent of Rs. 31,46,788/-. During the course of survey, certain purchases from group/sister concern were noted in Sl.no. 81 to 83 of the impugned material PSR/RB/Loose Sheet-1 dated 21.03.2014. The appellant was confronted with seized documents and in response to question no. 14, the Director of the appellant company stated that, purchases from group companies are not genuine. The bogus purchases from group companies are utilized for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup/sister concerns. The loose sheets were confronted to the Director of the appellant company, in a statement recorded on oath and in response to specific question, the Director of the appellant company admitted that the appellant has indulged in bogus purchases from certain group companies/firm for inflation of purchases. Since, the Director has confirmed inflation of purchases through group companies, the confirmation filed by the assessee during assessment proceedings cannot negate the findings of the survey team regarding bogus nature of purchases. Therefore, we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to sustain additions made towards unproved purchases and thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss grounds of cross objections filed by the appellant. 17. In the result, appeal filed by the revenue and cross objection filed by the assessee are dismissed. ITA 3257/Chny/2018 CO: 11/Chny/2019: 18. The only issue that came up for our consideration from grounds of appeal filed by the revenue is deletion of additions made towards deficit in stock in trade found during the course of survey as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 95,53,872/- was found when compared to book stock as per Vahini software. The survey team found physical stock at Rs. 3,71,61,612/-, as against book stock as per Vahini software at Rs. 2,76,07,740/-. A statement of oath was recorded from Shri. R. Srinivasan, partner of appellant firm, wherein he had admitted additional income of Rs. 2,26,38,998/-, towards inflation of purchases and Rs. 95,53,872/- towards excess stock. The Assessing Officer, on the basis of statement recorded from the assessee coupled with facts gathered during the course of survey, made additions at Rs. 3,21,92,870/-, towards inflation of purchases and excess stock. On appeal, the ld. CIT(A) deleted additions made towards difference in stock in trade and allowed partial relief towards additions made on account of unproved purchases, where the ld. CIT(A) has deleted additions amounting to Rs. 2,19,51,885/-, and sustained balance addition of Rs. 6,87,113/- towards purchases made from M/s. Balaji Textiles as bogus in nature. Aggrieved by the ld. CIT(A) order, the revenue is in appeal before us. 22. The ld. Sr. AR, Shri. AR V Sreenivasan, Addl. CIT, submitted that the ld. CIT(A) erred in deletion of addition m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee, for the simple reason that it is a common practice in trading that selling price is always tagged with goods for the benefit of the customers and the sales persons. In fact, we have admitted the arguments of the Ld. Counsel for the assessee that Vahini software price was always the selling price, when it comes to other two concerns namely, M/s. PSR Silk Sarees India Pvt Ltd., and M/s. PSR Sons. Therefore, different arguments taken by the assessee in the present case that Vahini software is at cost and physical stock was taken at selling price is devoid of merits, because, in other two cases, the appellant argued that physical stock was taken at cost price and compared to Vahini software price which was at selling price. But, in the present case, the assessee argued reverse, where the appellant claims that Vahini software price was at cost and physical stock was taken at selling price. From the above arguments of the assessee, it is undoubtedly clear that the assessee could not explain difference in stock in trade found during the course of survey with necessary evidences. The reasons given by the assessee to reconcile excess stock found during the course of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have made bogus purchases for inflation of purchases. The ld. CIT(A), without considering relevant facts simply deleted additions made by the Assessing Officer. 27. The Ld. Counsel for the assessee, supporting the order of the ld. CIT(A) submitted that the assessee has filed bills and other details to prove purchases as genuine. Further, the assessee had also furnished confirmation letter from all parties to prove their identity. Firms from where the assessee purchases goods are in existence for several years and also assessed to tax. The ld. CIT(A), after considering relevant facts has rightly deleted additions except purchases from M/s. Balaji Textiles, amounting to Rs. 6,87,113/- and thus, their order should be upheld. 28. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The Assessing Officer has made additions towards inflation of purchases, on the basis of certain loose purchase bills found during the course of survey, coupled with statement recorded from Shri. R. Srinivasan, partner of the appellant firm. Except statement recorded from partner of appellant firm, the Assessing Officer does not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Q.No.2 that Aparna Fabs is a concern used for inflating the purchases in the case of M/s. PSR Sons, M/s. PSR Silk Sarees India Pvt. Ltd. and M/s. PSR Marketing Company. Initially bogus purchases from weavers will be ooked in M/s. Aparna Fabs. Then these purchases will be shown as sales to M/s. PSR Sons and other two concerns. But there will be no actual delivery of corresponding goods. 4. Whether the Ld. CIT(A) was right in law in not considering the provisions of S.68 of the Income-tax Act, 1961, which states that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory. In the present case partner of Aparna Fabs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the revenue is deletion of addition of Rs. 1,65,00,000/- u/s. 68 of the Act. The facts with regard to the impugned dispute are that during the course of survey, it was noticed that the appellant company had received unsecured loans from M/s. Aparna Fabs, M/s. Arun Tex, M/s. Balaji Textiles, M/s. Jayjasree, amounting to Rs. 1,65,00,000/-. A statement of oath was recorded from Director of the appellant company Shri. R. Srinivasan, where he has admitted that unsecured loans claimed to have been received from above parties are bogus accommodation entries. The Assessing Officer made additions towards unsecured loans received from above parties amounting to Rs. 1,65,00,000/- as unexplained cash credits taxable u/s. 68 of the Act. On appeal, the ld. CIT(A) deleted additions made by the Assessing Officer by holding that, the appellant has proved the identity of the creditors, genuineness of the transactions and creditworthiness of the creditors, which are the essential credentials to prove credit. Aggrieved by the ld. CIT(A) order, the revenue is in appeal before us. 31. The ld. Sr. AR, Shri. AR V Sreenivasan, Addl. CIT, submitted that the ld. CIT(A) erred in deleting additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the appellant has filed all evidences including confirmation letter from all creditors, along with PAN numbers. The appellant had also filed their financial statement along with income tax returns filed for relevant assessment years to prove that the creditors are having enough source of income to explain unsecured loans given to the assessee. Further, loans are taken through proper banking channels. The ld. CIT(A), recorded categorical findings that the appellant is able to file all evidences including copies of bank statement to prove that transfer of funds through proper banking channels. From the above, it is very clear that loans taken from M/s. Aparna Fabs, M/s. Arun Tex, M/s. Balaji Textiles, M/s. Jayjasree, are genuine in nature, which are supported by necessary evidence. It is well settled principle of law by the decision of Hon ble Supreme Court in the case CIT vs S. khader Khan Son in 352 ITR 480, that additions cannot be made solely on the basis of statement recorded during the course of survey, unless said statement is supported by corroborative evidence. In the present case, except statement recorded from managing partner of the appellant company, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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