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TMI Blog2024 (8) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the stock register, the material unloaded upto 24.03.2021 could not be entered into the books of account at Noida office because of the search seizure activities being carried on during that period. The assessee filed the quantitative details of the stock updating the stock upto 24.03.2021, since the stock taking exercise was done on 24.03.2021 and not on 22.02.2021 i.e. the date of the stock summary ledger used by the search team for making comparison and drawing adverse inference. The search party took the stock by the description on the cartoons such as Dog, Panther and Zebra whereas the same contents can be a part of stock of Aluminium wire, rod and sheets mentioned in the raw material. Similarly, the production of the material during the two days of search has not been entered in the books but has been valued by the search party. The inventory has been prepared not based on the material but based on the description of the finished product. Further, Shri Subhash Singh in his statement has confirmed the fact that stock was being maintained at the Head Office at C-58, Sector 4, Noida, not at the plant level. Shri Subhash Singh was confronted with the accounts stock ledger at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard. The addition made by the AO and sustained by the CIT(A) are due to the misinterpretation of the accounting system of finished goods and solely based on the statements recorded without any corroborative evidence of unaccounted sales. It is important to point out that nothing incriminating regarding any purchase or sales outside the books of accounts was found. Hence, the addition made on account of excess stock cannot be sustained. Appeal of the assessee is allowed. - Dr. B. R. R. Kumar, Accountant Member And Sh. Sudhir Kumar, Judicial Member For the Assessee : Sh. Ved Jain, Adv. And Ms. Supriya Mehta, CA For the Revenue : Subhra J. Chakraborty, CIT-DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeal has been filed by the assessee against the order of ld. CIT(A)-29, New Delhi dated 21.09.2022. 2. Following grounds have been raised by the assessee: 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, learned CIT (A) has erred, both on facts and in law, in rejecting the contention of assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excess stock is unsustainable in the absence of any evidence of sales/purchases outside the books of accounts being found during the course of search. (iii) That the abovesaid addition on the basis of estimation of stock is unsustainable in the absence of any actual measurement being conducted by the search party. 8. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the AO in wrongly charging interest under section 234B of the Income Tax Act. Addition on account of excess stock found during search: 3. Brief facts of the case are that a search was carried out at the premises of the assessee on 23.03.2021. During the course of the search, an inventory of the stock was prepared by the Authorized Officer on 24.03.2021. The said inventory is quoted by the AO in the Assessment Order at Pages 3 onwards. The AO determined the excess stock after comparing it with the books stock. While making the addition, the AO has also relied on the statement of Sh. Subhash Singh, General Manager of the company and Sh. Akshat Jain, Director of the company. 4. The relevant part of the Assessment Order on this issue is as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of excess stock found during the course of search is added to the income of the assessee. Provisions of section 115BBE is also invoked on this addition. 5. The ld. CIT(A) affirmed the action of the AO on the grounds that the statement of Sh. Subhash Singh, General Manager of the company and Sh. Akshat Jain, Director of the company recorded cannot be ignored and the search team has done a very diligent task and has taken the inventory of raw material, finished goods stock wise and also scrap. The relevant part of the order of the ld. CIT(A) is as under: 9.6 I have carefully considered the discrepancy of stock which has been lucidly mentioned in the assessment order, the statement of Sh. Subhash Singh, General Manager and the statement of Sh. Akshat Jain. From the charts as reproduced above, it is seen that the search team has done a very diligent task and has taken the inventory of raw material, finished goods: product wise, scrap etc. During the course of search at the factory, statement of Shri Subhash Singh, General Manager, was recorded under section 132(4) of the income Tax Act wherein he categorically stated that he was unable to explain the discrepancy in the stock. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities, the material first enters in the plant and then as per store manpower availability gets unload the same day or in a couple of days. After the unloading, store in-charge verifies the same for weight and quantity measurements. After store approval, quality team inspects the material for quality. Thereafter, both the teams convey to the factory Accounts Department which tallies the quantity and quality with the suppliers bills. Various details in the bill such as GST number, name, computation, etc. are checked and verified. Finally, the bill is couriered or hand-delivered to Noida Head Office from Sikandrabad unit where all details are checked again and further it is checked by the Purchase Department and tallied with the order placed by the assessee. In case of any discrepancy, the bill approval and subsequent entry in the books is held up till the issue is resolved or the material is rejected. This entire process takes time, ranging from a couple of days up to a week depending on the case to case basis. Based on this process of updating the stock register, the material unloaded upto 24.03.2021 could not be entered into the books of account at Noida office because of the sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh. Similarly, the inventorisation of the scrap has been done on estimate basis. The goods received during the period of search have not been entered in books and also the final product which has been manufacture and ready for sale was also not entered in the books. Hence, there was a difference to the tune of raw material received as well as the finished goods ready for dispatch which has been available at the premises but not entered in the books of accounts. These finished goods pointed out by the AO represent the production which has been done by the unit and which were ready for subsequent sales as on 24.03.2021. These were not unaccounted stock but the finished goods produced out of the raw material which were duly accounted for. Accordingly, these finished goods and the raw material received were not part of the stock inventory as per books of accounts. At the time of issue for sale, the entry is passed in the stock account whereby the raw material is reduced as consumed and corresponding entry of finished goods produced is recorded with the simultaneous issue of finished goods against the sale invoice. This is the normal accounting practice of stock in any manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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