9911796707
TMI Blog2024 (9) TMI 1561X X X X Extracts X X X X X X X X Extracts X X X X ..... k was computed by the assessee on a consistent method of valuation, AO s opinion to value the stock at selling price without pointing out any departure from the consistent method of valuation on cost cannot be concurred with. We, therefore, find substance in the decision of Ld. CIT(A), and therefore, approve the same. Resultantly, Ground of the department in absence of any cogent material to dislodge the observations of Ld. CIT(A) is unsustainable. Addition on account of difference and consumption of raw material - HELD THAT:- Admittedly, from the facts of the issue demonstrated with supporting evidence i.e., annexures to Form 3CD showing quantitative details of consumption of raw materials as well as finished goods and also the quantitative details furnished before the Ld. AO, it can be construed that there was a clerical mistake on the part of assessee, which was duly explained by the assessee and, therefore, the addition made on account of such mistake cannot be allowed to sustain. CIT(A) have rightly appreciated the facts and deleted the addition, we, therefore, do not find any infirmity in the order of CIT(A) on this issue to interfere with. Consequently, Ground of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee tried to explain the reasons for such variations by way of furnishing reconciliation statement before the Ld. CIT(A). CIT(A) had decided the issue referring to judgments of CIT vs. Apcom Computers Pvt. Ltd. [ 2006 (10) TMI 124 - MADRAS HIGH COURT ] and similar judgments by Hon ble Delhi High Court and Hon ble Gujarat High Court referred to supra. As per all the aforesaid judgments the stock statements furnished before the bank for availing higher credit limits cannot be the basis for addition on account of undisclosed investment u/s 69B. In the present case, as the difference detected by the Ld. AO between stock statement furnished before the bank and regular books of accounts of the assessee could not be further established as actual variation on the basis of any cogent evidence, therefore, the decision of Ld. CIT(A) based on judgments of Hon ble High Courts has the essence to sustain, we accordingly uphold the same - Shri Ravish Sood, JM And Shri Arun Khodpia, AM For the Assessee : Shri Moolchand Jain, Advocate For the Revenue : Dr. Priyanka Patel, Sr. DR. ORDER PER ARUN KHODPIA, AM: The captioned appeal is filed by the department against the order of Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) and 142(1) of the Act were issued. In response, the counsel of the assessee had attended the hearings and filed written submissions before the ld. AO. The case of the assessee was discussed and deliberated by the ld. AO, which finally was concluded with certain additions/disallowances aggregating to Rs. 3,11,00,815/- and assessed income of the assessee was determined at Rs. 2,88,88,560/-. Various additions made by the ld. AO are culled out as under: Sr. No Addition/disallowance Amount Remarks 1. Interest on IT/TDS Rs. 13,618 Agreed for the addition 2. Unexplained Cash Credit u/s 68 Rs. 1,14,79,452/- Additions are challenged 3. Unexplained Cash Credit u/s 68 Rs. 36,43,562/- 4. Difference in stock valuation Rs. 54,170/- 5. Short Production Rs. 7,00,000/- 6. Cessation of liability u/s. 41 Rs. 1,37,050/- 7. Of liability u/s 41 Rs. 13,53,785/- 8. Excess interest paid on unsecured loans Rs. 14,69,178/- 9. Unexplained investment Rs. 1,22,50,000/- 4. Aggrieved with the foregoing additions/disallowances, assessee carried the matter before the ld. CIT(A), wherein, the appeal filed by the assessee was partly allowed, however, various reliefs were granted to the assessee by the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account of Betala Investment Finance Ltd to Lahoti Holdings Ltd. pursuant to the change of name and it also reflects the interest payments of Rs. 14,79.452/- (Rs. 7,39,726/- each on 30/06/2013 and 05/03/2014) after TDS. Ledger copies of Betala Investment Finance Ltd for the FY 2013-14 also reflects the transfer entry. Copies of the bank statements of Lahoti Holdings Ltd furnished for the period 01.04.2013 to 31.12.2014 also reflects the credit of interests payments after deductions of corresponding TDS and also the bank statements of the appellant company reflects the transfer entries. The appellant further submits the copies of the bank statements of ING Vysya Bank which also certifies the repayment of loan vide cheque no. 194868 drawn on ING Vyasa Bank Ltd. on 30/06/2014 of amount Rs. 1,03,36,576/- to Lahoti Holdings Ltd. From the above facts, it is safe to presume that the appellant had actually availed unsecured loans of Rs. 1,00,00,000/- from Lahoti Holdings Ltd. whose earlier name was Betala Investment Finance Ltd and during FY 2014-15, it had repaid the principal loan amount and the corresponding interests of Rs. 14,79,452/- was also paid and the entire transactions wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FY 2013-14 in the name of Lahoti Holding Ltd., all such documents are available at page Nos. 14 to 43 of the APB. 6.3 Backed by the aforesaid submissions, ld. AR requested that since the loan taken from M/s Betala Investment Finance Ltd. was transferred in the name of M/s Lahoti Holding Ltd., on account of change in name of the said investment company, it is apparent that no new loan has been availed by the assessee company during the year under consideration, therefore, the CIT(A) had rightly vacated the additions qua unsecured loan and interest accrued/paid, consequently, the additions made by the Ld. AO was bad in law, thus, has rightly vacated by ld. CIT(A), therefore, the decision of the ld. CIT(A) merits to be upheld. 6.4 We have considered the rival submissions of ld. Authorized Representatives of both the parties, perused the materials available on record and the orders of the lower authorities. 6.5 Admittedly, the loan of Rs. 1.00 crore was received by the assessee from M/s Betala Investment Finance Ltd. during FY 2011-12, which was further carried forward up to FY 2013-14 i.e. year under consideration, wherein the balance of Betala Investment Finance Ltd. was transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Prism Fincon Pvt Ltd. from its books of FYs. 2011-12 to 2013-14 reflecting the opening balance and transfer entries to the A/c of Udit Infratech Pvt. Ltd. Ledger copies of Udit Infratech, bank statements reflecting the repayment of loans along with the interests were also submitted during the appeal proceedings. Copies of the audited statement of accounts, ITR, bank statements of Udit Infratech P. Ltd are also submitted. On perusal of the evidences furnished during appeal proceedings and also on the basis of the aforesaid facts, it held that the original loan was availed from Prism Fincon Pvt Ltd of Rs. 30,00,000/- and subsequently the transaction of principal loan of Rs. 30,00,000/- and the accrued interest of Rs. 1,99,726/- was transferred to the books of Udit Infratech Pvt Ltd subsequent to its change of name and on 05/07/2013 and 31/03/2014, interests of Rs. 1,99,726/- and Rs. 3,99,452/- were paid through RTGS and cheque bearing no. 264509/- and on 27/06/2014 vide cheque no. 1730688, the repayment of loan was made to Udit Infratech P. Ltd. The entire transactions were taken place through banking channels and the audited accounts and the ITR filed for AY 2014-15 of the loan c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 10.2 On perusal of the facts and grounds of the case, arguments of the appellant and the evidences placed on record, it is evident that the AO observed that the appellant had adopted the valuation method of closing stock on the basis of the value of the last invoice, however, in one item namely Centre Column , it had followed different method. As per the AO held that appellant was required to adopt the value @Rs.38,000/- per MT instead of Rs. 36,000/- per MT based on the price of the last invoice. Thus, the differential amount of Rs. 54,170/- (Rs.2,000/- x 27.085MT) was added to the total income on account of undervalued of stock. During the appeal proceedings, it is submitted that the finished goods are valued at cost derived on the basis of adjusted selling price method and the last invoice of Rs. 38,000/- is the selling price of which the adjusted cost stands of Rs. 36,000/- and in support of the same, copy of the sale bill/invoice dated 19/12/2013 has been furnished. Having gone through the arguments of the appellant and the sale bills, it is held that there is no infirmity in the stock valuation method adopted and the value computed by the appellant in regards to the item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained to Ld. CIT(A) which was very considerately accepted by him and vacated the addition accordingly. Ld. AR in order to substantiate such contention have drawn our attention to page 139 of the assessee s PB, comprising of annexure F G of Form No. 3CD, showing consumption of raw materials and finished products during the previous year. It is further submitted that the consumption of raw materials for 4635 MT and sale of hand pump parts and hand pumps 112 MT (31+81), in aggregate constitute total consumption of 4747 MT in round figure, thus, the addition was only on account of clerical mistake which was rightly vacated by the Ld. CIT(A). 9.2 Contradicting the aforesaid submissions of Ld.AR, Ld. Sr. DR vehemently supported the order of Ld. AO. 9.3 We have considered the rival submissions, and perused the material available on record. Admittedly, from the facts of the issue demonstrated with supporting evidence i.e., annexures to Form 3CD showing quantitative details of consumption of raw materials as well as finished goods and also the quantitative details furnished before the Ld. AO, it can be construed that there was a clerical mistake on the part of assessee, which was duly ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actories as are evident from the purchase bills and bank statements. The appellant further submits that in AY 2015-16 by journal credit entry an amount of Rs. 1,37,050/- was transferred to its sister concern namely 'Satpura Acid Ware Store Ware Pipes'. It is further argued that Shree Vishnu Iron Foundry had placed an order for purchasing of Chara cutting machine and had paid advances in this regard but was not lifted by the party and in support of the payments through banking channels, bank statements and sale bills are furnished and there exists credit balance of Rs. 8,42,875/- in its books. Maa Mahamaya Alloys Pvt Ltd. placed order for supplying Cl Ingot Moulds and had advanced Rs. 9,40,370/- but it is stated that the party is not lifting the ordered items. Hence, it is argued that there is no cessation of liability as it still exists in its books. 7.3 Now coming to the applicability of section 41 (1) of the Act in the appellant's present case, Sec. 41(1) mandates that when there is any form of waiver of loan or cessation of trade liability, then such liabilities, which are no longer payable, should be added back to the Business Income of the Assessee and offered to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which case, the value of the benefit accruing to the appellant shall be deemed to be the profits and gains of business or profession and shall be chargeable to income-tax as income of that previous year. Thus, for the purpose of invoking sub-section (1) of section 41 of the Act, there has to be remission or cessation of the trading liability in the previous year and in the light of Explanation 1 thereto, such remission or cessation shall include the remission or cessation of any liability by a unilateral act of the appellant by way of writing off such liability in his accounts. Undisputedly in the facts of the present case, the appellant has not written off the liability in its accounts and as such there is no remission or cessation of liability by a unilateral act of the appellant as envisaged under Explanation 1. Regarding the issue of unilateral write off for the assessments of the post-amendment period, i.e., 1st April, 1997, it is noticed that the Explain. 1 was brought into statute by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997. The appellant's case, being the one where the alleged liabilities are not unilaterally writing Off, the requirements of the Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overy proceedings in a Court of law, nevertheless it cannot be stated by itself that the liability to repay the amount had ceased. Such liability cannot be termed as bogus Hon'ble Kolkata High Court in the case of Pr. CIT Vs M/s Soorajmul Nagarmull in ITA T/46/2020 dated 23/11/2022 held as under- 15. In the preceding paragraphs, we have noted the undisputed factual position which was rightly taken note of by the learned tribunal and in particular, noting that there is no dispute about the assessee to have been carrying forward the impugned liability in its books for a time span of almost three decades and the department did not raise any issue in al/ the intervening assessment years in question. The tribunal also noted that the assessing officer after the matter was remanded to him had issued summons to six directors of the concerned entities on test check basis, and four out of the six directors had appeared in response to the summons. The statements were recorded. The learned tribunal also notes that the creditors have given written reply in response to the summons reiterating their liability as a/so the fact that the assessee had settled some of the creditors even after 31.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns on account of sale bills of CI casting. Ld. CIT(A) has rightly deleted the issue following the settled position of law. 10.3 Ld. Sr. DR strongly placed her reliance on the Ld. AO. 10.4 We have considered the rival submission, perused the material available on record and case relied upon qua the issue. In the present case, on a thoughtful consideration of the material available on record and the observations of revenue authorities on the basis of explanation and evidence furnished by the assessee, the cessation of liability or remission of income could not be established by the revenue, the addition was made only for the reason that the explanation of the assessee are not to the satisfaction of the Ld. AO. All material aspects including verification of the facts are dealt with by the Ld. CIT(A), a thorough interpretation of provisions of section 41(1) along with support of guiding principles from the judicial pronouncements, we concur with the observations of Ld. CIT(A) that the cessation of liabilities and benefit from it through unilateral writing of the said liabilities by the assessee, could not be proved by the Ld. AO, therefore, addition invoking provisions of section 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, furthermore, the loan was availed on prior to the year under consideration and interests were paid in earlier AY at the same rate of interests and also the AO has not objected the same in the scrutiny assessment proceedings carried out for previous AY i.e. 2013-14. Considering the very fact of the case and discussions made above, I find no reason to sustain the disallowance made of Rs. 14,69,178/- on account of interests paid to the creditors. Hence the same is deleted and ground no. 9 is allowed. 11.3 Ld. AR of the assessee placed his full reliance on the order of Ld. CIT(A), whereas on the other hand Ld. Sr. DR strongly supported the order of ld. AO. 11.4 We have considered the rival submission and perused the material available on record. Admittedly in the present case as the rate of interest on which the assessee had availed loan from various parties and paid interest as mutually agreed by them. Such unsecured loans were availed in the earlier years and the rate of interest paid by the assessee in previous years was allowed by the revenue while assessing the case of assessee u/s 143(3). Ld. CIT(A) had decided the issue in favour of the assessee following the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed goods and it is the major part of total production and stock of finished goods). Thus the value of excess quantity is worked out to Rs. 1,22,50,000/- i.e. (350*35000/-). Hence, the amount of Rs. 1,22,50,000/- is treated as unexplained investment of the company and added to the returned income of the assessee. Penalty proceedings u/s 271(1)(c) is also initiated separately for concealment and furnishing inaccurate particulars of income. 12.1 When the issue was taken up by Ld. CIT(A), the explanations of assessee along with various case laws were considered and the addition made was vacated. The observations of Ld. CIT(A) are reproduced for the sake of completeness of facts: 6.2 The facts and grounds of the case, arguments of the appellant, evidences placed on record and the relevant case laws have been perused carefully. The AO during the course of the assessment proceedings observed that the appellant had submitted the stock statement the banks to avail CC limit, wherein, the closing stock of raw materials and finished goods were shown 93.345 MT and 1045.463M T respectively, however, the figures declared in the accounts provided in the tally software were 93.345M T and 695.463M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by books of account. No detailed inventory was also available in the statement made to the bank. Except a mere value declared for overdraft purposes to the bank, there were no detailed items of stocks in support of the declared value. It was also pointed out that there was no physical verification of stock, either by the assessee or the bank at the time of furnishing the stock statement. The Tribunal as well as CIT(A) given a concurrent finding that the assessee declared closing stock for assessment purpose which is based on actual physical verification. There is enough materials available on record and the conclusion reached by the Tribunal is based on valid materials and evidence. In view of the same, there is no basis to treat the difference in value as the assessee's under-valuation of stock or undisclosed income. Hon. Delhi ITAT in case of CIT Vs Jyoti Woolen Mills Ltd reported in 125 TTJ 810 has held as under: ..Held that the credit facility was extended by the bank to the assessee against the hypothecation of stock and the valuation of the stock declared to the bank was higher than the actual stock available in the books of account and this inflation of the stock was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emently supported the order of Ld. AO. 12.4 We have considered the rival submissions, perused the material available on record. On perusal of facts of the issue in hand that the stock statement of finished goods furnished before the bank has excess quantity of 350 MT as compared to stock shown by the assessee in its regular books of accounts. Assessee explained before the Ld. CIT(A) with the relevant documents, information and reconciliation statement. Before us also, the contention raised to substantiate that the difference of on account of certain adjustments qua the Mould Boxes, which were reported as finished goods before the bank whereas the same were shown as plant in the regular books. Various case laws were relied upon by the assessee, wherein it is held that the inflated value of stock furnished before the banking authorities cannot be the basis for addition u/s 69B of the Act on account of undisclosed investment. 12.5 In view of aforesaid facts and circumstances, wherein the addition was made because of difference in stock statement furnished before the bank as compared to position of stock in the books of assessee. The assessee tried to explain the reasons for such varia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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