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TMI Blog2019 (7) TMI 2040X X X X Extracts X X X X X X X X Extracts X X X X ..... aining in stock with the assessee as it would be covered by purchases recorded in regular books. Therefore, we observe that the AO made the addition arbitrarily. In respect of none of the years including the year under appeal, any finding has been rendered by the AO that books of accounts were not properly maintained or that they were not complete. The assessee has maintained regular books which have been audited year after year. It is also a fact that day to day stock register has been maintained by the assessee. Without pointing out any defects in the books and stock records and without having on record any corroborative material, no addition could have been made only on the basis of inventory prepared during search, especially when such inventory was claimed by the assessee to be not reliable and such a claim of assessee has remained uncontroverted. The contents of the two affidavits have remained unrebutted and therefore, has substantial bearing on the issue in dispute. Therefore, we are of the considered opinion that the stock inventory prepared during search is not reliable and that no addition could have been made by the AO only on the basis of inventory and learned CIT(A) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 30th July, 2014 of the CIT(A), Raipur [hereinafter referred to as 'the CIT(A)'], in respect of the asst. yr. 2012-13 wherein, the grounds of appeal, reads as under: ITA No. 296/Rpr/2014 1. On the facts and in the circumstances of the case the CIT(A) has erred in deleting the addition of Rs. 66,94,273 made on account of difference in stock of raw material found during the search operation. 2. On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs. 4,05,552 made on account of unexplained cash seized during search operation. 3. On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs. 970 made as unexplained income on the basis of loose paper seized during search and seizure operation. 4. On the facts and in the circumstances of the case the CIT(A) erred in directing the AO to charge interest under s. 234A from September, 2013 as he found that the cause of delay in filing of return not attributable to the assessee. 5. The CIT(A) has erred in passing the appellate order wherein he has acted in a perverse manner while passing the order which has been made in haste without giving reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quences and that huge stock of raw material was taken haphazardly due to inadequate manpower and also with an intention to wind up the proceedings as early as possible. It was further explained by the assessee that during search proceedings in the factory, the assessee was not present and the panchnama and inventory of stock was signed by the two persons under coercion, as mentioned in their affidavits. In view of this, the assessee disputed the excess stock and did not surrender it for tax. It was further explained by the assessee that immediately after the search on 28th March, 2012, affidavit dt. 26th March, 2012 from Kumari Dulari Mandal, employee of the assessee was submitted before the Jt. Director of IT (Inv.), Raipur wherein she stated that the inventory of stock taken at the time of search was on estimate basis without taking the actual weight/count/measurement and that she had signed the inventory under coercion. It was also stated that to protect stock and finished goods from fire, there is no provision of electricity inside the godown. The assessee also submitted affidavit dt. 24th March, 2012 of Shri Manish Sharma, family members of the assessee, before Jt. Director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that he did not look after the business of appellant and that this fact was stated before authorized officer but due to fear, he signed the statement. On perusal of assessment order, it is gathered that the AO did not cross-examine either Ku. Dulari Mandal or Shri Manish Sharma and therefore, the affidavits submitted by them have remained unrebutted. 6.2 It is seen that the Dy. Director of IT (Inv.) has not carried out verification/cross-examination to rebut the contents of the affidavits of Ku. Dulari Mandal and Shri Manish Sharma submitted after the search proceedings disputing the stock verification process. It is also seen that the deponents of two affidavits were not cross-examined later on also. Admittedly, the appellant has been claiming since beginning, and it has also been stated in the affidavit of Ku. Dulari Mandal that there was no light in the godown of appellant due to security reasons and stock was haphazardly and hurriedly taken by the search team in duskiness with the help of torch and some unskilled workers. Moreover, the appellant also objected that it was impossible to physically verify such huge stock correctly in a limited time frame within which the search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y represent a discrepancy as observed by the AM at various places and as discussed in various paragraphs of his order or it may be a difference over or below what is recorded by the assessee. In view of stamping by the steel authority/RSP for the size and weight, there might not be much difference in valuation if it goes by weight inscribed therein but it has been taken as a sample in a cubic feet storage where scraps of different sizes were stored. That the difference is bound to be there, because sample always does not represent actual. It may be less or it may be more. Difference may be large if there is a large scale difference in various scraps and rejects and small or nil if the items are of lesser difference of size and weight. Both the AM and JM agree on the point that the correct method of valuation is physical weighment and the assumption by sampling does not result in actual valuation in the opinion of the AM. Contention that the assessee itself has accepted the existence of 28,000 M.T. which is nearing the valuation of the stock estimated by the Department and, therefore, the addition was bound to be made is not sustainable. The letter dt. 21st Sept., 1996 written by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only after satisfying herself about different quantities mentioned therein and therefore, it is totally unjustified on the part of assessee to dispute such an inventory. He argued that the signature of the employee on the inventory is evidence of authenticity of quantity of different items found during search. If at all there was any dispute, the employee should not have signed the inventory but since she has signed it, it goes to show that she agreed with the stock-taking process and quantity of different items included in inventory. He further argued that it is not even the case that the assessee came up with this dispute at any time during the course of search itself. Any dispute, he argued, should have been raised at the time of search and not subsequently. He also argued that the allegation of stock having been taken in duskiness and with the help of torchlight has remained unsubstantiated and that there is nothing on record contrary to the inventory of stock which shows that there was excess stock of Rs. 66,94,273 and therefore, it was rightly added by the AO and therefore, the learned CIT(A) was not justified in deleting the addition. 6. Per contra, learned Authorised Repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chlight. He argued that since the assessee has stock of tobacco leaves, to avoid any hazard through fire etc., there is no provision of electricity connection in the godown of the assessee and therefore, when the stock was taken in duskiness, the search team used torchlight. He further argued that in the inventory, stock of tobacco leaves is stated to be kept in a standard packing of weight of 50 kg each. He submitted that the assessee's factory is an ongoing factory and therefore, some quantity of tobacco leaves always contains processed leaves, which gains volume because of process undertaken and therefore, when such processed leaves are packed, the quantity in a bag cannot be 50 kg but it would be less because of the volume having been gained, whereas in the inventory, standard weight of 50 kg has been taken. He further argued that Kumari Dulari Mandal did not know english and therefore, she denied to sign the inventory but she was made to sign the inventory under threat and coercion. He argued that after the search was over and when the inventory of stock was verified by the assessee in detail, it was found that the quantities contained therein are excessive and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's group surrendered a sum of Rs. 52.50 crores as undisclosed income during search and if the stock of Rs. 66,94,273 was really excess stock, there was no reason for the assessee to have not accepted a small amount when such a large amount was surrendered during the course of search. 7. We have heard both the parties and perused the material on record. It is undisputed fact that during search, the assessee was not present at the factory premises, where stock verification was carried out and the inventory of stock of raw material was prepared in the presence of one employee of the assessee, who has signed the inventory. We find that the AO has observed that assessee's relative Shri Manish Sharma was also present in the factory premises, which the assessee has disputed before us that the learned counsel contended that Shri Manish Sharma visited the factory subsequent to completion of stock-taking process; that he was shown the inventory which was already prepared before his arrival at the factory and that he was asked to state whether he agreed with the inventory or not. On perusal of the inventory, (APB-2, pp. 7-11) we observe that it has not been signed by Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly taken in the inventory. The assessee also explained that due to threat of fire, there was no electricity connection in the godown where materials were stored. All these claims of assessee,. have remained uncontroverted. We are of the considered opinion that in absence of any further enquiry conducted by the search team and without verifying the veracity of various claims of the assessee made through the affidavit of the employee, no adverse view could have been taken in the case of the assessee even keeping in mind the circumstance that stock inventory was signed by the employee. In our considered view, in such peculiar facts, the stock inventory prepared cannot aspire confidence and no inference can be drawn only on the basis of such of inventory as it renders it unreliable. It is not the case that the stock inventory was brought finder dispute by the assessee after a long gap or that the assessee did not produce the concerned employee before the authorities when called. It is not the case of Revenue that during search or during the assessment proceedings, any material evidence establishing unrecorded purchases or sales was found or brought on record. In other words, no corrob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince stock records are not maintained in respect of these items, before making any addition, the AO was required to compare the value of these items with the value that could have been worked out on the basis of regular books of accounts, which exercise has not been done, even at this stage. It is true that the business of the assessee is an ongoing process and therefore it would be justified to presume that some quantity of such items would always be remaining in stock with the assessee as it would be covered by purchases recorded in regular books. Therefore, we observe that the AO made the addition arbitrarily. 7.3. The assessment order of the year under consideration is a combined order of asst. yrs. 2006-07 to 2012-13 and we. observe that in none of the years, except asst yr. 2012-13, any addition was made by the AO and the returned income of all the years has been accepted. In respect of none of the years including the year under appeal, any finding has been rendered by the AO that books of accounts were not properly maintained or that they were not complete. The assessee has maintained regular books which have been audited year after year. It is also a fact that day to day st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent assessees of the group was Rs. 39,96,312, giving excess cash of Rs. 1,19,577 which was disclosed as undisclosed income in the case of Shri Laxmikant Sharma. The AO observed that during search, cash of Rs. 1,62,000 belonging to Sharma Industries, Dumartarai, Raipur was found at Panchvati and therefore, the explanation of the assessee being contrary to facts, is an afterthought and not acceptable. Therefore, the AO added the amount of Rs. 4,05,552 as unexplained. 9. In appeal, the learned CIT(A) has granted relief, inter alia, observing vide para 10 onwards as under- 10. I have carefully gone through the assessment order and written submission of the appellant. During the course of search, cash was found from different rooms of the three residential premises of Sharma family namely Sharma Pariwar, Panchvati and Janinotri and also from different business premises belonging to the members of Sharma family. From the factory of appellant, cash balance of Rs. 4,05,552 was found which has been added by the AO as unexplained cash. The appellant has claimed that cash balance of family members of Sharma family and all the business concerns were generally not kept with the respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case, considering the overall cash balance would meet the ends of justice and would also be logical/reasonable. In Amar Natvarlal Shah vs. Asstt. CIT (1997) 57 TTJ (Ahd) 454 : (1997) 60 TTD 560 (Ahdl it was found that overall gold jewellery declared in the wealth tax returns was more than jewellery found in search and therefore, no addition could be made by the AO. 10.2 In the backdrop of aforesaid facts, it was examined whether cash balance pertaining to members of the family of the appellant was at yanafice with the declared cash balance of appellant's family members. The appellant is the eldest son of Shri Laxmikant Sharma, who has advanced in age and therefore, it stands to reason and logic that the appellant would be in control of the cash balance of the entire family and in this sense of the matter, the cash balance found at the factory premises of appellant is required to be seen. The declared cash balance of the appellant, his family members and HUFs was undisputedly Rs. 39,96,312 against which cash balance found from Sharma family was Rs. 30,78,340 and when the cash balance of members of Sharma family found from other premises is considered, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued that overall excess cash of Rs. 1,19,577 was already offered as undisclosed income in the hands of an eldest member of family Shri Laxmikant Sharma and therefore; separate addition is not justified. 12. Heard both the parties and perused the material on record. There is no dispute that the total cash balance found from all the premises was Rs. 41,15,889 against which the cash balance as per cash book of different members of the family and the business concerns was Rs. 39,96,312. Thus, on an overall basis, excess cash of Rs. 1,19,577 was found which has been offered for taxation in the hands of Shri Laxmikant Sharma, being the eldest family member. It is undisputed material fact that during search, cash balance pertaining to the respective assessees of the group was not found in the possession of the respective person owning the cash and that cash balance of various business concerns of the group was found in one premises only. At the same time, it is also undisputed that during search, the cash balance was not identified with reference to particular assessee and no statement appears to have been recorded at the time of search to make enquiry in respect of the ownership of cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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