9911796707
TMI Blog2025 (1) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is not conscionable as per Article-265 of the Constitution of India, no separate addition is warranted under law. Thus, grounds no.1 to 4, are dismissed in line of our above observations.
Addition on account of excess Stock - Correct valuation of stock - Determination of gross profit on alleged deficit stock - HELD THAT:- It is beyond doubt that there is no difference in physical quantity. The books of account have never been rejected and no discrepancies have been pointed out u/s 145(3) of the Act. The difference in valuation at the midst of financial year cannot give rise to any income particularly when the year end valuation has been accepted without any grain of salt.
We accordingly hold that the addition made by the AO towards the excess stock was not justified and the same has correctly been deleted by the learned CIT(A). We further hold that the addition as confirmed by the learned CIT(A) considering the gross profit on alleged deficit stock also deserves to be telescoped against the ad-hoc surrender and hence directed to also be deleted. The grounds no.5 and 6, are also hereby accordingly dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case and in law, the Ld. CIT(A) erred in accepting the reconciliation submitted by the assessee and restricted the addition to Rs. 1,59,829/ being GP @ 8.7% on short stock of Rs. 18,37,104/- without appreciating the fact that AO had already reduced/considered the value of the stock at Parbhani of Rs. 1,82,77,000/-. 7. Any other question to be raised at the time of appeal." 3. Facts of the Case:- The assessee is a company engaged in the business of running a Ginning Mill and dealing in cotton. The assessee filed its return of income for the year under consideration on 16/10/2015 declaring an income of ₹ 2,90,56,100. A search and seizure action under section 132(1) of the Income Tax Act, 1961 ("the Act") was conducted on 12/02/2015, by the Investigation Wing at the office, residential and factory premises of Rander Group. During the course of action under section 132, at the office premises of the assessee, certain documents were seized. These documents allegedly contained information about cash payments made to various persons. During the assessment proceedings, the assessee was requested to explain these payments with reference to boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re attracted. 6. The learned Departmental Representative, at the outset, vehemently argued that the additions made by the Assessing Officer under section 69C deserves to be upheld as there was sufficient evidence to prove that the assessee had in fact made the payments and the Assessing Officer was justified in making the addition in the hands of assessee. 7. The learned Departmental Representative further, with respect to the addition of ₹ 33,26,574, submitted that the said amounts represent amounts collected from the farmers by the assessee and the Assessing Officer, after taking into consideration the facts and circumstance of the case, made the addition to the tune of ₹ 33,26,574, on account of recovery from farmers. The learned CIT(A) in his order has deleted this addition stating that there is nothing in the assessment order to indicate that the assertions made by the assessee were wrong assertions and that the assessee was not recovering any unloading charges on behalf of labours who were unloading the cotton bales from various trucks on behalf of the sellers of cotton. However, the learned CIT(A) has also not brought out the fact in his order that the money wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with. 9. The addition of ₹ 31,90,320 + ₹ 5,27,067 + ₹ 30,187 = Totalling to ₹ 37,47,574 - sustainability thereof. 10. The learned Counsel for the assessee, without prejudice to its arguments that the surrender made during the course of search proceedings covers the miscellaneous additions made by the Assessing Officer, further argued the legality of the additions made totalling to ₹ 37,47,574, on merits as well. 11. The learned D.R. strongly supported the order of the Assessing Officer and submitted that the learned CIT(A) erred in not appreciating the facts properly and deleting the impugned addition. 12. The learned Counsel for the assessee on the other hand strongly supported the order of the learned CIT(A) and further submitted that apart from the addition made on account of excess stock and cash received of ₹ 2.50 crore the balance additions and its respective explanations provided by the assessee during the course of assessment as well as first appellate proceedings can be summarised as under:- Chart-2 Heads of Expenses Addition (₹) Advance payment against Salary(₹) Expenses Accounted in Respec-tive Ledger (₹) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned CIT(A). On a conspectus of the facts and the details as provided by the assessee, we are of the considered view that the learned CIT(A) was right in deleting the additions to the extent of ₹ 20,74,674, by holding that the assessee has duly reconciled the expenses and further that the expenses are duly reflected in the books of accounts of the assessee and as such cannot be considered to be unexplained expenditure as much less unexplained expenditure under section 69C of the Act as wrongly held by the Assessing Officer. 17. The learned Counsel for the assessee further submitted that there is absolutely no contradiction of TDS provisions and that the TDS returns filed are also available with the Department and that the audit report also contains the date of TDS returns having been filed and the Assessing Officer has not pointed out any instance of violation of any of the TDS provisions as well as applicability of section 40A(3) so as to warrant any disallowance under those heads as per law. 18. That with respect to the addition of ₹ 16,42,713, it is the submission of the assessee that the said amount pertains to payments made by farmers/agriculturist to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the same is added to the taxable income as cash received but not accounted. The addition of ₹ 4,58,000, is made on the basis of noting in seized records on Page-145 (copy enclosed at Page-125 to 127) seized in the course of search operation. It is against the assessee that these papers are relating to party wise souda booking and dispatch details. The copy the reply filed by the assessee was enclosed by the assessee at Page-125 & 126 of the submission made before learned CIT(A). It is the case of the assessee that this working was made by one Shri Ankit, for intimating to the Head Office and allegedly made on the rough paper which was lying on the table. In the month of May, when operations are slow down and general maintenance of machines is undertaken. Further, the immediate requirement of cash and cheque for purchase of stores and spares are estimated and sent to head office. Therefore, this amount of ₹ 4,58,000 cash was the message sent to Head Office that an amount of ₹ 4,58,000 would be needed for stores and spares for the general maintenance of the machines. It is the case of the assessee that no independent evidence in spite of specific denial is broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other additions and which is bifurcated and shown separately in the Chart-2 submitted hereinabove. 31. The assessee without prejudice submitted that if major payments out of the impugned addition of ₹ 33,26,574 allegedly pertains to payment from agriculturist to unloading labour then the extent of ₹ 16,42,713 this would be a double addition which is impermissible under law. 32. On perusal of the records, it is seen that in fact the Assessing Officer has not clearly brought out the basis for the addition of ₹ 33,26,574 and that this addition seems to be a repetitive addition primarily on the ground of payments made to unloading the labourers which has also been added separately as discussed herein above. 33. Further as elaborately mentioned hereinabove that nowhere it is conclusively proved that the Assessee has in fact received the payment from the farmers or has consequently made the payments to the labourers. We have already held hereinabove that the explanation so provided by the Assessee that the unloading charges paid directly by the farmers to the unloading labour without any recourse to the Assessee is a very possible scenario and considering the same we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits as discussed herein above, the learned CIT(A) was absolutely right in considering that the said addition is a covered by the declaration made by the Assessee and consequently no separate additions are warranted and in our considered view correctly deleted the additions made. 38. We accordingly hold that the learned CIT(A) rightly deleted the additions amounting to ₹ 31,90,320, ₹ 5,27,067, ₹ 30,187, ₹ 33,26,574, ₹ 4,58,000 and ₹ 20,800 for the reasons enumerated above and further on the ground that the same are already covered in the declaration of income made by the assessee and in view of separate taxation of the above issues as well as ad-hoc surrender will be a travesty of justice which is not conscionable as per Article-265 of the Constitution of India, no separate addition is warranted under law. Thus, grounds no.1 to 4, are dismissed in line of our above observations. 39. Addition on account of excess Stock of ₹ 5,13,63,972 - sustainability thereof. 40. The Assessing Officer made an addition of ₹ 5,13,63,972 on account of alleged excess stock. 41. The Assessee during the course of 1st appellate proceedings before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as on date of search i.e. 12.02.2015. Commodity Name No. of packages Weight in MT (₹) Storage Period Market rate (₹) Valuation(₹) Cotton Bales 2692 427.030 13.11.2014 28.03.2015 98865 4,22,18,320.95 Cotton Bales 300 48.410 04.12.2014 28.03.2015 95000 45,98,950.00 Cotton Bales 3300 527.015 25.12.2014 25.04.2015 96000 5,05,93,440.00 Cotton Bales 300 49.210 30.12.2014 03.03.2015 95509 46,99,997.89 Cotton Bales 600 100.295 03.01.2015 03.03.2015 95505 95,78,673.98 Cotton Bales 3000 167.245 07.02.2015 02.04.2015 89422 1,49,55,382.39 Total:- 12,66,44,765.21 Thus as against the stock belonging to M/s Shrigopal Rameshkumar Sales Pvt. Ltd in the custody of store space of Sri Bhagirath Textile Ltd. as stated by CEO of the assessee company the total stock in the custody of NBHC is found to be Rs. 12,66,44,765/-. Thus the total physical stock found at the different premises and occupied at the occupied storage space of the assessee company is at Rs. 33,47,96,114/-. (Rs. 12,66,44,765/- + Rs. 20,81,51,349/-) However, as per books, the stock is recorded However, as on 12.02.2015 is as under:- 1. Ginning Stock 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has also produced books of account to verify the contents of submission made by it. "Ground No. 4 to 7 Excesses Stock: ₹ 5,13,63,972/- The Assessing Officer has added ₹ 5,13,63,972/-on account of excess stock. There is total confusion to the Assessing Officer in considering the stock position. Stock with Assessee at the time of search is found at (i) Ginning Division. Mohali, (ii) Ginning Parbhani and Trading Division. At the time of Search following actual physical stock is found as per Search Records. (See Question No. 69 of the Statement recorded on 07.04.2015 regarding Stock found and Stock as per books) Pages 88 to 92. Sr. no. Bales Particulars Amount (₹) 1. 1,834 Bales, Raw cotton, seed Doc & Oil etc. at Ginning Factory Premises Mohali Valued at 18,98,74,349/- 2. 830 Bales, Raw Cotton and seed foundat Parbhani 1,82,77,000 3. 5,593 Bales were at SBTL Warehouse 1,300 Bales Stock of Ginning at SBTL Warehouse Valued at ₹ 1,79,00,000/- 4,293 Bales Stock were at SBTL (Trading Division) Valued at ₹ 6,89,00,000/- 5,593 Bales 8,68,00,000/- 8,257 29,49,51,349/- Following Stock remained to be taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98, The payment for the purchase of these bales was made prior to the Search. All the purchases are recorded in the ERP/SAP Computer System which is available to the Department in seized records. All the purchase bills are in seized records. When Assessee filed Statement of Purchases Meeting stock of 4830 bales of Rs. 7,95,04,621/- it was stated to AO that the bills and payment details are available in Seized records. It was also explained that in ERP computer system different persons are given different rights in the maintenance of accounts. Data entry operator can only make entries. These entries remain in accounts but if you take print of the account, ERP software would give results of only approved entries. Approval of entries are to be done by Senior Managers. Unless they approve it is not reflected in account. The Appellant had filed the list of unapproved entries for purchase and sales and stock reconciliation on 07.04.2015 itself. It was with Department only. Therefore Assessing Officer was wrong in stating that no such reconciliation was submitted. Copies of reply and submission on 07.04.2015 filed are closed. Pages 99 to 107. Assessing Officer appeared convinced. AO did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the value of 4830 bales of trading stock has been taken by the Department at ₹ 4,45,80,545/- instead of ₹ 7,95,04,621/-. The appellant has submitted that all purchases are recorded in the ERP/SAP computer system which was available with the Department in seized record along with all purchase bills. The appellant further submitted that there was no difference in reconciliation of physical quantity of stock which stood as 4830 bales, the only point of difference in regarding the valuation of this stock. The appellant submitted that in the ERP computer system different persons are given different roles in the maintaining of account. Data entry operators can only make entries. These entries, remain in account but while taking the print out only the approved entries are printed. Such approval of entries is done by Sr. Manager. The appellant had submitted that on 07/04/2015 itself the appellant had filed a list of unapproved entries for purchase and sale along with stock reconciliation. The appellant has filed a copy of reply submitted before the Investigation Wing for reconciling the stock vide page nos. 99 to 107 of its submission. I find that this submission also cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er taking into account the reconciliation statement filed by the appellant, it is seen that the stock is short by ₹ 18,37,104/-. Even if we considered these shortages, at the most the presumption can be laid that this stock has been sold by the appellant outside the books of account and addition of gross profit rate earned by the appellant can be applied to this stock. It is seen that during the year the appellant earned gross profit @ 8.7%. Applying the same the addition on account of gross profit earned by the appellant for this stock outside the books of account will be ₹ 1,59,829/-. Accordingly the addition to the extent of ₹ 1,59,829/ is confirmed. The AO is directed to delete the addition of ₹ 5,12,04,143/ made to the income of the appellant. Ground Nos. 4, 5, 6 and 7 are partly allowed." 43. The learned Counsel for the assessee reiterated the above factual propositions duly recorded by the learned CIT(A) during the course of hearing and placed reliance on the order so passed by the learned CIT(A). 44. The learned Counsel for the assessee further furnished detailed workings before us at the time of hearing in support of the findings of the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve holding it to be a proper adjustment and secondly with respect to the valuation of stock as per books of accounts considered by the Assessing Officer at ₹ 4,45,80,545, whereas the assessee claimed to be ₹ 7,95,04,621. 50. The learned Counsel for the assessee submitted that the value of 4,830 Bales of trading stock has been taken by the Department at ₹ 4,45,80,545, instead of ₹ 7,95,04,621. It is the contention of the assessee that all the purchases made are recorded in the ERP/SAP computer system which was available with the Department in seized records along with all the purchase bills. It is further the contention of the assessee that there was no difference in reconciliation of physical quantity of stock which stood at 4,830 bales and that the only point of difference in regarding the valuation of the stock. It is the case of the assessee that in the ERP computer system different persons are given different roles in the maintaining of accounts. Data entry operators can only make entries. These entries remain on account but while taking the printout only the approved entries are printed. Such approval of entries is done by Sr. Manager. It is the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the fact of the matter is that the actual stock found was 4,830 bales. This itself explains the anomaly in the valuation of stock by the Assessing Officer because he has considered lesser quantity. This trading account further depicts unapproved purchases of 100 bales totalling to ₹ 15,07,812. It is the submission of the assessee which as explained hereinabove has also been taken before the investigation Wing that apart from this 100 bales there were other unapproved purchases as well which after approval changed the value of closing stock. 53. Attention was then invited to Page-104 wherein revised trading account as on the date of search is given wherein the valuation of stock is for 4,930 bales and the valuation of stock given is ₹ 8,09,70,865, which as explained is after the approval of the purchases which earlier for unapproved in the ERP/SAP system. The value of 100 bales earlier considered in the trading account as unapproved purchases having valuation of ₹ 15,07,812 when reduced with the value of 4,930 bales at ₹ 8,09,70,865 results in valuation of 4,830 bales which is the quantity found at the time of search and the valuation of which then almos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n succinctly analysed by the assessee in Page-104 & 105 of the Paper Book. The learned D.R. has emphasised on the unapproved purchase appearing in this trading account however losing sight of the fact that the valuation of closing stock as per this very trading account and which has been considered by the Assessing Officer is only for 2,630 bales wherein it is a matter of undisputed fact that the total quantity of bales found was 4,830 bales and after considering the valuation of 4,830 bales and the revised trading account file at page 104 and referred to hereinabove, the valuation of stock comes to ₹ 7,95,04,621 as claimed by the assessee and duly reconciled by him vide revised trading account placed at Page-104 of the Paper Book and further coupled with the fact that the details of purchases unapproved as on the date of search having also been filed as well as the revised purchase details of 4,830 bales, valuation of which crystallises at ₹ 7,95,04,621, it is without any doubt that the assessee has duly explained the difference of closing stock which has duly been taken cognizance of by the learned CIT(A) and on a conspectus of the above facts it is manifest that obje ..... 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