TMI Blog2010 (12) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... the issues raised are reformulated, in concise manner, as under: (i) the AO erred in rejecting the claim to value certain stocks at market value which was below the cost valuation; - without prejudice, the AO erred in arriving at the difference in valuation at ₹ 1.78 crores when, in fact, the actual difference in valuation was at ₹ 1.62 crores; (ii) the CIT(A) erred in confirming the stand of the AO in holding that BMW motor cycle was not connected to the business and, further, disallowed the claim of depreciation of ₹ 1.02 lakhs; (iii) the AO erred (a) in not telescoping the cash available with the partner of the assessee against the invested/payments effect by the assessee; (b) in taking a stand that there being a short of stock of ₹ 300 lakhs in the case of Hindustan Granites (HG)- a sister concern which amounted the same being unaccounted sales resulting in cash availability to the same extent; (c) in not considering the revised return furnished on 16.12.2008; (d) in assessing the income by an excess amount of ₹ 300 lakhs; (iv) in levying of interest u/s 234B and 234C of the Act without adjusting the cash seized towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences to substantiate its contentions, the assessee had insisted that it was consistently following the method of valuing the closing stock at the lest of the cost or realizable (market) value; that the physical stock as on 31.3.2007 was valued according to that policy, however, it had failed to support with the evidences. However, it was argued that the basis for determination of the market value was based on the experience of its senior partner; - such being the case, at the time of taking the physical verification of the stock, the assessee should have pointed out that the value of the specific items had to be taken on the basis of the partner s experience; - the partner had agreed to the valuation of stock during the course of search as the valuation was in accordance with the method of accounting regularly followed by him; - no description of the material was given in the sales invoices as the sales were written as random sales and as such the physical stock taken as on 31.3.07 could not be verified on the quantity terms as no particulars were mentioned in the sales invoices; - in the absence of quantity details, the only alternate was to determine the closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soning for not accepting the valuation of closing stock made by the assessee, a few of which, are that (i) at the time of search u/s 132, the stock inventory was taken considering all the things into consideration with reference to the purchase invoice and also giving allowance for wastage, damages, broken corners, cracks etc., (ii) the assessee had shown the sales for the period 9.3.07 to 31.3.07 at ₹ 2.70 crores. The gross profit for the whole year is 30.67%. if this is adopted the cost of the goods sold come to ₹ 1.87 crores. If this taken into account, the closing stock as on 31.3.07 was arrived at ₹ 5.74 crores and debiting the closing stock shown at ₹ 3.50 crores, difference was arrived at ₹ 2.24 crores 6.2. Considering the difference between variation of income and the expenses incurred prior and post search etc., the AO treated as difference in valuing the closing stock at ₹ 1.77 crores. The Ld. CIT (A), for the reasons cited supra (5.1), found justification in the stand of the AO. 6.3. On a critical examination of the reasoning of the authorities below, we find that - the AO says while taking stock inventory, giving al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle was purchased in the name of Ananda Reddy, even if the funds have been given from the firm, it does not prove that the vehicle has been used for the purpose of the business. 7.2. The contention of the Ld. A R was that the assessee owned a BMW motor cycle which was exclusively used for its business among other vehicles. The same was disclosed appropriately under the head fixed assets in the balance sheet of the assessee and, accordingly, claimed depreciation as per the rates specified for such asset. It was, therefore, pleaded that the stand of the authorities below requires annulment. 7.3. We have carefully considered the submission of the Ld. A R and also diligently perused the relevant records. Chiefly, the vehicle in question, according to the AO, has been purchased in the name of one of its partners, but, the assertion of the assessee that it was being used for the purpose of the business of the firm. 7.3.1. However, the crucial aspect - whether the vehicle was put to use exclusively for the purpose of the business of the assessee? -has not been looked into by the AO. The CIT(A) had, in his impugned order, candidly remarked that even if the funds have been given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as carried before the CIT (A) for relief, it was argued by the assessee that - - there was proceeding u/s 132 of the Act in the case of Hindustan Granites [HG] sister concern - wherein the physical stock was valued at cost, the value of such stock was less by ₹ 3 crores compared with the book stock. The investigation team was of the view that the deficit stock represents sales not accounted in the books for which the assessee had offered ₹ 45 lakhs as income on ₹ 3 crores. However, while furnishing the return in the case of HG, it was noticed that there was no difference between the book stock and physical stock; - while finalizing the assessment in the case of M.G.Anand Reddy, the AO estimated the GP of ₹ 55.48 lakhs on the shortage of stock found; - it was explained in its letter dt.29.3.2007 that the creditors for purchase to the extent of ₹ 322.76 crores, a declaration of ₹ 15.99 crores was given, that the creditors for purchases was ₹ 22.76 crores against which sales outside the books was set off to the extent of ₹ 11.18 crores. On a similar basis, ₹ 3 crores available as cash should be set off by way of telescop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e selling and administrative expenses of ₹ 4.64 crores upto 7.3.07, the net profits comes to ₹ 12.95 crores, there was other income of ₹ 1.03 crores upto 7.3.07 on giving effect to this, the net income comes to ₹ 13.99 crores. There was no basis of stock being purchased and unaccounted sales adjusted to the P L account to arrive at undisclosed income of ₹ 13.99 crores which was almost the same income which was arising out from the working of the actual figures found during the search. Therefore, there was no scope for giving credit for the stock being purchased. The income has to be determined on the basis of evidence found at the time of search and not by any other adjustment without any basis. The question of giving set off to ₹ 3 crores on account of shortage of stock found in the case of HG doesn t arise. 8.3. After distinguishing the case laws (i) Jagmohan Singh Arora Others 101 TTJ 682 (Mum H ), (II) Umashankar Rungta 94 TTJ (Mum G ) (iii) Sathya Bushan 84 TTJ 165 (Bang) on which the assessee had placed its strong reliance, the CIT (A) went ahead with the reasoning that it had been proved that the income disclosed in the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider the principle of telescoping; - When the Revenue given effect to the deficit, the deficit arrived at ₹ 3 crores should have been considered as sales outside the books of the assessee, and, thus, the cash to the extent of ₹ 3 crores was considered to be available to the assessee; that the cash which was available to the assessee for making the payments to its suppliers of the stock being purchased in the case of HMG where Anand Reddy was a partner; - Telescoping was permissible under the Indian taxation laws. Though the two entities were different, one cannot be blind to the very fact that both were very closely knitted sister concerns and, thus, any cash available in any of the sister concerns, the same would be available to each other with no restrictions. - Relies on the case laws: (a) CIT v. K.S.M.Guruswamy Nadar And Sons reported in 149 ITR 127 (Mad) (b) Jagmohan Singh Arora Others 101 TTJ 682 (Mum H ) (c) Umashankar Rungta 94 TTJ 329 (Mum G ) (d) Sathya Bushan 84 TTJ 165 (Bang) The Ld. D R present was duly heard. 9.1. We have carefully considered the rival submissions, meticulously perused the relevant records and also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the issue, the Hon ble Court held thus The position that the assessee is entitled to claim that both the additions should be telescoped into one in such a situation is clear from the decision of the Supreme Court in CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194. The facts in that case are more or less similar to the facts in this case. In the case before the Supreme Court there were two additions, namely, one towards suppressed business profits and the other towards the bogus cash credits. The Supreme Court first held that (p. 196) : There is nothing in law which prevents the Income-tax Officer in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Indian Income-tax Act, 1922, after rejecting the books of account of the assessee as unreliable. The Supreme Court, however, proceeded to say that (p. 197) : Where there is an unexplained cash credit, it is open to the Income-tax Officer to hold that it is income of the assessee, and no further burden lies on the Income-tax Officer to show that that income is from any particular sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 2003, the Hon ble Tribunal observed thus - 4. After going through the orders of the authorities below, rival submissions of both the sides and material on record, we are of the opinion that the question of whether any reliance and if so, how much reliance can be placed on the statements made during search, would depend on the facts of each case. We find enough force in the arguments on behalf of the A R as supported by the judgments cited by him and also corroborated by supporting materials and evidences, no addition can be made simply on the basis of such uncorroborated statement/disclosure. On the other hand, we find that the judgments as cited by the D R are not applicable to the cases of the appellant group inasmuch as in each of the said cases, the respecting AO conducted independent enquiries to follow up the confessional statements made during the searches and found out corroborations of such statements in some way or other. In the instant cases, however, the present AO did not conduct any enquiry from any of the parties whose names appear in the seized documents and simply based his findings on the initial statements of Shri Jagmohan Singh Arora given at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the different members of the assessee-group including the partnership firm are untenable. We, therefore, delete them. On a decisive perusal of the reasoning, we find that the ratio laid down by the Hon ble Tribunal is applicable to the facts of the issue under dispute. 9.5 Further, it was claimed by the assessee that it had furnished a revised return on 16.12.2008 [Reference: P 5 6 of PB AR] which was not taken cognizance of by the AO. On a glance at the impugned order of the AO, we find that there was no trace of any consideration or the outcome of such revised return appears to have been furnished by the assessee. It appears that there was a costly lapse on the part of the Revenue for having not considered the revised return furnished by the assessee during the course of assessment proceeding. No doubt, the AO will be in his realm either to accept or reject the claim/stand of the assessee. However, the AO was expected to record his reasoning of accepting or otherwise of the claim put-forth by the assessee during the course of assessment proceedings. 9.6. As per the provisions of section 139 (5) of the Act (5) If any person having furnished a return under su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 of the Act] with a submission that During the course of search you have seized cash of ₹ 130 lakhs at the residence of the undersigned. In view of there being sufficient income declared for the assessment year 2007-08. We request you to kindly adjust this cash towards the advance tax liability of ours for the assessment year 2007-08 and oblige. 10.3. We are of the firm view that the reasoning of the CIT (A) is found wanting in the sense that the ratio of such ruling rendered by the Hon ble Delhi High Court cited supra should have been taken cognizance of whether the decision rendered was with reference to the order u/s 132(5) or u/s 143(3) of the Act being immaterial. Incidentally, the assessee had pushed through its letter dt: 29.3.2007 during the course of proceedings u/s 132 of the Act only. Such being the ground reality, in our view as recorded above, the CIT(A) was not justified in brushing aside the legitimate claim of the assessee. However, he had amended his stand by directing the AO to give credit of prepaid tax according to the provisions of law. 10.4. By the by, it could not be ascertained from the records made available, whether the assessee s request h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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