TMI Blog2017 (9) TMI 1596X X X X Extracts X X X X X X X X Extracts X X X X ..... d excess stock was not justified because there was no excess stock rather the stock was short. Accordingly, both those additions are deleted. Appeal of the assessee is allowed. - I. T. A. No 199/Chd/2014 - - - Dated:- 25-1-2017 - N. K. Saini (Accountant Member) And C. M. Garg (Judicial Member) For the Appellant : Sudhir Sehgal, Advocate For the Respondent : Ravi Sarangal, Commissioner of Income-Tax-Departmental Representative ORDER N. K. Saini (Accountant Member) 1. This is an appeal by the assessee against the order dated December 31, 2013 of the learned Commissioner of Income-tax (Appeals), Chandigarh. The following grounds have been raised in this appeal : (1) That the learned Commissioner of Income-tax (Appeals) has erred in upholding the addition of ₹ 7,18,000 made on the allegation of excess cash found during the survey. (b) That the learned Commissioner of Income-tax (Appeals) has erred in not accepting the contention of the assessee that the excess cash of ₹ 7,18,000 found during the survey was fully covered by the amount of ₹ 58,00,000 being the amount of unaccounted sales declared by the assessee as its income during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,50,820 which was processed under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act ). Later on, the case was selected for scrutiny. In this ease, a survey under section 133A of the Act was conducted on March 16, 2009 at the business premises of the assessee. During the course of survey inventory of stock was prepared and cash was found, the assessee surrendered a sum of ₹ 1,40,00,000 vide letter dated March 17, 2009 which reads as under : It is submitted that the survey under section 133A of the Income- tax Act, 1961 was carried out at our registered office i.e., No. 1422, Sector 34C, Chandigarh as well as at our works/premises situated at village Kurenwala, Derabassi, Barnala Road, Derabassi, Dist. Mohali on March 16, 2009. During the course of survey operations certain discrepancies ware depicted by your authorised officers as well as skiff. We hereby declare the following undisclosed income over and above our normal business income for the assessment year 2009-10 : 1. The stock was inventorised. The work-in-progress/other stocks as per our books of account was ₹ 18,02,100 whereas after verification it was found ₹ 92,84, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, the assessee after making adjustment handed over the accounts along with vouchers and relevant books to the auditors for audit of books. The auditors after checking of the accounts, making deep investigation into the same along with impounded material noticed the following : (i) That the quantity of stocks of raw material and finished products found recorded in stock registers duly matched with the quantity found on physical verification during survey and, thus, there was no difference. Therefore, there was no excess stock of raw material or finished goods and, thus, no undisclosed investment in the same could be said to have been made in stocks. (ii) That as regards the work-in-process or semi-finished goods in the forms of foam blocks, the physical inventory was drawn during survey of 43,803.10 kgs. Whereas as per the quantities of consumption of raw materials duly recorded in stock registers and shown as issued for production as on the date of survey, the work-in-process/semi-finished goods in the form of foam blocks would approximately be 88,500 kgs. as against 43,803.10 kgs. Found during survey. (iii) That thus there was no excess quantity of stocks found at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als and work-in-process as per the consistent method of accounting and the method of valuation adopted works out as under : (a) Finished goods ₹ 2,20,150 (b) Packing material ₹ 12,25,375 (c) Raw material ₹ 32,67,136 (d) Work-in-progress ₹ 49,06,000 (viii) That, a tentative trading account was drawn from the books of account found recorded in the computer taking into consideration the opening stock, the purchases, direct expenses on the one side and sales and imaginary stocks on the other side thereby worked out the gross profit of ₹ 8,83,950. In terms of percentage, it comes to 3.37 per cent. It is stated that the said tentative trading account drawn is apparently wrong. The company has all along been declaring gross profit rate of more than 12 per cent. in the earlier years and in fact it was brought to the notice of the authorised officer also that the gross profit rate in the current year would be on the same line. This aspect of higher gross profit as explaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess cash of ₹ 7.18 lakhs all aggregating to ₹ 1.40 crores as the additional income of the company. It is submitted that this is not fair and is also not tenable in law. The additional income of ₹ 58 lakhs offered by the company would cover all excess stock, if any, and the excess cash found during the course of survey and also the loose papers. 5. During the course of the assessment proceedings, the assessee was confronted to the retraction in response to which the assessees vide letter dated December 16, 2011 submitted as under : Lastly the company was asked as to why the company had retracted the statement of Sh. S. K. Jain, director recorded during the course of survey when he had surrendered an amount of ₹ 1.40 crores as additional income of the company, whereas the company has offered an amount of ₹ 58 lakhs only as additional income in the return filed. In this connection your kind attention is invited to paragraphs 4, 5, 6, 7 and 8 of company's letter dated November 7, 2009 which was submitted to your good self. In the above paras the company has elaborated and explained that there was difference in the valuation of stock of wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lumn 1 like Polyol, T. D. 1 Silicone Stablizer, Amine catalyst, S. O. Catalysts, Colour, Resin and in column 2, the cost price of each item is given and in column 3 the average quantity in hatch is given and in last column the total input value of each material is given. It would be clear that it was explained even during survey that a batch of work in process of 195.73 kgs. costs ₹ 18,909 which translates for ₹ 96.95 per kg. and direct overheads are estimated at ₹ 15 per kg. Thus making the total cost at ₹ 111.95 per kg. The assessee has obtained a copy of the aforesaid impounded document from your records and this paper was located in the impounded material. The retraction of surrender was made pointing out the above deficiencies and bringing on record the correct additional income of ₹ 58 lakhs covering the unaccounted 'purchase' and excess cash. 6. The Assessing Officer, after considering the submissions of the assessee observed that the assessee had voluntarily surrendered the amount on March 17, 2009 but he retracted the surrendered statement on November 7, 2009 without any ground by making a colourful device to avoid tax liability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be claimed to be wrongly prepared. As regards to the rate of ₹ 211.95 per kg. wrongly applied to the work-in-progress, the learned Commissioner of Income-tax (Appeals) observed that the document referred to by the assessee could not be relied upon since it was not signed by any of the officer of the survey team or by the assessee and that the statement given at the time of survey was voluntary and the assessee had itself filed a letter for disclosure of income of ₹ 1.40 crores before the Assessing Officer. But later on, the assessee had withdrawn surrender of ₹ 82,00,000 almost eight months after the date of survey and the reason given in the retraction letter was that the surrender was made without access to the books of account and the discrepancy in the surrendered amount was noticed because the assessee found that the purchases to the tune of about Rs, 69,00,000 were not debited. The learned Commissioner of Income-tax (Appeals) observed that the explanation of the assessee did not hold water because the total turnover was approximately ₹ 3 crores, so the purchase of approximately ₹ 69,00,000 (which was more than 20 per cent. of the turnover) could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered to tax during the course of survey and for which no dispute had been raised by the Assessing Officer. It was contended that the only dispute was with regard to the valuation of work-in-progress which had been valued at ₹ 211.95 per kg. by the Department instead of correct rate of ₹ 111.95 per kg. It was pointed out that when the valuation of stock-in-progress was done the said rate was taken by the Department, a reference was made to page No. 63 of the assessee's paper book and it was stated that various chemicals had been mentioned in columns 1 and 2 while the rate has been mentioned in column 3 and then the valuation had been drawn in the said paper the valuation of work-in-progress came to ₹ 111.95 per kg. but had been converted by over writing to ₹ 211.95 kg. just to increase the surrendered amount. However, the said mistake could not be noticed at the time of survey and the assessee was put to various cross-examination and verification of entries so it could not visualise this error, however, it was apparent mistake and thereafter as per the inventory drawn at pages 86 to 95, the flat rate of ₹ 211.95 had been adopted. It was stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se whatever had been retracted was on the basis of the calculation made by adopting the wrong rate of work-in- progress and not on account of difference in quantity. It was further stated that the assessee did not retract any surrender but pointed out the factual mistake coupled with the over writing. Therefore the additions made by the Assessing Officer and sustained by the learned Commissioner of Income-tax (Appeals) deserves to be deleted. Reliance was placed on the following case law : (i) Abdul Qayume v. CIT [1990] 184 ITR 404 (All) ; (ii) CIT v. Dhingra Metal Works [2010] 328 ITR 384 (Delhi) ; (iii) Ravinder Kumar v. Deputy CIT [2009] 33 SOT 251 (Delhi) ; (iv) ITO v. Zuberi Engineering Co. [2011] 137 TTJ (Jaipur) 500; (v) B. Ramakrishnaiah v. ITO [2010] 134 TTJ 600 (Hyd) ; (vi) Chawla Brothers (P.) Ltd. v. Asst. CIT [2011] 43 SOT 651 (Mum); (vii) Dinesh M. Jain v. Deputy CIT [2010] 131 TTJ (Jodhpur) 591; (viii) Sanjeev Kumar v. ITO [2014] 31 ITR (Trib) 680 (Chandigarh) ; (xi) CIT v. S. Khader Khan Son [2013] 352 ITR 480 (SC) ; (x) CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad) ; (xi) Harbhaj Singh v. CIT (I. T. A. No. 17 of 2012 order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the stock of work-in-progress found at the time of survey was 43,803.10 kgs. instead of 88,632 kgs. and the shortage of the stock was on account of the sales outside the books of account for which the assessee has surrendered a sum of ₹ 58,00,000. In the present case, it appears that during the course of survey on physical verification of the work-in-progress the quantity was found at 43,803.10 kgs. whereas as per the quantities of consumption of raw material recorded in the stock register and shown as issued for production, as on the date of survey would have been approximately 88,632 kgs. The Department worked out the value of excess stock over the books of account at ₹ 74,82,000. In our opinion, the view taken by the Department was contrary to the facts of the present case because in this case, the excess stock was not found rather there was a less stock weighing 44,829 kgs. which was sold by the assessee outside the books of account and an amount of ₹ 58,00,000 was offered for taxation on account of the said sale. 12. We, therefore, by considering the totality of the facts are of the view that the retraction by the assessee was justified which was ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sold outside the books of account and the value the inventory relating to work-in-progress weighing 43,803 kg. worked out at ₹ 49,06,000. In the present case, the total value of the sales outside the books of account and the work-in-progress found during the course of search come to ₹ 1,07,06,000 (Rs. 49,06,000 + 58,00,000) which the assessee had already disclosed in its profit and loss accounts from April 1, 2008 to March 16, 2009 i.e., date on which the survey was conducted (copy of which is placed at page No. 42 of the assessee's paper book. In that view of the matter, we arc of the view that no addition was required to be made except the surrendered amount which has already been disclosed by the assessee at ₹ 58,00,000. Therefore, the addition of ₹ 7,18,000 on account of cash found during the course of survey and of ₹ 74,82,000 on account of alleged excess stock was not justified because there was no excess stock rather the stock was short. Accordingly, both those additions are deleted. 13. In the result, the appeal of the assessee is allowed. 14. The order pronounced in the open court on January 25, 2017. - - TaxTMI - TMITax - Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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