2017 (9) TMI 1596 - AT - Income Tax

Excess cash found during the course of survey - excess stock found during the course of survey - Held that - In the present case the assessee had surrendered Rs. 58, 00, 000 on account of shortage of stock which was claimed to have been sold outside the books of account and the value the inventory relating to work-in-progress weighing 43, 803 kg. worked out at Rs. 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 Rs. 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. 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 Rs. 58, 00, 000. Therefore the addition of Rs. 7, 18, 000 on account of cash found during the course of survey and of Rs. 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. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition of Rs. 7,18,000 on account of excess cash found during the survey.
2. Addition of Rs. 74,82,000 on account of excess stock found during the survey.

Issue-wise Detailed Analysis:

1. Addition of Rs. 7,18,000 on Account of Excess Cash:
The assessee argued that the excess cash of Rs. 7,18,000 found during the survey was covered by the unaccounted sales of Rs. 58,00,000, which were declared as income during the survey and included in the returned income. The assessee contended that adding Rs. 7,18,000 would lead to double taxation of the same income. The Commissioner of Income-tax (Appeals) upheld the addition, rejecting the assessee's contention.

Tribunal’s Analysis:
The Tribunal found merit in the assessee's submission that the cash found during the survey was out of the sale proceeds outside the books of account. No evidence was presented to show that the cash was used elsewhere. Thus, the Tribunal deleted the addition of Rs. 7,18,000, concluding that it was already covered by the Rs. 58,00,000 surrendered for unaccounted sales.

2. Addition of Rs. 74,82,000 on Account of Excess Stock:
The assessee claimed no excess stock was found during the survey, and the stock recorded in the books matched the physical inventory. The assessee argued that the surrender of Rs. 74,82,000 was based on a mistaken belief and incorrect valuation of work-in-progress at Rs. 211.95 per kg instead of Rs. 111.95 per kg. The Commissioner of Income-tax (Appeals) upheld the addition, stating that the books of account were unreliable and the retraction was an afterthought.

Tribunal’s Analysis:
The Tribunal noted that the physical verification during the survey showed 43,803.10 kgs of work-in-progress, whereas the books indicated approximately 88,632 kgs. The Department's valuation of excess stock at Rs. 74,82,000 was based on the incorrect rate of Rs. 211.95 per kg, which was manipulated from Rs. 111.95 per kg. The Tribunal found that the correct valuation should be Rs. 111.95 per kg, totaling Rs. 49,06,000. The assessee had already disclosed Rs. 58,00,000 for unaccounted sales, covering the alleged excess stock. The Tribunal concluded that no addition was required beyond the Rs. 58,00,000 already disclosed, thus deleting the addition of Rs. 74,82,000.

Conclusion:
The Tribunal allowed the appeal, deleting both additions of Rs. 7,18,000 for excess cash and Rs. 74,82,000 for excess stock, finding that the surrendered amount of Rs. 58,00,000 for unaccounted sales covered the discrepancies. The judgment emphasized the importance of accurate valuation and the validity of retraction based on factual errors.