TMI Blog2010 (5) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed by the assessee - There is no finding that the cash balance shown in the cash book was not with the assessee or the cash balances were used by those concerns for some other purpose - Under the circumstance such evidence cannot be rejected merely on the basis of presumption - addition deleted. - I.T. APPEAL NO. 6380 (MUM.) OF 2009 - - - Dated:- 4-5-2010 - D. MANMOHAN, A.L. GEHLOT, JJ. A.V. Sonde for the Appellant. Ajit Kumar Sinha for the Respondent. ORDER A.L. Gehlot, Accountant Member. This appeal filed by the assessee is directed against the order of CIT(A)-37, Mumbai, passed on 9-11-2009 for the assessment year 2007-08. 2. The assessee has raised the following grounds of appeal: 1. The learned CIT(A) erred in confirming the addition of Rs. 5,58,44,128 made by the Ld. Assessing Officer on account of the alleged unexplained investment made in the following stock items/categories as at the day of survey : Sl. No. Particulars Amount (Rs.) A 62, items of packed finished oil inventorised by the survey party and alleged to be not recorded in the stock register (RG-1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey team. During the course survey statement of Shri Prakash N. Chawla was recorded wherein while replying answers to question No. 14 Mr. Chawla confirmed the physical inventory as correct inventory. The survey party obtained a tentative trading account from the assessee for the period from 1-4-2006 to 14-6-2006. As per that trading account the closing stock worked out at Rs. 22,18,23,787. However, the actual stock found was at Rs. 21,91,56,285. The Assessing Officer further noted that the survey party compared the physical stock found with figures of RG-1 register maintained by the assessee. The survey party found discrepancies in around 33 items with the RG-1 and physical inventory. The Assessing Officer further noted that the copies of RG-1 register/stock book produced do not contain all the items of raw material, work-in-progress, finished products and bye-products, therefore these items could not be compared. On comparison excess stock of Rs. 1,49,08,100 was found. This excess stock was found only against 33 items appearing in RG-1 book whereas as per physical inventory there were 62 items of packed finished oils which have not been entered in the RG-1 register. The value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 of his order. The CIT(A) called for second remand report from the Assessing Officer, which was reproduced by the CIT(A) at pages 20 to 26 of his order. A copy of this 2nd remand report was also given to the assessee for comments. The assessee also furnished comments on the second remand report, which has been reproduced and discussed by the CIT(A) at pages 26 to 54 of his order. The CIT(A) noted in brief the facts and observations of the Assessing Officer and contention of the assessee at pages 54 to 63 of his order. The CIT (A) relied upon the following decisions: (1) V. Rajan v. CIT [1974] 96 ITR 64 (Mad.) (2) CIT v. Ashok Textiles (P.) Ltd. [1983] 141 ITR 785 (Ker.) - against which assessee s special leave to appeal has been dismissed by the Supreme Court vide Ashok Textiles (P.) Ltd. v. CIT [1981] 138 ITR (St.) 1. (3) Ramanlal Kacharulal Tejmal v. CIT [1984] 146 ITR 368 (Bom.) (4) Badri Prasad Rameshwar Prasad v. CIT [1996] 219 ITR 441 (MP) (5) CIT v. G. Anandarajan [1997] 228 ITR 664 (Ker.) (6) Unit Construction Co. Ltd. v. Jt. CIT [2003] 260 ITR 189 (Cal.) (7) Vimla Stores v. CIT [2009] 308 ITR 89 (Pat.) 3.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book). 4.3 Further there was another question No. 7 put up to in which the Director was asked whether physical inventory made was correct. To this it was answered that the physical inventory made was correct and to authenticate it copy of RG-1 register (stock register) were also provided to the Survey Party. (Page Nos. 96 to 128 of paper book). Besides these two questions, no other question or undisclosed material, papers were found or put forward to the director to express any discrepancy in stock or excess or shortfall in stock. Apart from the above, no statement of any other person was recorded and what was impounded by/submitted to the Survey party was as under : ( a ) Physical inventory of stock (prepared in the course of survey) ( b ) Copies of faxes from branches ( c ) Statement of accounts for the year ended 31-3-2006 ( d ) Trading account for the years 2000-01 to 2005-06 and provisional trading account from 1-4-2006 to 14-6-2006. ( e ) List of C F agents. ( f ) List of bank accounts ( g ) Cash book from 1-6-2006 to 14-6-2006. ( h ) Cash book of Bodaram Sons, Indu Oil Soap and H.B. Chawla Charitable Trust from 1-6-2006 to 14-6-2006. ( i ) Daily P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had ended on 15-6-2006. 4.8 The learned AR submitted that subsequently a return of income for assessment year 2007-08 was filed suo motu on 31-10-2007. The Assessing Officer issued 153A notices for assessment years 2001-02 to 2006-07 on 16-3-2007 and issued a 143(2) notice and not notice under section 153A for assessment year 2007-08 on 14-10-2008. Returns for assessment years 2001-02 to 2006-07 were filed under section 153A and they were accepted and no addition made thereon. Assessments for those years were made on 29-12-2008, the same date assessment made for assessment year 2007-08. He further submitted that the appellant had not declared any additional income following the survey. However in the course of assessment proceedings the learned Assessing Officer for the first time pointed out that there were some discrepancies in the physical stock as compared to the book stock and RG-1 register by given a paper during the course of assessment proceedings on 20-11-2008 (At page Nos. 191 to 193). Thereafter again on 26-11-2008. The learned AR submitted that during the course of assessment proceeding, the appellant submitted exhaustive explanation along with complete do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 6.446 7. Re : Crude Palm Kernel Oil (Tank Nos. 8 11) ( a ) The quantity of crude palm kernel oil (Tank Nos. 8 11) was wrongly mentioned as 997.080 M.T. instead of 996.891 M.T. (Kindly find enclosed herewith the copy of RG - 1 Register in support of the same, marked as Annexure : 1). (Pg. 224, 225) ( b ) Hence in fact there was no difference in the quantity of raw oil as per physical verification and as per RG - 1 register. 8. Re : Crude Palm Oil (Tank Nos. 7 10) ( a ) The quantity of Crude Palm oil (Tank Nos. 7 10) was wrongly mentioned as 1042.601 mt. instead of 1042.551 mt. (Kindly find enclosed herewith the copy of RG - 1 Register in support of the same, marked as Annexure : 2). (Pg. 226, 227). ( b ) Hence in fact there was no difference in the quantity of raw oil as per physical verification and as per RG - 1 register. 9. Re : Coconut Raw (A) The extract of the chart showing difference is reproduced below : Sl. No. As Per List Description of Item Quantity As Per Physical Verification Qty As Per RG As On 14-6-2006 at 7.00 am Difference 25 Coconut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Svity (10 ltr Pouch) 161 1.465 Svity (5 ltr Jar) 312 5.679 Svity (20 ltr Bottles) 1 0.018 (pg. 232) TOTAL 17.614 ( a ) In support of the same we are submitting herewith the production sheet dated 13-3-2006 (Pg. 232), the closing stock of which becomes the opening stock as at 14-6-2006. It may be noted that at the time of survey, the above production sheet was already considered and examined by your good office. ( b ) It may also be noted that the abovesaid items of packed oil were already considered in the stock statement of 14-6-2006 (Pg. 73) (Also refer production sheet on Pg. 233) and duly signed by the Income-tax Officer. ( c ) Hence once the above items are considered, there is no difference in quantity as per physical verification and as per RG-1 Register. 11. Raw Mustared ( a ) The extract of the chart showing difference is reproduced below: Sl. No. As Per List Description Of Item Quantity As Per Physical Verification Qty. As Per RG As On 14-6-2006 at 7.00 am Difference 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined 59.371 (Pg. 192) 70.906 (Pg. 246) (-) 11.535 11. Palmolive Oil Refined 353.341 (Pg. 192) 383.400 (Pg. 249) (-) 30.059 12. Soyabin Oil Refined 5.946 (Pg. 192) 17.504 (Pg. 252) (-) 11.558 14. Corn Oil Refined 5.707 (Pg. 192) 7.755 (Pg. 255) (-) 2.250 15. Tilly Oil Refined 45.827 (Pg. 192) 45.962 (Pg. 258) (-) 0.135 16. Vanaspati Stock (Pg. 192) 246.765 (Pg. 264) 223.814 (+) 22.951 17. Margarine Stock Nil (Pg. 192) 3.735 (Pg. 261) (-) 3.735 19. RPO (Refined/Raw Palm Oil) 94.972 (Pg. 192) Nil (+) 94.972 21. RSBO (Refined S.B. Oil) 5.946 (Pg. 192) Nil (+) 5.946 22. RPKO (Refined Palm Kernel Oil - Raw) 59.371 (Pg. 192) Nil (+) 59.371 23. RCNO (Refined C.N. Oil Raw) 76.313 (Pg. 192) Nil (+) 76.313 24. Refined Tilly Oil 45.827 (Pg. 192) Nil (+) 45.827 13.( a ) From the above chart it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Quantity (In M.T.) Cocosilver 429 6.435 Cocosilver 108 1.620 (Pg. 238) Total 8.055 ( c ) In support of the same, kindly find enclosed herewith the production sheet of 13-6-2006 (Pg. 238) which shows the closing stock of refined coconut oil as on 13-6-2006 which becomes the opening stock of 14-6-2006 at 7.00 am. It may be noted that at the time of survey, the above production sheet was already considered and examined by your good office. ( d ) It may also be noted that the above said items of packed oil were already considered in the stock statement of 14-6-2006 (Pg. 73) (Also refer production sheet on Pg. 239) and duly signed by the Income-tax Officer. ( e ) Hence, it can be seen that there was no difference in the quantity of refined coconut oil. 16. Ground Nut Oil Refined (Sl. No. 8) ( a ) The chart showing difference in quantity as per physical verification and quantity as per RG-1 Register is produced below : Sl. No. As Per List Description Of Item Quantity As Per Physical Verification Qty. As Per RG A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quantity of loose stock as per physical stock (Pg. 72) with quantity as per loose stock plus packed stock as per RG-1 Register. In other words your good office has not considered the quantity of packed stock as on 14-6-2006 at 7.00 am. The details of which are as under: (Pg. 244) Name Of The Product Quantity Quantity (In M.T.) Arithmetical Error 100.000 Komal (15 Kg. Tin) 222 3.330 Komal (15 lt. Tin) 339 4.627 Komal (15 Kg. jar) 18 0.270 Komal (15 lt. Jar) 106 1.447 Komal (5 lt. Jar) 556 10.119 Komal (20 lt. Pouch) 395 7.189 Komal (20 lt. Bottle) 10 0.182 (Pg. 244) Total 127.164 ( d ) In support of the same, kindly find enclosed herewith the production sheet of 13-6-2006 (Pg. 244) which shows the closing stock of refined sunflower oil as on 13-6-2006 which becomes the opening stock of 14-6-2006 at 7.00 am. It may be noted that at the time of survey, the above production sheet was already considered and examined by your good office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Verification Qty. As Per RG As On 14-6-2006 at 7.00 am Difference 11 Palmolien Oil Refined 353.341 (Pg. 192) 383.400 (Pg. 249) (-) 30.059 ( b ) While comparing the quantity, your good office has compared the quantity of loose stock as per physical stock (Pg. 72) with quantity as per loose stock plus packed stock as per RG-1 Register. In other words your good office has not considered the quantity of packed stock as on 14-6-2006 at 7.00 am. The details of which are as under: (Pg. 250) Name Of The Product Quantity Quantity (In M.T.) Fry Well (15 Kg. Tin) Golden Yellow (15 Kg. Tin) 960 14.400 Fry Well (15 Kg. Jar) Golden Yellow (15 Kg. Jar) 649 9.735 Golden Yellow (1lt. Pouch) 651 5.924 (Pg. 250) TOTAL 30.059 ( c ) In support of the same, kindly find enclosed herewith the production sheet of 13-6-2006 (Pg. 250) which shows the closing stock of refined palmolien oil as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.707 (Pg. 192) 7.755 (Pg. 255) (-) 2.250 Actually it should (-) 2.048)be ( b ) The difference between stock as per physical verification and stock as per RG-1 register should have been (-) 2.048 m.t. i.e., 5.707 m.t. (-) 7.755 m.t. Hence, this typographical error needs to be rectified. ( c ) While comparing the quantity, your good office has compared the quantity of loose stock as per physical stock (Pg. 72) with quantity as per loose stock plus packed stock as per RG-1 Register. In other words your good office has not considered the quantity of packed stock as on 14-6-2006 at 7.00 am. The details of which are as under: (Pg. 256) Name Of The Product Quantity Quantity (In M.T.) Kornstar (15 lt. tin) 150 2.048 ( d ) In support of the same, kindly find enclosed herewith the production sheet of 13-6-2006 (Pg. 256) which shows the closing stock of refined corn oil as on 13-6-2006 which becomes the opening stock of 14-6-2006 at 7.00 am. It may be noted that at the time of survey, the above production sheet was already considered and examined by your good office. ( e ) It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.735 (Pg. 261) (-) 3. 735 ( b ) Actually margarine stock has to be included in the vanaspati stock only and as such your good office has included the same in vanaspati stock only. ( c ) However through oversight your good office has tried to compare it separately again as separate material, which is not proper. Hence as such there is no difference in margarine stock also. 24. Re : Vanaspati Stock (Sl. No. 16) ( a ) The chart showing difference in quantity as per physical verification and quantity as per RG-1 Register is produced below : Sl. No. As Per List Description Of Item Quantity As Per Physical Verification Qty. As Per RG As On 14-6-2006 at 7.00 am Difference 16 Vanaspati Stock 246.765 (Pg. 192) 223.814 (Pg. 264) (+) 22.951 ( b ) Your good office may observe that while preparing the statement of difference in quantity, through over sight your good office has taken WIP Stock of Vanaspati instead of taking packed stock of Vanaspati. ( See item No. 5 on Page 72 in the table of Work-in-progress) ( c ) As a known fact WIP Stock is ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock which matches with the physical stock verification as carried out by your good office at the time of Survey conducted under section 133A conducted on 14-6-2006. ( b ) The above difference as shown by your good office was mainly due to the repetition of some refined stock items, ignoring the stock of packed material and due to typographical error. ( c ) In fact even at the time of survey, your good office was duly satisfied with the stock records as it was perfectly matching with the Physical stock verification carried out by your good office and in fact that was the reason that no further queries were raised and questioned were asked while recording statement at the time of survey. 27. To further simplify the submission. Kindly find enclosed herewith the chart showing reconciliation of each items along with the explanation for the same. Hope the above will suffice your purpose. Kindly let us know if your good office seek any further clarification on this issue. 4.9 The learned AR submitted that the Assessing Officer did not accept the assessee s submissions merely on the fact that the assessee could not furnish reconciliation before the survey party otherwise surv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the stock recorded in RG-1 will be the total of loose stock and packed stock was evident from the daily production sheet also which also was impounded by the survey party on 14-6-2006. Instead of considering the material/evidence produced before the Assessing Officer (which was very well available with him right from the date of survey i.e., on 14-6-2006 itself) and instead of giving his independent finding. The Ld. Assessing Officer opted to rely upon the appraisal report and to make a huge addition of Rs. 2,15,35,076 and the same was confirmed by the Hon ble CIT(A) without assigning any reasons. It may be noted that even in appraisal report, the survey party has duly accepted the stock of Rs. 21,91,56,285 (consist of raw oil, WIP, finished goods, packed goods, branch stock, stock given to Indian Veg. Oil for packing) as book stock and as regards the alleged discrepancy it is clearly written that the opportunity to explain the differences should be given to the assessee. However ignoring such instructions, The Assessing Officer opted to neglect the voluminous submissions of the appellant and make the additions solely relying on the observations in appraisal report and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not furnish any stock records to show as to how the goods sent to branches were accounted is grossly incorrect as on the date of survey itself i.e., on 14-6-2006 itself the assessee has submitted the details of goods transferred to the branches to the survey party. The assessee has also produced the stock register maintained by the branches before the learned Assessing Officer for his verification. As it is evident from assessment order that the learned Assessing Officer really has no reasons to make such a huge addition except the reason that the same was suggested in the appraisal report. Even at the time of remand proceedings, the Ld. Assessing Officer could not point out any discrepancy nor confronted to the assessee with any further questions and still he proceeded to suggest the addition made by him is proper and the same may be confirmed. It may be noted that even in appraisal report, the survey party has duly accepted the stock of Rs. 21,91,56,285 (consist of raw oil, WIP, finished goods, packed goods, branch stock, stock given to Indian Veg. Oil for packing) as book stock and as regards the alleged discrepancy it is clearly written that the opportunity to explain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the learned Assessing Officer without assigning any reason simply taking shelter of the appraisal report proceeded to make a huge addition of Rs. 2.49 crore which is highly unjustified and against the principles of natural justice. In respect of Addition of stock of Rs. 34,01,646 lying with M/s. Indian Veg. (Packers) sent for packing the learned AR submitted that the addition of Rs. 34,01,646 for stock lying with M/s. Indian Veg. Oil (Packer) is highly unjustified inasmuch as Stock recorded by the survey party was indeed the book stock given by the assessee to the survey party as the packer M/s. Indian Veg. were never got searched or surveyed. So there cannot be any undisclosed stock (Pg. 74). It is only from the books of the assessee the details of stock lying with M/s. Indian Veg. was obtained by the survey party. The Survey Team did not find any independent evidence that the stock as declared by the appellant as lying with M/s. Indian Veg. is excess. In the statement of Shri Prakash Chawla on the date of survey itself it was stated that the stock are transferred to Indian Veg. For Packing ( Page 46 - Q. 16). RG-1 register contains all inward and outward entry for stock tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck recorded in RG-1 register is the aggregate of both i.e., loose stock and packed stock. Item-wise reconciliation was also submitted on 26-11-2008 itself and the same was supported by the papers impounded by the survey party on the date of survey itself. However ignoring the entire submission, the Ld. Assessing Officer proceeded to make an addition of Rs. 2,15,35,076 as undisclosed packed stock and worked out the deficiency into the stock. At many places taking the same item twice which was never appearing in the physical inventory list as prepared by the survey party on 14-6-2006, the Ld. Assessing Officer proceeded to work out a huge excess stock. In spite of proving the same beyond doubt. The Ld. Assessing Officer proceeded to work out a huge excess stock and added the same as undisclosed stock. At some places the Ld. Assessing Officer proceeded to make an addition on the basis that the WIP stock is not recorded in RG-1 register ignoring the fact that the RG-1 register is meant only for raw material and finished goods. It can never contain the WIP stock. It may be noted that even in appraisal report, the survey party has duly accepted the stock of Rs. 21,91,56,285 (consist of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that before the CIT(A) the Assessing Officer has submitted the remand reports wherein he dealt with all the contentions of the assessee and submitted his arguments. The CIT(A) confirmed the addition after considering the submissions of the assessee and remand reports of the assessee. The learned DR while referring to pages 57 to 59 of the paper book submitted that the Assessing Officer has given reasons for making addition. The learned DR submitted that there was difference in physical stock and RG-1 register on the date of survey. The learned DR has also relied upon the decisions which have been relied upon by the CIT(A). 6. We have heard the learned representatives of the parties, perused the record and gone through the decisions cited. The admitted facts of the case are that the assessee maintained regular books of account following recognized method of accounting. The assessee has shown 10.22 per cent of G.P. for the year under consideration as against 6.78 per cent GP of last year. Search and seizure actions were carried out on 14-6-2006. During the course of survey, a tentative trading account for the period 1-4-2006 to 14-6-2006 was prepared applying GP rate, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se RG-1 Sheet 24 is of Raw Oil. For the deficiency of stock mentioned against Sr. No. 12 the assessee submit that this is because the survey party did not consider packed items. Accordingly, it claimed that packed goods of items 44 and 45 of inventory are the goods covered by the RG-1 sheet under reference of Sr. No. 12. Here again there is still difference as per table given below. The assessee s claim against the difference as per Annexure 7 is that the dispatched items up to 4.00 pm has to be considered and the inventorised goods are as at 4.00 pm of the survey date. The same is new submission not available at the time of assessment or as per survey report and cannot be considered. Further item No. 12 is of raw oil and the packed finished goods cannot match with same. It further stated that the survey party has used the term Refined SB Oil while making the physical inventory and hence there is confusion stock considered. It cannot be accepted because whenever physical inventory of stocks are taken at a premises, assessee s helps are sought to take correct name and serial Nos. and details of the items as per assessee s guidelines only such inventories are prepared always. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act. An Income-tax authority acting under this section may, if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom, impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him: make an inventory of any cash, stock or other valuable article or thing checked or verified by him, record the statement of any person which may be useful for, or relevant to, any proceeding under this Act. If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es an element of surprise, it is possible to know the true nature and extent of the business activities of the assessee vis-a-vis his records. It means that where it is found that there is no discrepancy; the fact found in survey should serve as an opportunity to the taxpayer to prove the correctness of his accounts as found in a contemporaneous check. On the basis of above discussion, it can be summarized that an appraisal report prepared at the time of survey party is valuable information to reject books of account. The appraisal report is not a final assessment but it is of assistance in making assessment. 6.4 Provisions related to assessment are provided in Chapter XIV of the Act. Section 143 provides that where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, an intimation shall be sent to the assessee specifying the sum so payable section 142 provides inquiry before assessment for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r factory, bank book, purchase register, sale register, expenses register, travel book, ledger, stock record, debit note register, credit note register and sale returned register. Similar books of account were maintained for branches also. In Form No. 3CD as per clause 28, the auditor is to furnish quantity details of opening stock purchased during the year, sales during the year and closing stock. The auditor has given such quantity details in Annexure-XIV of his report. As per that schedule, closing stock was 3,634.672 MTS, which is tallied with the quantity details maintained in RG-1 Register i.e., the assessee furnished copies of Form 3CD and copies of RG-1 Register and summary thereon, which have been placed on record. During the courses of survey no material found which show that the assessee has sold goods out of books of account. The Assessing Officer made addition as some differences were found in stock at the time of survey. It cannot be the matter of arguments that such differences itself represents the income of the assessee unless it is correlated how this difference of raw material and finished stock became the income of the assessee. The assessee furnished the expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marks or finding otherwise, the addition cannot be sustained. As regards Assessing Officer s observation that difference of stock found at the time of survey was the final finding, in this regards we may state that facts noted at the time of survey, these may be valuable information for the Assessing Officer to reject the accounts. The appraisal report of survey team is of assistance in making final assessment but that itself cannot become a final assessment. Such report and facts collected at the time of survey are always subject to explanation and reconciliation by the assessee which can be explained either at the time of survey or after the survey before the Assessing Officer at the time of assessment. Survey is not intended to be a substitute for assessment. We therefore do not agree with view of revenue that the differences in stock pointed out in appraisal report of the survey party are final for assessment for the Assessing Officer; this contention of the revenue is rejected. 6.8 If we consider the addition made by the Assessing Officer from another angle, we find that the tentative trading account prepared at the time of survey for the period 1-4-2006 to 14-6-2006, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To Op. stock 176932516 By Sales 614728953 To purchases 559357932 By stock (physical on 14-6-2006) 219156285 To gross profit G.P. rate 15.88% 97594790 833885238 833885238 6.10 The gross profit should be Rs. 15,34,38,918 (9,75,94,790 Gross Profit as per the books of account plus the amount of addition of Rs. 5,58,44,128). The physical stock found at the time of search and survey as on 14-6-2006, which is closing stock for the bifurcated trading account was Rs. 21,91,56,285. On the basis of these figures on recasting trading account the calculation of the GP rate comes to about 70 per cent, which is apparently an abnormal GP. Such GP rate was never shown by the assessee nor does it appear from the material available on records that such GP rate was prevailing in the market in the line of business of the assessee. The revenue has accepted the lower GP rate ranges from 15 to 16 per cent roughly. This is a case of survey and search and in absence of material found in search and survey operations, such GP calculation and the addition is a notional addition. If the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferences itself cannot represent the income of the assessee unless it is correlated how this difference of raw material and finished stock became the income of the assessee. The assessee engaged in the business of trading and manufacturing of edible oil and vanaspathi. This is a case of search under section 132 as well as survey under section 133A of the Act. During the courses of survey and search, some material must found showing that the assessee has sold the goods out of books of account. Since in the case under consideration, no such material was found, therefore, it cannot be said that the assessee has sold the goods out of books of account, therefore, there is any income which was not recorded in the books of account. Merely on the basis that at the time of survey, some differences were found in stock that does not mean that there will be an automatic addition on account of differences. Such differences are always subject to explanation and reconciliation. In the case under consideration, the assessee has reconciled the differences with reasons and the revenue authorities did not point out anything contrary that how the reconciliation done by the assessee was incorrect. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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