9911796707
TMI Blog2012 (8) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... ility and possibility as well as irrelevant consideration is unsustainable in law? d) Whether finding of ITAT that the statement of Shri Sudershan Kumar should not be viewed in the context of total accuracy of the stock taking exercise, is perverse and not supported by any evidence? e) Whether ITAT was correct in law in directing the Assessing Officer to allow expenses of Rs.9,62,801/- and of Rs.17,931=48 vide computing undisclosed income by way of unaccounted sales? f) Whether ITAT was correct in law in cancelling levy of surcharge u/s 113 of the Act? g) Whether proviso to Section 113 inserted by Finance Act 2002 with effect from 01.06.2002 is clarificatory in nature and therefore retrospective?" 2. The assessee is a public limited company. On 29.8.1996, there was a search of its premises under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). In the course of the search a stock inventory of raw materials, semi-finished goods and finished goods was prepared. It may be noted that the assessee is engaged in the business of manufacturing of and trading in auto and tractor parts and components. The main products are shafts, pins, crown and pin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a chart reframing the questions, stated to be substantial questions of law, as follows : "(1) Whether ITAT was correct in the eyes of law in deleting the addition of Rs.1.98 Crores andRs.1.16 Crores made by the AO on account of unexplained investment in excess/shortage of stock? (2) Whether the ITAT was correct in the eyes of law in directing the AO to allow the expenses of Rs.9,62,801/- and Rs.17,931,48/-, while computing the undisclosed income by way of unaccounted sales? (3) Whether the ITAT was correct in the eyes of law in cancelling the levy of the surcharge u/s 113 of the Act? (4) Whether the impugned order passed by the ITAT is perverse both in law and facts of the case?" We have heard him as well as the assessee, which was represented through its Director at length. 6. So far as the first question is concerned, the discrepancies in the stock as inventorised by the officers of the revenue are set out in the table below : S.No. Description Total value of stock found in Excess (Rs.) Total value of stock found Short (Rs.) 1 Raw material 40,87,001/- 36,85,816/- 2 Semi Finished Goods 23,44,789/- 2,49,44,618/- 3 Finished Goods 1,04,05,264/- 29,077/- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax authorities on 18.11.1996 and in this inventory, the assessee had reconciled the alleged discrepancies observed by the income tax authorities during the search. 7. The above submissions of the assessee were rejected by the Assessing Officer who predominantly relied on the statement of one Sudershan Kumar, who was the assessee's factory manager. His statement was recorded during the search. According to the Assessing Officer, the factory manager was competent to appreciate the method and accuracy of the physical verification of the stock, and since he had not raised any objection to the stock inventory prepared by the various officers during the search, the objections of the assessee were devoid of merit. 8. A perusal of the order of the Tribunal shows in detail the claims and contentions raised before it on behalf of the assessee, particularly in relation to the stock inventory. In different heads prepared in the form of a chart, the assessee pointed out before the Tribunal that the authorized officers did not count several items of raw material, semi-finished goods and finished goods and these details are set out in the form of a chart at page 9 of the Tribunal's orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the production process resulted in confusion or mixing up between raw materials and semi-finished goods. It was further explained to the Tribunal as to how it was impossible to physically verify the inventory of over 5 lakh high value items consisting of more than 600 varieties of stock lying in the factory premises measuring about 5,000 sq.yds. in different stages of completion, in less than one day and that too by persons who were not technically qualified. It was submitted that even for technically qualified people who knew the production process it would have taken anywhere between 7 to 10 days to complete what the income tax authorities claimed to have done in one day. 10. The assessee further submitted before the Tribunal that even though it carried out physical verification of the stock after the restraint order was lifted and prepared and submitted a detailed reconciliation of the stock considering the purchases and issue of stock after the date of search, and even though the Assessing Officer has not disputed the purchases and issues recorded in the stock ledger, still he did not accept the reconciliation prepared by the assessee. There was no reason given for doing so. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing findings: a. The search commenced on 29.8.1996 and was finally concluded on 30.8.1996. It is impossible for anybody to accurately take stock in a span of just one day and this itself vitiated the entire process of inventorisation followed by the income tax authorities. b. Even on the very first opportunity vide letter dated 11.9.1996, 09.10.1996 and 18.11.1996 the assessee challenged the method of taking stock of physical count on the ground that it was humanly impossible to complete the exercise in a single day. The assessee also explained the shortage/excess of the stock by letters dated 3.10.1996, 9.10.1996 and 18.11.1996 but the Assessing Officer did not bother to refer to these submissions while completing the assessment. c. The Assessing Officer both in the original assessment proceedings and in the fresh assessment proceedings pursuant to the directions of the Tribunal did not comment upon the reconciliation of stock filed by the assessee. d. When the restraint order was lifted on 7.10.1996 the assessee itself carried out physical verification and explained the discrepancies and submitted the reconciliation to the Assessing Officer which was not looked into by him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs, which as per the books of account was Rs.12.52 lakhs. The assessee was offering 35% trade discount and 4% cash discount. The gross profit earned was in the range of 42-45%. If the value of the finished goods is taken after reduction of the discounts and after eliminating the gross profit, the value as per accounts, shown as Rs.12.52 lakhs stands explained. Thus in the finished goods there is no discrepancy. h. As regards semi-finished goods, the conclusion of the Assessing Officer that they were found short to the extent of Rs.2.49 crores is a presumption which cannot be accepted for two reasons: firstly, there was no evidence found during the search suggesting that such stock was sold outside the books and secondly, it is improbable that any person would buy goods in a semi-processed or semi-finished condition since that would involve further processing, transport etc which cannot be easily done, apart from being non-profitable. i. Due weightage should be given to the fact that for the finished goods the assessee was maintaining complete records as required by the excise laws. j. All the above facts were properly explained in the letters filed by the assessee and reiter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (17 pages) were seized from the residential premises of the Directors. These papers consisted of handwritten slips for cash receipts and cash expense. According to the assessee the receipts were for sale of second quality goods and the proceeds thereof were disbursed among the labourers as incentive and no surplus was left. Some papers indicated receipts from scrap dealers for lifting second quality material and the same pages also included details for payment of overtime, incentives etc. to the labourers. These transactions were also not recorded. The total receipts amounted to Rs.10,36,750/- and the total payments amounted to Rs.9,62,801/-. Certain another receipts aggregating to Rs.19.85 lakhs were also found not recorded, in the books of accounts which according to the assessee represented sale of replacements, proceeds of which were also disbursed to the workers to the extent of Rs.17,19,148/-. The Assessing Officer added the receipts but did not give corresponding reduction for the expenses though both the receipts and the payments were found recorded in the seized material. The Tribunal examined the seized material which was produced before them in the form of paper books an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , remuneration to excise consultants, incentives etc. The finding of the Tribunal that these are expenses incurred by the assessee for the purpose of the business is a finding of fact based on the seized material itself. The Tribunal's approach to consider the seized material in its entirety is a correct approach, for it would be unjust and contrary to the principles of income tax law to take note of only the income part reflected in the seized material, excluding the expenditure part reflected in the same seized material, provided the expenditure part is allowable as business expenditure. In our view the findings of the Tribunal, both of facts and law, do not suffer from any perversity. We may add that no documents or material was produced before us on behalf of the revenue, despite several opportunities, to show any perversity in the decision of the Tribunal. We therefore, do not think any substantial question of law arises out of the aforesaid decision of the Tribunal. 18. So far as the third question regarding surcharge is concerned, the matter is no longer res integra. Section 113 provides for tax of 60% on the total undisclosed income of the block period, determined under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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