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Ast t. Commissioner of Income Tax, Ci rcle-10, Kolkata Versus Stadmed Pvt. Ltd.

2016 (7) TMI 533 - ITAT KOLKATA

Addition on account of undisclosed sales of 258 liters injectable - CIT(A) deleted the addition - whether the data of cost audit report can be relied for the purpose of making the addition and without having any flaw in the audited financial data of assessee? - Held that:- We find that AO has not brought anything on record in the financial audited accounts of assessee. The AO merely has relied on the cost audit report of assessee. In our considered view, AO before making the addition was to reco .....

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ition - Held that:- AO has made the addition on the basis of cost audit report where the product-wise detail for sale and manufacturing cost were not specified. However the AO has not pointed out any defect in the financial audit report furnished by assessee. The AO has made the addition merely on the ground of non-disclosure of the cost of the items manufactured and at the same time accepted the sale declared by the assessee. In our considered view, the addition made by AO is based on whimsical .....

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ssee on the ground that there was no nexus between the money borrowed by assessee and loan advanced to the directors. Ld. CIT(A) also relied on co-ordinate bench in assessee’s own case for AY 2001-02. We also find that the assessee’s own funds are sufficient enough to advance the interest free loan to the directors. After considering the facts in totality we find no merit in the ground of appeal raised by Revenue. As such, we are not inclined to interfere in the order of Ld. CIT(A). - Decided ag .....

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referred to as the Act ) vide his order dated 16.12.2010 for assessment year 2008-09. The grounds raised by Revenue as per its appeal are as under:- 1) Whether on the fats and in the circumstances of the case, the Ld. CIT(A) is justified in deleting the addition on account of undisclosed sales of 258 liters injectible without showing proof that it did not form part of the 941 liters that was sold during the year under consideration. 2) Whether on the fats and in the circumstances of the case, t .....

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e and Shri Rajat Kumar Kureel, Ld. Departmental Representative appeared on behalf of Revenue. 2. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer on account of undisclosed sales of 258 liters injectable. Facts of the case are that assessee is a Private Limited Company engaged in the manufacturing business of various kinds of allopathic medicines and one of them was injectables. However the assessee was manufacturing the inje .....

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lance of injectables of 258 liters in the assessment year 2007-08 which will naturally become the opening stock for the year under consideration. However the last year closing stock figures was not carried forward in the cost audit report and current year closing stock was also shown at nil. Accordingly, the AO opined that the closing stock of the earlier year must have been sold during the current year without showing in assessee s books of account. Accordingly, he treated the sale of earlier y .....

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3-2008 which reflected the sales of injectible of 258 ltrs. Having value of ₹ 28,52,854/-. Therefore, the addition of ₹ 7,82,186/- is deleted. Hence, ground no. 1 is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 4. Before us Ld. DR submitted that the cost records maintained by assessee have been duly audited by Cost Auditor and therefore it is a reliable document. As per the report, the closing stocks of 258 liters of injectables have not been c .....

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udit report but the same was very much reflecting in the financial data maintained by the assessee. The ld. AR drew our attention at page 85 of the paper book where the quantitative details of injectables were duly recorded. As per the financial report, there is opening balance of 258 liters and purchase of 1079.83 liters, return inward 26.066 liters, sample 35.244 liters, breakage 90.288 liters and sales of 941.12 liters along with closing stock of 296.716 liters which are placed on page 85 in .....

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s in the cost audit report of the assessee. As a result the AO assumed that 258 liters of injectables have been sold out by the assessee without recording the correspondence sales in its books of account. However, ld. CIT(A) has deleted the addition by holding that AO has relied merely on the cost audit report without bringing any defect in the audited sales account of assessee. Now the question before us arise is as to whether the data of cost audit report can be relied for the purpose of makin .....

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stant case, there is no defect in the financial year data of the assessee and therefore, the addition made by AO deserves to be deleted. Accordingly we are not inclined to interfere in the order of Ld. CIT(A). This ground of Revenue s appeal is dismissed. 6. Next ground raise by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO on account of ad hoc cost allocation made by assessee without showing any nexus between the item produced and cost involved. During the .....

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ase, assessee has allocated the cost on ad hoc basis without referring to the relevant necessary details in terms of quantity and products. In the absence of relevant details like name of product, quantities produced, turnover, cost of raw materials, costs of other ingredients, direct wages, salary, indirect cost and other overheads with respect to the all the products produced and sold, the AO found that the cost allocated is not proper and not supported by evidence. Accordingly, the AO has dis .....

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e sale value of other products at ₹ 2,59,23,719/- while the cost allocating had not been accepted. Since no defect has been pointed out in the audited accounts and books of account the addition of ₹ 2,22,56,492/- is deleted. Hence ground no. 2 is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 8. Before us Ld. DR submitted that cost audit report is a primary source documents and it does not contain the full details about the product sold and cost .....

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vehemently relied on the orders of Ld. CIT(A). 9. We have heard rival contentions and perused the materials available on record. From the aforesaid discussion, we find that AO has made the addition on the basis of cost audit report where the product-wise detail for sale and manufacturing cost were not specified. However the AO has not pointed out any defect in the financial audit report furnished by assessee. The AO has made the addition merely on the ground of non-disclosure of the cost of the .....

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of accounts secured and unsecured loan amounting to ₹7,79,97,616/-. The assessee has incurred cost on such loan by way of interest and financial charges of ₹ 1,12,59,548/- as per Schedule 19 to the Profit and Loss A/c. At the same time, it was reflected in the balance sheet that assessee has given interest free loan for an amount of ₹22,38,883/- to the directors. Accordingly, Assessing Officer opined that the interest bearing loan has been diverted by the assessee to the intere .....

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lied upon the order of ITAT, Kolkata Bench in its own case in AY 2001-02. The own funds available with the company in the financial year were ₹ 5.89 crores while the advances given to the directors are ₹ 22.38 lakh. Since, no nexus have been established the addition of ₹ 2,68,700/- is deleted relying upon the ITAT s judgment. Therefore, ground no. 3 is allowed. 12. Both the parties are relied on the orders of Authorities Below as favourable to them. We find that Ld. AR submitte .....

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