TMI Blog2017 (1) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... ation could not be made on account of bunching of documents (for which the AO was not responsible at least), some leeway or concession ought to be given. The ITAT merely accepted that explanation which in our opinion was correctly rejected by the AO. The AO inferred correctly that since these purchases too were made outside the books of account and proper accounting or reconciliation could not be made by the assessee, the value of the investment and the estimated profits on the basis of the undisputed rate i.e. 4.5 % GP had to be adopted. Therefore, the findings of the ITAT are plainly unreasonable and could not have been arrived at. The impugned order cannot be sustained on this aspect as well. - Decided in favour of the revenue Excess Stock - Held that:- As against the valuer’s estimate of ₹ 25,490, the value of the stock determined by the AO was ₹ 73,76,782. The ITAT accepted the explanation and went on to independently value each item of the stock all over again. This court is of opinion that the method adopted by the ITAT was not warranted. The assessee did not produce the valuer’s report within time; instead, it waited for a considerable period after the search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Of ₹ 1,44,17,441/- made by the A.O. on account of unexplained initial investment in purchase of polyster films; (ii) Of ₹ 6,05,317/- made by A.O. on account of profits on unaccounted purchase and sale of polyster films which assessee itself had disclosed in its original returns; (iii) Of ₹ 73,76,782/- made by A.O. on account of excess stock found during the search? (b) Whether ITAT was correct in law and in facts in deleting the addition of (i) ₹ 4,52,34,000/- made by A.O. on account of undisclosed profit on the basis of material seized from residence of Sh. J.P. Aggarwal, one of the Director of the assessee company upto the F.Y. 89-90; (ii) Of ₹ 7,49,459/- made by A.O. on account of unaccounted purchase made from M/s GarwarePlyster Ltd. when the assessee itself had admitted the same; (iii) Of ₹ 33,725/- made by the A.O. on account of profit on sale of material purchased out of books from M/s GarwarePolyster Ltd. when assessee itself had admitted the unaccounted purchase? 2. The brief facts are that search and seizures proceedings were conducted in the assessee s premises on 20.03.1996. Notice under Section 158B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally allowed it and granted relief. 4. The ITAT s order may be characterised into three different parts- the first relates to undisclosed investment and income derived therefrom; the second pertains to excess undisclosed stock and the value thereof; and the third pertains to additions made on account of the statement of one Mr. J.P. Aggarwal (the Director of the assesseeupto July 1990) and the materials found in the course of search in his premises.This court proposes to deal with these parts separately. Re questions a (i) and (ii) and b (ii) and (iii) 5. The AO had found, as a result of the search that the documents indicated total unaccounted purchases- to the extent of 1,26,476.460 kgs had been made which was originally valued at ₹ 1,95,71,906/-. The total unaccounted sales worked out to be 1,24,095.380 kgs which was valued at ₹ 2,01,77,223. The assessee disclosed the value of these unaccounted purchases at ₹ 6,05,320. The AO further noted that the first unaccounted sale made was on 10.04.1995 out of the purchases made till then and of a quantity of 21,596.70 kg valued at ₹ 33,42,089 on an average cost price. It was further held that for the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents did not anywhere disclose that they were of the quality (offcuts) as claimed by the assessee in the subsequent documents i.e. the invoices stated to have been issued by Associated Plastic. Furthermore, the AO noted that neither the name of the seller nor the quality of the goods was mentioned. The explanation that the average purchase price was ₹ 43.70 per kg was therefore rejected. The veracity of the invoices of M/s Associated Plastics too was elaborately gone into and its explanations rejected as not worthy of acceptance. In these circumstances, the total unexplained investment was worked out at the original rate mentioned at the rate of ₹ 1,44,17,441 in addition to the undisclosed profit of ₹ 6,05,320. 7. A similar exercise was carried out in respect of the stocks sourced from M/s Garware Polyester found in the assessee s books. The data of these purchases was made part of the AO s order. During the proceedings, the AO was unable to reconcile the differences on account of the amounts relating to the transactions with M/s Garware Ltd. - which worked out to ₹ 7,49,459. The assessee s explanation was that reconciling was not possible because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n addition made of ₹ 1,44,17,441/- and ₹ 6,05,317/- addition as directed above be adopted. 9. It would be immediately apparent from the above discussion that as to the fit sum of unexplained investment, the dispute is not about the quantity- rather it is about the value of the said raw material. The assessee filed its returns after almost more than nine months after receiving notice under Section 158BC. Even at that stage, it did not explain or rely upon the letter/invoice of M/s Associated Plastics. Later it wrote a letter to the AO, enclosing copies of two previous invoices of the year 1996 to say that the value of this raw material was ₹ 43.70 per kg. The AO rejected the explanation and proceeded to value the stock on the basis of the materials existing i.e. the disclosed income and the undisputed purchases and on the basis of the regular books of account. The question is whether the ITAT could in these circumstances have rejected the value i.e. ₹ 154.75 per kg and the estimate of profit at ₹ 162.60 per kg. The slender reasoning of the ITAT is entirely premised upon the asseessee s explanation which in turn is based upon the two invoices th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments/books disclosed lower quantities. The AO noticed that the assessee could not produce any evidence to prove that the stock register was maintained before the date of search but was not seized and no purchase or sales bills were mentioned. 13. In the course of the assessment proceedings, the assessee relied upon the report of a valuer who according to it had apprised and valued the stock on 25.03.1996. However, it appears that this valuation report was not filed with the return filed by the assessee. The difference between the values of the stock so found and seized was considerable. As against the valuer s estimate of ₹ 25,490, the value of the stock determined by the AO was ₹ 73,76,782. The ITAT accepted the explanation and went on to independently value each item of the stock all over again. This court is of opinion that the method adopted by the ITAT was not warranted. The assessee did not produce the valuer s report within time; instead, it waited for a considerable period after the search to rely on it. Furthermore, the valuer s report is unverified. This made the document suspect and was correctly brushed aside by the AO. In the circumstances, the AO s dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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