TMI Blog2010 (12) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... ble CIT(A)-I, Nasik has erred in confirming the addition of ₹ 34,66,571 made by the AO, the Asstt. CIT, Cen. Cir. 3, Nasik on account of disallowance under s. 40A(3) of IT Act, 1961 as undisclosed income. 3. 'The learned Hon'ble CIT(A)-I, Nasik has erred in confirming the calculation of interest under s. 158BFA at ₹ 16,08,151 charged by the AO, the Asstt. CIT, Cen. Cir. 3, Nasik has charged interest on delayed payment for block return without considering the payments made prior to the filing of block return. 3. Before we proceed to consider the respective grounds of appeal, it would be appropriate to note the background of the captioned proceedings. The Revenue had carried out a search and seizure action under s. 132(1) of the Act as well as a survey operation under s. 133A of the Act on 2nd May, 2002 at the business premises as well as residential premises of the directors of the appellants. Broadly speaking, captioned companies are involved in the business of edible oils. Such search action had resulted in framing of block assessments in terms of Chapter XIV-B of the Act and additions made in such assessments are the subject-matter of captioned proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tentative one and the same could not be relied upon. The assessee also explained, on the basis of a chart, which is reproduced by the CIT(A) in para 5.2 of the order that the entries made in the manual register were incomplete and were recorded by the concerned clerk only to the extent of information available with him. It was also explained that the entries made in the computerized stock register in relation to purchases, sales, transfers, etc. differed and, as such, the closing stock arrived at also differed in the two registers. It was pointed out that the financial statements for the year ending 31st March, 2002 have been compiled on the basis of the computerized stock register, and the same were subjected to audit and have also been submitted to the Department. Thus, the computerized stock register was to be relied upon for evaluating the stock difference, if any. 8. The submissions of the assessee did not find favour with the CIT(A). According to the CIT(A), the AO was justified in computing the impugned stock as unexplained, since it was based on the relevant documents seized during the course of search, i.e. manual stock register. However, the CIT(A) reduced the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be reliable because at the time of search, the assessee group had admitted unexplained stocks in different items. It was pointed out that in para 10.5 of the assessment order an excess stock of ₹ 66,61,197 was found as on the date of search, which was taxed as undisclosed income of the assessee for the block period. Therefore, according to the learned Departmental Representative, the CIT(A) was justified in sustaining the addition by observing that even the computerized stock register could not be taken as reliable. 11. In reply, the learned counsel for the assessee pointed out to a chart showing comparative statement of stocks of different items as inventorised in the Panchnama prepared during the course of search on 2nd May, 2002 and its comparison with the computerized stock register as on even date. It was pointed out that only in the case of Soyabean crude oil, excess stock of 222.396 MT of ₹ 66,61,197 was found, which was surrendered by the assessee and included in the undisclosed income declared in the return filed for the block period. It was pointed out that insofar as the stock of poultry/cattle feed is concerned, quantity of stock noted in the Panchnama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the CIT(A), summary of the two stock registers has been tabulated for the period ending on 3.1st March, 2002. From the same, it is evident that the entries regarding purchases, sales and transfer of cattle feed stock from manufacturing activity, etc. differ in the respective stock registers. For instance, the purchases as recorded in the manually maintained stock register are 16,615.226 MT, whereas as per the computerized stock register the same is 19,643.921 MT. Similarly, the sales recorded in the manually maintained stock register are 42,205.596 MT, whereas in the computerized stock register the same is recorded at 45,803.976 MT. Obviously, the closing stock remaining as on 31st March, 2002 in the two registers would differ. Ostensibly, the items of purchases, sales etc. as depicted in the computerized stock register have been accepted by the Department, inasmuch as the books of account have been accepted, which is based on the computerized stock register. To the aforesaid, there is no negation by the Department either in the orders of the lower authorities or even before us. We, therefore, find ample force in the plea of the assessee that the computerized stock regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the CIT(A), the assessee made two-fold arguments. Firstly, as per the assessee in the light of r. 6DD of the IT Rules, 1962 (in short the Rules), the disallowance was not permissible. It was pointed out that the assessee has purchased raw materials through the local brokers, but the ultimate suppliers are farmers and hence sub-clause (1) of r. 6DD of the Rules mitigates the prohibition contained in s. 40A(3) of the Act. Secondly, it was contended that provisions of s. 40A(3) are not applicable in block assessment and the same are confined only to regular assessments. It was pointed out that considering the unaccounted sales and differences in stock for which income was estimated and declared as undisclosed income in the return of income, purchases are bound to be made out of books for which such cash payments have been made. According to the assessee, since it has offered the amount of profit on such transactions on an estimate basis, as such the provisions of s. 40A(3) would not apply in relation to the purchases. On all these aspects, the CIT(A) has not accepted the plea of the assessee. According to the CIT(A), the disclosure by the assessee of profit on unaccounted sales an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egular books of account: (1) Dhanvarsha Builders Developers (P) Ltd. vs. Dy. CIT (2006) 105 TTJ (Pun) 376 : (2006) 102 ITD 375 pune) (2) DM Construction (ITA No. 1791/Pn/2005, dt. 26th Oct., 2007) (3) Western India Bakers (P) Ltd. vs. Dy. CIT (2004) 84 TTJ (Mum) 223 : (2003) 87 ITD 607 (Mum) (4) Asstt. CIT vs. Dr. Mohan Lal Swarnkar (2005) 95 TTJ 969 19. It is also pointed out that the provisions of s. 40A(3) have been held to be outside the purview of block assessment in the following decisions : (1) Janta Tiles vs. Asstt. CIT (2000) 66 TTJ pun 695 (2) Dy. CIT vs. Sadhuram Waswani (2003) 81 TTJ (Nag) 839 (3) Malhan Builders v. Dy. CIT (2002) 91 TTJ (Del) 920 (4) Smt. Bommana Swarna Rekha vs. Asstt. CIT (2005) 94 TTJ (Vis) 885. 20. On the other hand, the learned Departmental Representative has relied on the orders of the authorities below in support of the case of Revenue. Reliance has also been placed on the judgment of the Hon'ble Madras High Court in the case of M.G. Pictures (Madras) Ltd. vs. Asstt. CIT (2003) 185 CTR (Mad) 185 : (2003) 263 ITR 83 (Mad) to argue that a disallowance envisaged under s. 40A(3) is permissible even in an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing discussion would show. The following two questions of law were raised before the Hon'ble High Court : (1) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the amended provision of s. 40A(3) is not applicable to the facts of the case and that the entire amount added has to be sustained an a not only 20 per cent of the amount paid ? (2) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amendment to the provisions of s. 40A(3) is not a procedural one but a substantive one ? 23. Quite clearly, the Hon'ble High Court dealt with the scope of amendment to s. 40A(3) w.e.f. 1st April, 1996 as to whether the same was procedural or substantive so as to be prospective in operation or not. Thus, the question as to whether the provisions of s. 40A(3) are applicable while computing the undisclosed income in a block assessment under Chapter XIV-B was neither raised and nor dealt with by the Hon'ble High Court. Therefore, the said judgment cannot be taken as an authority for the proposition that the provisions of s. 40A(3) are applicable while computing the undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand, the learned- Departmental Representative has relied upon the orders of the lower authorities to defend the charging of interest under s. 158BFA(1) of the Act. 28. We have considered the rival submissions carefully. Ostensibly, the chargeability of Interest under s. 158BFA(1) of the Act is not challenged, as the return of income has been filed belatedly by 14 months. The only aspect to be considered is the computation of interest payable. As per the assessee, interest is leviable only on the amount of tax found payable in the assessment as reduced by the taxes paid prior to filing of return and, in this connection, reliance has been placed on the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Smt. Sire Kanwar Bai (supra). In the said judgment, it has been held that interest under s. 158BFA(1) is levied to compensate the Government for withholding of taxes due by the assessee. The Hon'ble High Court, held that interest is to be levied only on the sums found payable by the assessee as per the assessment order as reduced by the taxes paid prior to the issue of notice or prior to the last date of filing of the return. The Hon'ble High Court u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble CIT(A)-1, Nasik has partly granted relief to the extent of ₹ 1,00,000 and has erred in confirming the balance addition of ₹ 7,44,415 against the total addition made by the AO, The Asstt. CFT, Cen. Cir 3, Nasik on account of unexplained quantity of sunflower solvent Crude oil of ₹ 8,44,415 being the value, of 26.810 MT as undisclosed income. 2. The learned Hon'ble ' CIT(A)-I,' Nasik has erred in' confirming the addition of ₹ 45,62,961 made by the AO, the Asstt, CIT, Cen. Cir. 3, Nasik on account of disallowance under s. 40A(3) of IT Act, 1961 as undisclosed income. 3. The learned Hon'ble CIT(A)-I, Nasik has erred in confirming the calculation of interest under s. 158BFA at ₹ 18,73,061 charged by the AO, the Asstt. CIT, Cen. Cir. 3, Nasik has charged interest on delayed payment for block return without considering the payments made prior to the filing of block return. 31. The assessee is a company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of manufacture and trading of edible oils. The dispute in relation to the first ground is of an addition of ₹ 8,55,415 made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,595 MT. Thus, the observation of the AO that a further excess credit of 13.405 MT has been incorporated by the assessee on 9th Dec, 2001 is factually erroneous. We, therefore, find ample force in the plea of the assessee that the addition is liable to be restricted to quantity of 13.405 MT instead of 26.810 MT. In this manner, the addition sustainable would amount to ₹ 3,22,257, i.e. after taking into consideration the benefit of ₹ 1,00,000 allowed by the CIT(A). In the result, on this ground, the assessee partly succeeds. 35. Insofar as ground No. 2 is concerned, it was a common ground between the parties that the facts and circumstances are identical to those considered by us while adjudicating ground No. 2 in appeal in ITA No. 208/Pn/2007 (M/s Kirti Foods Ltd.). Our decision therein applies mutatis mutandis on this ground also and, accordingly, the said ground of appeal of the assessee stands allowed. 36. Insofar as ground No. 3 is concerned, on this aspect also, it was a common ground between the parties that the facts and circumstances are identical to those considered by us while adjudicating ground No. 3 in appeal in ITA No. 208/Pn/2007 (M/s Kirti Foods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stands allowed. 41. Insofar as ground No. 2 is concerned, on this aspect also, it was a common ground between the parties that the facts and circumstances are identical to those considered by us while adjudicating ground No. 3 in appeal in ITA No. 208/Pn/2007 (M/s Kirti Foods Ltd,). Here also, as per details placed on record, it is evident that no amount of tax has been paid prior to issue of notice under s. 158BC or prior to the due date of filing of return for the block period and, therefore, the plea of the assessee is untenable on facts. Our decision in ITA No. 208/Pn/2007 (supra) applies mutatis mutandis on this ground also and, accordingly, the said ground of appeal of the assessee is dismissed. 42. Insofar as ground No. 3 is concerned, the same relates to interest charged under s. 220(2) of the Act amounting to ₹ 3,10,392. The only grievance raised by the learned counsel for the assessee is that the working of interest charged does not clearly emerge from the orders of the authorities below. However, it is pointed out that as per the assessee the correct interest leviable ought to be ₹ 70,898 only. Accordingly, it was prayed that the matter be set aside to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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