TMI Blog2020 (9) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... month of September till end of the financial year in absence of anything contrary brought on record which shows the date of maturity before the close of financial year. Addition on account of excess stock found during the course of survey - HELD THAT:- As given that the survey was conducted during the middle of the financial year, it is quite likely that there could be some timing mis-match in terms of receipt of physical stock and entries made in the books of accounts and thereafter, once the entries are made in the books of accounts, and necessary reconciliation prepared and submitted, the same should have been examined by the AO and cannot be dismissed summarily. CIT(A) is also of the same view that the said action of the AO is not justified and where the assessee is able to show with evidence that admission made during survey was mistaken, the same should be examined on merits. CIT(A) has thereafter examined the reconciliation statement and has held that the assessee has only partly been able to substantiate the differences and reconciliation so submitted. As gone through the reconciliation statement and find that the assessee has reasonable explained the differences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provisions of law and facts hence, kindly be deleted. 2. At the outset, it is noted that there is a delay in filing the present appeal by 31 days. In this regard, the ld. AR submitted as under:- 1. That in the aforesaid matter, the impugned order was passed by CIT(A)-2-Udaipur, on dated 23.07.2019, which was received on dated 02.09.2019. Accordingly, the appeal was to be filed on/before 01.11.2019 however, the same has been filed on dated 02.12.2019. Thus, delay of 31 days has occurred. 2. In this connection, it is submitted that, after receipt of the said order, the assessee handed over the same to his regular tax consultant Shri Ramesh Chand Goyal Sharma (Chartered Accountant) for further action if any. Unfortunately, however, at that point of time Sh. Ramesh Chand Goyal was busy in Audits so he placed the papers in/with some other files/papers, not related to this matter and even forgot to complete the task given to him. 3. That it is only sometime in the third week of November, after completion of audit the staff was arranging the audit files with relevant audit working papers, then only this order came in the notice of Shri Ramesh Chand Goyal. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from 02.09.2010 to 20.09.2010 therefore it was prayed that the addition of interest for the entire year is unjustified. During the course of appeal proceedings, ld.CIT(A) accepted the contention that the amount have been advanced in the month of September, 2010, however, the contention of assessee that the amounts have been given for two months only, supported by seized material, remained unadjudicated and the interest was calculated from September, 2010 to March, 2011. Further, the Ld. CIT(A) enhanced the rate of interest adopted by AO at 12% p.a to 18% p.a. on the basis of one hundi in the name of M/s Adiya Mineral. 8. In the above factual background, the ld AR submitted that the action of ld.CIT(A) in enhancing the rate of interest from 12% p.a. to 18% p.a. has resulted into the enhancement made by the CIT(A) and the enhancement has been made without following the mandatory requirement of law i.e. issuing notice u/s 251(2) . No such show-cause u/s 251(2) has been issued by the CIT(A), hence the complete enhancement has been made without providing a reasonable opportunity which is against the mandatory requirement of section 251(2) and principle of natural justice, hence th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, Jai Jinendra Textiles, MP Enterprises, it was specifically mentioned in the seized papers that the interest of two months is paid means the amount has been given for two months only. Thus, calculating the interest till 31.03.2011 is contrary to the facts and unjustified. 2.7 During the course of appeal proceedings, Ld.CIT(A), on the basis of one hundi i.e. Aditya Mineral Products, wherein rate of interest of 1.5 per month was mentioned drawn an inference that all the loans have been given at the rate of 18%, whereas on the other hand various hundisspecifically mentioned period of two months as pointed out in Para 2.3 above, this contention was ignored that all the loans were of two moths duration only. At the one hand, hundi of Aditya Mineral Products has been completely relied upon but the fact mentioned on that hundi itself that interest of ₹ 5600/- with respect to this has been received in advance and this proves that it has been the practice of the assessee to receive interests in advance was ignored. In the case of Aditya Mineral interest of ₹ 5600 was paid and by working out the interest at 1.5% per month the duration of this hundi come out less than two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cument has been found during the course of search. In respect of one of the transactions with M/s Aditya Mineral products, where the rate of interest of 1.5% per month has been specified on the Hundi document, none of the other documents found during the search specify the rate of interest. The AO has applied rate of interest of 12% per annum and the ld CIT(A) has further enhanced the same to 18% per annum. Similarly, except in respect of M/s Kiran Industries, where the period of maturity has been specified as 18.11.2010, none of the other hundis specify the period for which the amount was advanced and the date of maturity. The AO has considered the whole of the year for which the amount was advanced and the ld CIT(A) has considered period of two months in case of Kiran Industries and in respect of other hundis, period starting from September till end of the financial year. However, the fact of the matter is that the amount has been advanced which is not disputed by the assessee and we deem it appropriate to sustain the rate of interest of 12% per annum as applied by the AO which seems reasonable in the facts and circumstances of the present case except in respect of Aditya Mineral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication and when the appellant completed the books of accounts there was no excess stock as alleged. Further, a complete reconciliation sheet was filed before the Ld.AO along with complete supporting documents, bills and vouchers, affidavits of suppliers, books of accounts in support of each and every reason of variance between the physical stock valued by the department and alleged stock as per books of accounts and as per the reconciliation there was no such difference in stock as alleged by the department. The said reconciliation filed by the assessee was carefully considered by the AO but the addition was made on a purely legal ground by holding as under: these details were not bring in to the notice of department during survey nor during post survey proceedings, statement recorded etc. The inventory of stock was signed and confirmed by the assessee himself in the statements recorded during survey proceedings and also during post search proceedings. As this fact was never brought to the notice of survey/search party during search/survey proceedings nor during post search proceedings, the plea of the assessee is not found to be acceptable and addition of ₹ 4,18,91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities and addition was made only on the ground of non submission of these details during the course of survey proceedings. It was submitted that before the CIT(A) the plea of the assessee was limited to the legal issue whether surrender made during survey results into automatic addition when the same has been proved to be wrong based upon correct books of accounts and facts which has been admitted by AO without finding any fault. We would like to draw the attention to page 5 the assessment order wherein the reconciliation statement has been reproduced and a perusal thereof would reveal that the same was supported by extensive evidences and at the end of the reconciliation statement, Ld. AO made the opening remark that the the submissions of the assessee has been carefully considered . The Ld.AO has not found any fault in the reconciliation statement. Moreover, when CIT(A) herself accepted the plea of the assessee that admission is subject to factual verification by observing that the action of the AO in rejecting the reconciliation (of stock found during survey with the stock as per books) filed by the assessee during the assessment proceedings, without examining the same on m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005. It is the contention of the assessee that no opportunity to recast its trading account was given. It is further contended that the difference was due to non recording of the purchases. In fact sales of the udad has been taken into account but purchases are not considered which was recorded subsequently. It is further contended that the sales have been determined on the basis of the vouchers. We have given our thoghtful consideration to these submissions of the assessee. During the course of survey statement recorded u/s 133A of the Act would not be a strong piece of evidence. In case the assessee is in a position to reconcile the discrepancy with positive material, in that event, the A.O. should give relief to the assessee. In the present case, the Ld. Counsel for the assessee has taken us through the various pages of paper book to support his contention that the stock is duly reconciled. We find that the A.O. has taken into account sales but the purchases of udad which was not recorded in the books and subsequently recorded after drawing a fresh trading account, no specific defect in such reconciliation is pointed out by the A.O. Under these facts, we are of the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Reconciliation submitted before lower authorities Findings of CIT(A) Submissions D The rate applied for valuation at the time physical stock taking is taken from sales book i.e. selling price has been taken for valuation instead of cost price, clearly the value of physical stock taken during the course of survey includes the gross profit margin of assessee. Therefore the stock is overvalued to the extent of ₹ 51730/- In support of our contention we are enclosing herewith various sales invoices of the assessee which shows that value per item of closing stock has been taken at selling price instead of cost price as corroborative evidence as these invoices were seized during the course of survey/search. Copy of trading account prepared during course of survey is not furnished. No basis given for 10% profit rate to substantiate this contention. After verification of sales bills placed. It was an admitted fact that the stock has been valued at sales price and only objection raised by the CIT(A) was with respect to GP rate, therefore, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 4200/- i.e. ₹ 21/- per pag. Considering the above in February 2010, average price in FY 2010-11 is taken at ₹ 30 Per bag and value of stock of ₹ 447/- bags of mineral powder is taken as against 1,05,492/- taken during survey.Relief to assessee ₹ 92,082/- Addition sustained on this ground is ₹ 6705 is not pressed. F Further goods against following invoices have been delivered to the assessee prior to search whereas the invoices were received by the assessee after search operation therefore the closing stock did not contained inventory to that extent. The details of invoices are as under:- Bill amounting to ₹ 46,700/-, 43,160/- 52,400/- against purchase from M/s.Shri Ram Pipe Udyog vide Bill no. 19, 14 13 dated 03.10.2010, 19.09.2010 14.09.2010 respectively and bill amounting to ₹ 24,000/- purchased from M/s.GayatriUdyog vide Bill no. 93 dated 12.10.2010, was not entered in the books of accounts, which was later on entered in the books of accounts, copy of the same bill is enclosed herewith. Resultantly stock as per books will increase by ₹ 1,66,260/- Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - in comparison to the time of survey where the opening stock was shown as ₹ 3,60,866/- (₹ 4,22,056 less ₹ 61,190) instead of correct. Trading account prepared during survey has not been furnished to substantiate this contention. In respect of non submission of trading account prepared during course of survey, our submissions are same as at Column-D of this table. A perusal of the trading account reveals that opening stock has been taken at ₹ 3,60,866/- whereas closing stock as per income tax return form of immediate preceding year is ₹ 4,22,056/-, in Application of Funds, Column-4 of PARTA- P L)therefore there was an error of recording opening stock short by ₹ 61,190.40/- J During the course of physical stock taking valuation of pipe piece of size 7 *6 at entry no. 8,9,32,33 of the Annexure of inventory dated 13/10/2010 has been at ₹ 60 ( entry no. 8,9) and ₹ 70 ( entry no.32,33) but actually the rate is ₹ 60/- accordingly stock is overvalued by ₹ 7750/- [ 775 pipes multiplied by ₹ 10 (differential rate i.e. ₹ 70-₹ 60) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef to the assessee. The ld DR accordingly supported the findings of the ld CIT(A) and submitted that no further relief may be granted to the assessee. 21. We have heard the rival contentions and perused the material available on record. The survey was conducted at the assessee s premises on 13.10.2010 during the middle of the financial year 2010-11 where the stock as per books was determined at ₹ 104,788 and the physical stock has been determined at ₹ 523,698, therefore, there was excess stock found during the course of survey amounting to ₹ 418,910/-. During the course of assessment proceedings, the assessee submitted a reconciliation explaining the reasons for such difference in terms of stock being valued at market price, not valued at per the specification of particular products, stock received but invoices received after the date of survey etc. The AO has rejected the said reconciliation and explanation so offered along with documentary supporting documentation for the reason that the same was not offered during the course of survey. To our mind, given that the survey was conducted during the middle of the financial year, it is quite likely that there c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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