TMI Blog2022 (3) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee failed to produce any person from M/s Sarthi Commission Agent, from whom the rice husk was purchased by the assessee to prove the genuineness of the purchase made from the said party - Assessee furnished VAT number issued by the Punjab VAT Department to prove the existence of the said party and all the payments were made through banking channel. The assessee also furnished Sales Tax Record which confirmed that the sales were made to the assessee by M/s Sarthi Commission Agent therefore the Ld. CIT(A) rightly held that the mere fact that during the F.Y. 2014-15 it was found that the said party M/s Sarthi Commission Agent closed its business at that time was not enough to draw any adverse inference for the F.Y. 2010-11 relevant to the A.Y.2011-12 under consideration. In the present case, when the identity of the party was established purchases / sales were vouched and payments were made through banking channel by the account payee cheque, we are of the view that the impugned addition made by the A.O. was rightly deleted by the Ld. CIT(A). Bogus rice husk purchased from M/s Abhishek Enterprises - A.O. made the said addition only on this basis that notice issued under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account i.e; raw material and consumables on the basis of cost price, furnished goods and semi finished goods on the basis of cost of production. It is also not the case of the A.O. that there was any variation in the method of valuation of stock in the books of account from the earlier years. Therefore the addition made by the A.O. only on this basis that valuation of stock in the statement given to bank was different from the stock mentioned in the books of account was rightly deleted by the Ld. CIT(A). We, do not see any valid ground to interfere with the findings of the Ld. CIT(A) on this issue.- Decided against revenue. - ITA No. 894/Chd/2017 - - - Dated:- 24-9-2021 - Shri. N.K.Saini, VP And Shri , R.L. Negi, JM For the Assessee : Shri Mayank Jain, Advocate, Shri Madhur Jain, Advocate For the Revenue : Shri Sandeep Dahiya, CIT ORDER PER N.K. SAINI, VICE PRESIDENT This is an appeal by the Department against the order dt. 23/03/2017 of the Ld. CIT(A), Patiala. 2. Following grounds have been raised in this appeal: 1. Whether in the facts and circumstances of the case, the Ld. CIT(A), Patiala is legally correct in deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s Suraj Bhan Brothers and M/s Babu Ram Ram Gopal, Patiala who had shown the sale of rice husk only to the assessee. The A.O. was of the view that there was a nexus of bogus sales purchase of rice husk without any delivery of goods, he accordingly issued show cause notice dt. 21/03/2014 to the assessee to furnish the explanation. 5.2 The A.O. reproduced the statement of Shri Ajay Malik proprietor of M/s Jai Maa Kali Foods who was examined under section 131 of the Act, at page no. 5 to 10 of the assessment order dt. 30/03/2014, for the cost of repetition the same is not reproduced herein. On the basis of the statement of Shri Ajay Malik, the A.O. was of the view that Shri Ajay Malik was giving only sales bills of husk to M/s Suraj Bhan Brothers and M/s Babu Ram Ram Gopal, he was not giving any actual delivery of goods i.e. husk and that the entire purchase from those two concerns had been shown to the assessee. 5.3 The A.O. also mentioned that during the course of examination of Shri Ajay Malik ,a request was made telephonically to M/s Suraj Bhan Brothers and M/s Babu Ram Ram Gopal asking them to come to the office for cross examination of Shri Ajay Malik but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase of husk amounting to ₹ 94,38,495/- from your sister concerns M/s Suraj Bhan Brothers and M/s Babu Ram Ram Gopal Patiala may not be treated as bogus and disallowed. The assessee company makes following submissions for kind consideration and necessary perusal: 1. It is wrong to suggest that both concerns namely M/s Suraj Bhan Brothers and M/s Babu Ram Ram Gopal are being run under one roof of a shop no. 66, New Grain Market Patiala. Both concerns are being run from different premises. M/s Suraj Bhan Brothers is being run from shop no. 66-A, New Grai Market, Patiala and M/s Babu Ram Ram Gopal from shop no 66New Grain Market, Patiala. 2. It is wrong to suggest that both concerns namely M/s Suraj Bhan Brothers and M/s Babhu Ram Ram Gopal are sister concerns of our company. Sh. Vidya Sagar is proprietor of M/s Suraj Bhan Brothers and Sh. Suraj Bhan is proprietor of M/s Babu Ram Ram Gopal. Both are directors in our company but both directors do not have substantial interest in the company. A person is deemed to have a substantial interest in the business carried on by a company in case he carries not less than 20% of the voting power in case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng adverse evidence on this account in respect of other vehicles numbers. 6. Please refer your office letter dated 21.03.2014, we respectfully submit that all the enquiries in respect of serial number 1 to 4 given at page number 6 should be addressed to M/s Suraj Bhan Brothers Patiala and M/s Babu Ram Ram Gopal Patiala. We are not privy to all these facts. 7. In view of above submissions, it is respectfully submitted that purchases of husk from these two parties are genuine. No disallowance is called for in the case of the company. 8. With regards to purchase of waste paper from M/s Maha Lakshmi Trading Company Jammu, it is respectfully submitted that the selling concern still exist at the said premises. We have received necessary confirmations from the said party and the same are enclosed herewith. It has been confirmed by the selling party that they are running business from the said premises. They have also sent copy of account from their books of accounts, acknowledgment of return of income, sales tax registration certificate and a confirmatory letter. (Page No. 3 to 12). If any other information is required, we shall be glad to furnish the same. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv. When the facts clearly indicate that neither M/s Suraj Bhan Brother nor M/s Babu Ram Ram Gopal had taken the actual delivery of the husk, how can the assessee claim that they actually supplied husk to these two concerns. v. The assessee has not produced any evidence in the shape of gate-pass register etc indicating the evidence of incoming and outgoing vehicles, weighment slips, stock register, freight payments, labour charges for loading and unloading of rice-husk at its premises. vi. For the purpose of comparative study of consumption of rice-husk by the assessee during the last two assessment years, the assessee was requested to furnish the quantitative details of consumption of husk vis a vis production of finished goods, the assessee has not furnished the requisite information for the reasons best known to him. vii. The copy of the audited accounts submitted by the assessee bears the signatures of Sh. Vidya Sagar, Director from which it is clear that he had a vital role in the functioning of the assessee company. viii. In most of the instances verified, both the aforesaid sister concerns have shown supply of rice-husk to the assessee in vehi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIN 03982074829. The registered address of the party as per VAT records with the Department of Excise and\ Taxation is Shop No. 157 B, New Grain Market, Sunam. The business has been closed by the selling dealer as a result of which the business premises have also been vacated. The selling party was running business in the year under consideration and therefore it is wrong to suggest that the purchases made from the above party are not genuine simply because of the fact that the business premises are now being used in the current financial year 2013-14 by M/s Gobind Trading Company Sunam. The purchases made from, M/s Sarthi Commission Agent Sunam are genuine. 5.8 However the A.O. did not find merit in assessee s contention and made the addition of ₹ 69,69,993/- by observing in para 5 of the assessment order dt. 30/03/2014 as under: 5. Assessee's contention about the genuineness purchases from M/s Sarthi Commission Agent is totally baseless. The assessee has failed to produce any person from M/s Sarthi Commission Agent in support of his contention. Mere bill transaction without delivery of the goods cannot be treated as genuine for which no corroborative evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the same is not acceptable. The station Khanna is not a very far away station. It is only 35 kms from Patiala. The assessee could have easily produced the concerned persons which he has failed. As such, the assessee has failed to prove the genuineness of purchase of the aforesaid rice-husk from M/s Abhishek Enterprises, Khanna by any other corroborative and contemporaneous records or evidences. Accordingly, an addition of ₹ 22,50,396/- is made to the returned income of the assessee by disallowing the purchase of rice-husk as discussed above. 5.11 The A.O. further observed that although it was not possible to verify every bill to know the genuineness of the purchases of rice husk. However certain instances indicating bogus purchases of rice husk by the assessee came to his knowledge in respect of the purchases of rice husk made by the assessee from the following concerns: 1. M/s Mandeep Kumar Brothers, Village Main, District Patiala. 2. M/s Radha Krishna Traders, Grain Market, Moonak. 3. M/s Geeta Ram Sons, Seeta Geeta Street, Samana. 4. M/s Sukhbir Singh and brothers. Village Main. 5.12 The A.O. observed that the indication of bogus pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oborative evidence which is maintained in the ordinary course of business such as stock register, gate register, weighment slips etc. 5.13 The A.O. made the addition of ₹ 62,43,090/- by observing as under: From the entire discussions of the facts mentioned above, it is well established that the assessee is in the habit of booking bogus expenses in its books of account under the head 'purchase of husk' to a very large extent. However, it is not possible to verify each and every purchase bill of rice-husk out of the total purchases of rice-husk amounting to ₹ 14,35,20,713/-. As per the facts discussed above, there is very strong circumstantial evidence of direct and indirect nature to suggest that the purchase of rice-husk cannot be] regarded as genuine in totality. Disallowance of ₹ 1,86,58,884/-(₹ 94,38,495/- + ₹ 69,69,993/- + ₹ 22,50,396/-) has already been made on account of bogus purchases of ricehusk by the assessee from sister concerns, from M/s Sarthi Commission Agent, Sunam and from M/s Abhishek Enterprises, Khanna. The remaining purchases of rice-husk is of ₹ 12,48,61,829/-( 14,35,20,713 1,86,58,884). Hence, disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company from said persons are beyond the ambit of any doubt. b) The LD A.O. has held that affidavits of Sh. Suraj Bhan Sh. Vidya Sagar are not of much importance because the facts have already established that said persons were making bogus purchases (Para (ill) on page 21). The LD A.O. is not justified in arriving at such a conclusion without examining Sh. Suraj Bhan Sh. Vidya Sagar when they have on sworn statement affirmed the sales of rice husk to the assessee company. c) The LD A. O. has stated that it is not understood how the assessee can claim that M/s Suraj Bhan Brothers M/s Babu Ram RamGopal had actually supplied rice husk when they did not take actual delivery of rice husk (Para (iv) page 22). The LD A.O. could examine proprietors of these concerns if he had any doubt regarding actual delivery of rice husk. No addition can be made simply on the basis of surmises and conjectures or suspicion. d) The LD A.O. has stated that assessee has not produced any evidence in the shape of gate pass, register etc. indicating the evidence of incoming and outgoing vehicles, weighment slips, stock register, freight payments, labour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that during the course of recording of statement ofSh. Ajay Malik u/s 131 of the Income Tax Act, the assessee was conveyed telephonically to cross examine Sh. Ajay Malik and he declined the same (Para (ix) Page 24). The assessee vehemently denies any such telephonic call. Moreover, there was no reason to call the assessee since he has no business transaction with Sh. Ajay Malik. Hence no adverse inference can be drawn. h) The LD A.O. has drawn adverse inference on the ground that the income tax returns of M/s Suraj Bhan and Brothers, M/s Babu Ram RamGopal and Sh. Ajay Malik show sales made by these concerns at NIL which proves corroboratively that these concerns never supplied rice husk to the assessee (Para (x) page 24). In the income tax returns M/s Suraj Bhan Brothers and M/s Babu Ram RamGopal have duly shown the sales made to the assessee company (copies of relevant documents enclosed). As regards Sh. Ajay Malik, the assessee company has not made any purchases from him and as such question of his showing any sales to the assessee company does not arise. i) The LD A.O. has drawn adverse inference on the ground that Assessee Company did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the said purchases of ₹ 96,45,645/- as bogus. The fact remains that the appellant had filed sworn affidavits of two parties with the request to examine them in person. It is also undisputed that payments for these purchases were made through normal banking channels, etc. to establish genuineness of the aforesaid purchases. From the record it is evident that the books of account have not been rejected and AO has not doubted the consumption of rice husk and therefore it would be logical to conclude that without corresponding purchases being made, the assessee could not have consumed the stated qty. of rice husk. The claim of appellant regarding purchase of rice husk from said two parties in preceding years is not disputed by the A.O. In my considered view, the AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the A.O on the statement of a third party having no business connection with appellant would not in itself suffice to treat the purchases as bogus and make the addition u/s 69C of the Act. If the AO doubted the genuineness of the said purchases, it was incumbent upon him to cause further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied VAT number of the party as per VAT records of the Punjab VAT department to prove the genuineness of the said party. The mere fact that during the financial year 2014-15 it was found that the assessee has closed its business was not enough to draw any adverse inference when the identity of the party is established, sales are vouched and payment has been made to the person concerned through account payee cheque. In this connection your kind attention in drawn to the decision in the case of Mather Piatt (India) Ltd. V/s Commissioner of Income Tax (1987) 168 ITR 493 (Cal.) wherein it was held that If assessee has established identities of commission agents to whom it had made payment, the fact that summons sent to them by the department came back unserved four years later would not mean that they were non-existent at the time of payment. Hence, no adverse inference on this account could be drawn. Moreover, copies of sales tax records of the assessee which confirm the factum of sales to the assessee company which could not be filed due to paucity of time during the course of assessment proceedings, is also enclosed to establish the genuineness of the sales of rice husk to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that during the F.Y. 2014- 15 it was found that M/s Sarthi Commission Agent had closed its business was not enough to draw any adverse inference when the identity of the party is established, sales are vouched and payment has been made to the person concerned through account payee cheque. It is also undisputed that payments for these purchases were made through normal banking channels which fairly establish the genuineness of purchases. Further, the books of account have not been rejected and AO has not doubted the consumption of rice husk and therefore it would be logical to conclude that without corresponding purchases being made, the appellant could not have consumed the stated qty. of rice husk. In my considered view, the AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the AO on the fact that supplier was not produced in the course of assessment proceedings or as per his enquiry in the market, no such party was available in the A.Y.2014-15 would not in itself suffice to treat the purchases as bogus and make the addition u/s 69C of the Act. If the AO doubted the genuineness of the said pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made through payees account cheque which established genuineness of the purchases made from the said concern. The relevant extract of the letter dated27.03.2014 reads as under: With regards to purchases from M/s Abhishek Enterprises, Khanna, it has been stated in your office letter dated 26.03.2014 that the summons under section 131(1) had been received back to your office with the remarks Incomplete address and not known , it is respectfully submitted that we need time to ascertain the reasons for non-delivery of office letter at the said address. We are enclosing herewith a copy of account of the said concern from our books of accounts. The payments have been made by payees account cheque. It is therefore prayed that the purchases from the said concern are genuine. (Copy of letter enclosed) In view of the written reply filed by the assessee there was no reason with the LD A.O. to hold the purchases from the said concern as bogus without making any enquiry regarding the genuineness of payments made to said persons. Moreover, mere fact that notice u/s 131 was received back un served does not establish that the party did not exist when the payments, in respect of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve considered the assessment order and submissions made by the appellant and other material available on record. The case laws relied upon by the counsel of the appellant has also been perused. On appreciation of material on record, it is evident from order of assessment that it is primarily on the basis of non compliance of summons issued u/s 131 on the part supplier M/s Abhishek Enterprises, Khanna, that the A.O. held the said purchases amounting to ₹ 22,50,396/- as bogus. The appellant was asked to show cause as to why the purchases made from the said concern should not be disallowed as bogus. The appellant vide letter dt. 27.03.2014 informed the assessing officer that some time needs to be given to ascertain the reasons for non delivery of notice at the given address. In the mean time assessee supplied a copy of account of the said concern as per its books of account and also VAT number of the party as per VAT records of the Punjab VAT department to prove the genuineness of the said party. It is also undisputed that payments for these purchases were made through normal banking channels, which fairly indicates the genuineness of purchases. Further, the books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence regarding the source from where he arranged the trucks for supply of husk to the assessee. That no weighment slips were available with the assessee and there was no evidence of loading and unloading. That no evidence of freight payment was available with the concerns mentioned above. That none of them were having a godown for storage of the husk. That none of them have weighment slips which could be evidence in support for loading/ unloading of the rice husk. That purchase of husk shown by them was in different vehicle number and the same were shown to have supplied to the assessee in different numbers which is unusual. That most of the purchases of rice husk have been found in cash and that they failed to produce any evidence which may prove that they had actually supplied rice husk to the assessee. (Para h page 37 to 41 of the assessment order u/s 143(3)). The enquiries alleged to have been made from the four concerns stated above were never confronted to the assessee. No material collected by enquiries made by the LD A.O. can be used against the assessee until and unless he is informed of the evidence collected and is given an adequate opportunity of explaining th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon by the counsel of the appellant have also been perused. On appreciation of material on record, the AO noted discrepancies in the registration numbers of transport vehicles mentioned in the bills/GRs as these were not found to be of trucks. The suppliers could not tell the source of supplies which were eventually made to the appellant. There was no evidence of freight payments by the suppliers, although they supplied goods to the appellant on FOR basis. Hence, the A.O. concluded that remaining purchase of rice husk i.e. 5% of (₹ 12,48,61,829/-) amounting to ₹ 62,43,090/- is liable to be disallowed treating the same to be bogus. It is the case of the appellant that the findings of enquiries alleged to have been made from the aforesaid concerns and elsewhere were never confronted to it by the Id. A.O. during the course of assessment proceedings. It has further been argued that no material collected by enquiries made by the A.O. can be used against the appellant until and unless it was informed of the evidence collected and is given an adequate opportunity of rebutting/explaining the same. The contention of appellant is well supported by various deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchases, consumption of electricity etc. and made the specific addition that is why the books of accounts were not rejected. 8.1 It was reiterated that the books were not reliable but accepted by the A.O. for the reasons that he wanted to make specific additions. It was submitted that the assessee purchased rice husk worth ₹ 94,38,395/- from two sister concerns and the Directors of the assessee company who were the partners in the sister concern acted as conduit. It was stated that the assessee although had shown the purchase of rice husk but had not shown any explanation on account of freight payment, loading and unloading charges and even there was no godown to store the rice husk purchased in such a large quantity. It was stated that statement of the proprietor of M/s Jai Maa Kali Food namely Shri Ajay Malik was recorded under section 131 of the Act and in the said statement it was admitted that he was doing only paper transaction meaning thereby that he had getting bill of purchase and issued sale bill without getting any delivery of goods and without giving delivery of goods, reference was made to page no. 5 to 10 of the assessment order wherein the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 12,48,61,829/-. 8.6 The Ld. CIT(A) submitted that the assessee was in a habit of booking bogus expenses in its books of account by giving fake vehicle number on some of the bills which were mentioned as of the Truck, however, on an enquiry made from the DTO Patiala , it was found that the said numbers were of motor cars and not of the Trucks and the assessee could not produce any evidence regarding the source from where the Trucks were arranged for supplying the husk to the assessee, even no weighment slips were available and there was no evidence of loading or unloading, therefore, the addition made by the A.O. @5% of the another purchase was fair and reasonable. Reliance was placed on the following case laws: CIT Vs. Century Building Industries (P.) Ltd. [2007] 163 Taxman 188 (SC) Juggilal Kamalpat Vs. CIT [1969] 73 ITR 702 (SC) Goenka Jewellers Vs. CIT I, Jaipur [2018] 100 taxmann.com 517 (Raj) N.K. Proteins Ltd. Vs. DCIT [2017] 84 taxmann.com 195 (SC) M/s Lunawat Gems Corporation, Lunawat Market, Darra, Haldion Ka Rasta,Jaipur Vs. The CIT, N.C.R.B., Jaipur and DCIT, Jaipur B.T. Steels Ltd. vs. CIT [2011] 196 Taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore the addition of ₹ 98,34,495/- made by the A.O. was rightly deleted by the Ld. CIT(A). 10. As regards to the second addition of ₹ 69,69,993/- made by the A.O. on account of M/s Sarthi Commission Agent which was deleted by the Ld. CIT(A), the Ld. Counsel for the assessee submitted that the said addition was made simply on the ground that assessee failed to produce any person from the supplier M/s Sarthi Commission Agent and that no such concern operated from the address of the business premises given by the assessee. It was submitted that the assessee had furnished VAT number of the aforesaid party which is as per record of the Punjab VAT Department to prove the existence of the party and the genuineness of the purchase transactions. 10.1 It was further stated that the assessee furnished the sale tax record before the Ld. CIT(A) which could confirm that the said sales were made to the assessee and that payments for the said purchase were through banking channels therefore the Ld. CIT(A) rightly held that the mere fact that during the F.Y. 2014-15 it was found that M/s Sarthi Commission Agent had closed its business was not enough to draw any adverse inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. It was also stated that the A.O. made the inquiries from few selected suppliers and did not make the inquiries from all the suppliers. Therefore the addition based on surmises and conjectures was invalid in the eyes of law and the Ld. CIT(A) rightly deleted the same. As regards to the contention of the Ld. CIT DR that no payment was made for the freight, the Ld. Counsel for the assessee submitted that delivery was F.O.R. basis so there was no question for making the payment by the assessee for freight, loading and unloading. Accordingly, it was submitted that the addition of ₹ 1,86,58,884/- made by the A.O. by holding the purchases as bogus and disallowance of ₹ 62,43,090/- @ 5% out of the remaining purchases were rightly deleted by the Ld. CIT(A). 13. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case it is noticed that the A.O. made the addition on account of purchases made from two parties namely M/s Suraj Bhan Brothers, Patiala and M/s Babu Ram Ram Gopal, Patiala amounting to ₹ 94,38,395/-. The A.O. treated the said purchases as bogus on the basis of statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial evidence to conclusively prove that the said purchases were bogus is concerned, it is noticed that the A.O. made the said addition only on this basis that notice issued under section 131 of the Act to the supplier was received back unserved with remarks Incomplete Address and Not known . It appears that the A.O. without verifying the complete address of the said party assumed that the party was not available at the said address. On the contrary the assessee furnished documentary evidence, like copy of account, VAT number of the party, Sales Tax Return etc and the payments were made through banking channel to prove the genuineness and identity of the said party. Moreover the books of the assessee were not rejected, therefore, the said addition was rightly deleted by the Ld. CIT(A). 16. As regards to the another addition of ₹ 62,43,090/- @5% of the remaining purchases amounting to ₹ 12,48,61,829/-, deleted by the Ld. CIT(A), it is noticed that the said addition was made by the A.O. on the basis of inquiry made from few suppliers but the said inquiry was never confronted to the assessee, moreover, the A.O. himself accepted that 95% of the purchase were genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Central Excise Act Rules. The facts figures given in the stock statement and our books of account are explained hereunder: a) Waste paper: As per stock statement, we have shown 371 MT of waste paper (imported) 2072 MT (Indian) and the same tallies with our stock position as on 31.03.2011 in our stock register prescribed under the Central Excise Act Rules.(Page No. 50 to 51). So there is no difference in terms of quantity of waste paper. The valuation of waste paper in the stock statement has been made at a higher price than the cost price whereas the valuation of waste paper i.e. raw material has been made at a cost price. The valuation of waste paper has been made as per method of valuation shown in clause 12 (a) of tax audit report in Form 3CD dated 28.08.2011. The assessee company has placed on record the inventory of closing stock and its basis of valuation during the previous dates of hearing. So the difference in valuation of waste paper stands explained. The valuation in books of accounts is proper and genuine. b) Stores spares: As per stock statement, we have shown stores spares (wrongly written as stock spares in the office letter) wort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Stock position chart as on 31.03.2011 as per stock statement and as per stock register and there valuation as per books of accounts is enclosed to support above explanations. Copy of stocks of waste paper, finished goods and semi finished goods shown in the stock registers maintained under the Central Excise Act Rules are enclosed. 18.2 The A.O. after considering the submissions of the assessee observed that following difference were noticed in the hypothecation statement and the valuation of the stock as per books of account. Sr.No Items Valuation shown in the hypothecation statement ( in lacs) Valuation as per books of a/c 's ( in lacs) Lesser value shown by the assessee in the books of a/c (in lacs) 1 Imported Paper 80.47 61.76 18.71 2 Indegenious 197.61 196.29 1.38 3 Chemicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and valuation of stock as per books of account as on 31.03.2011. This addition has been made by the LD A.O. after making following observation: i) The assessee has not offered any explanation regarding the cost price of valuation of closing stock. ii) No working of the basis of valuation of these items has been disclosed by the assessee either to the bank or shown in the books of accounts. iii) That addition on account of excess stock shown to the bank is called for in the light of decision of the Hon'ble Punjab Haryana High Court in the case of B . T. Steels Ltd. vs. CTT decided on 06.10.2010. (Please refer pages 47 to 50 of order u/s 143(3)) The LD A.O. s observation: i) That assessee has not offered any explanation regarding the cost price of the valuation of the closing stock is incorrect and vehemently denied. During the course of assessment proceedings the assessee company has filed charts indicating that the valuation of closing stock as per account books was made on cost price in the case of raw material and consumables and on cost of production in the case of semi finished and finished goods (copies of chart filed enclosed). It is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no person can make notional profits. It has been held by the various Hon'ble Judicial authorities that no addition on account of valuation of closing stock can be made if the same is valued at cost price. The relevant decisions are as under: CTT vs. Woodward Governor India Pvt. Ltd. 312 ITR 254 While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase in profits before actual realization Chainroop Sampatram V/s CIT 24 ITR 481 (SC) Though loss due to fall in price below cost is allowed even if such loss has not been actually realized. No question of charging the appreciated value of closing stock and notional profit can arise. It is a misconception to think that any profit arises out of valuation of the closing stock ALA Firm V/s CTT 189 ITR 285 (SC) But on no principle can one justify the value of the closing stock at a market value higher than cost as that will result in taxation of notional profits which the assessee has not realized Keeping in view the factual and legal position in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thecated with the bank, only the difference of ₹ 52.12 lac was on account of lesser valuation in the books of accounts. 19.4 The Ld. CIT(A) further observed that the A.O. had not adversely commented on the maintenance of the books which were accepted by him and that he had given no adverse findings regarding purchase and sale and any unrecorded transaction, therefore, the action of the A.O. in holding that the stock statement furnished to the bank for availing higher limit reflected the true stock position could not be upheld. Accordingly the Ld. CIT(A) deleted the addition of ₹ 52,12,000/- made by the A.O. The reliance was placed on the following case laws: CIT Vs. Sanspareils Greenlands Private Limited (2013) 85 CCH 0113 (All) India Motor Parts Associates Pvt. Ltd. Vs. CIT 60 ITR 53 (Mad) CIT Vs. Apcom Computers Pvt. Ltd. 292 ITR 630 (Mad) 20. Now the Department is in appeal. 21. The Ld. CITDR strongly supported the assessment order passed by the A.O. and reiterated the observations made in the assessment order. The reliance was placed on the following case laws: N.K. Proteins Ltd. Vs. DCIT (2017) 84 Taxman.com 195 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. that the valuation in the books of account was not in accordance with the provisions contained in section 145A of the Act. 23.1 On a similar issue the ITAT Amritsar Bench in the case of ITO Vs. Devi Dayal Rice Mills(supra) held as under: Where the contention assessee that the stock statement furnished to bank was inflated and that statement also included the stock of the agriculturists lying in the godown of the assessee, was not controverted by the Assessing Officer addition made by the Assessing Officer only on the basis of the stock statement submitted to the bank was not justified. It is well settled that there is a real difference between pledging and hypothecation because in the case of the pledging, the goods remain under the lock and key of the bank and, therefore, are liable to be physically checked and examined but in the case of hypothecation such goods remain int eh custody of the assessee and the physical verification of the goods hypothecated to the bank is normally not done. The figures reported to the bank authorities cannot be taken at their face value as true and correct and the Assessing Officer cannot make additions on such basis. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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