Income Tax Appellate Tribunal - Ahmedabad
Span Diagnostics Ltd.,, Surat vs Assessee on 7 March, 2016
I.T.A. No.405 and 518/Ahd/2007
Assessment years: 2003-04
Page 1 of 15
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD D BENCH, AHMEDABAD
[Coram: Pramod Kumar AM and S S Godara JM]
I.T.A. No. 405/Ahd/2007
Assessment year: 2003-04
Span Diagnostic Limited ................................Appellant
173-B, New Industrial Estate
Road No. 6G, Udhna, Surat [PAN: AADCS3977Q]
Vs.
Assistant Commissioner of Income Tax
Circle 4, Surat ...........................Respondent
I.T.A. No. 518/Ahd/2007
Assessment year: 2003-04
Assistant Commissioner of Income Tax
Circle 4, Surat ................................Appellant
Vs.
Span Diagnostic Limited ...........................Respondent
173-B, New Industrial Estate
Road No. 6G, Udhna, Surat [PAN: AADCS3977Q]
Appearances by:
Saurabh N Soparkar for the assessee
A K Pandey for the Assessing Officer
Date of concluding the hearing : December 29 th , 2015
Date of pronouncing the order : March 7 th , 2016
O R D E R
Per Pramod Kumar, AM:
1. These cross appeals are directed against the order dated 16 th November, 2006 passed by the learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year2003-04.
I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 2 of 15
2. Grievances raised by the parties are as follows:
ITA No.405/Ahd/2007 (By the assessee)Being aggrieved by the order of the learned Commissioner of Income Tax (Appeals) III, Surat, this appeal petition is submitted on the following grounds, which it is prayed may be considered independently without prejudice to one another 1.01) On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition made by the Assessing Officer on account of alleged excess trading stocks of Rs.18,31,080/- as unexplained investment in stock ignoring the submissions made and the statements recorded of the employees u/s. 133A wherein it was stated that the stock taken by the survey party required rechecking. The addition of Rs.18,31,080/- being bad in law needs to be deleted.
1.02) Without prejudice to the above and without admitting, the amount of Rs.18,31,080/- being the sale price, the same needs to be replaced by the cost price after reducing margin of profit of the sale price.
1.03) Without prejudice to the above and without admitting, necessary telescoping needs to be done.
2.01) On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the addition of Rs.26,921/- as unaccounted sales for alleged shortage of physical stock on the date of the survey in the manufacturing segment. The alleged deficit in stock of Rs.26,921/- being a negligible difference considering the total turnover and available stock, the addition of Rs. 26,921 /- needs to be deleted.
2.02) Without prejudice to the above and without admitting, the learned CIT(A) erred in not considering the alternate plea of the appellant that at most, net profit only can be added and not the entire amount of Rs.26,921/-
being the negligible deficit in the stock.
3) On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the addition u/s. 145A of Rs.3,30,398/- in respect of unavailed modvat balance and not following the decision of the Hon'ble Supreme Court in the case of Indo Nippon Company Ltd. (261 ITR 275).
ITA No.518/Ahd/2007 (By the revenue)[1] On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-III, Surat has erred in deleting the addition of Rs.3,87,62,300/- made on account of unaccounted sale.
I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 3 of 15 [2] The Ld. CIT(Appeals) has not appreciated the fact that the discrepancies found in respect of stock during the course of survey u/s. 133A of the Act at the business premises were not explained by the assessee and also during the course of assessment proceedings.
[3] On the facts and in the circumstances of the case, and in Law, the Ld. CIT(A), Surat has erred in deleting the addition of Rs.31,87,596/- made on account of unaccounted sale for shortage of physical stock on the date of survey in the manufacturing segment.
[4] On the facts and in the circumstances of the case, and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer.
[5] It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored.
3. To adjudicate on these appeals, a few material facts need to be taken note of. The assessee is engaged in the business of manufacturing, marketing and trading in diagnostic reagents, diagnostic instruments, diagnostic plastic accessories and allied products. A survey under section 133A was carried out in the factory premises of the assessee on 7 th June 2002. The stock found during the inventoried by the survey team. Based on the results of this exercise the Assessing Officer was of the view that the net retail price value of finished good (manufacturing), as actually found during the survey, was short by Rs.32,41,517 vis-à-vis the value of this stock as per the accounts and the net retail price value of finished goods (trading), as actually found during the survey, vis-à-vis the value of this stock as per the books of accounts was excess by Rs 18,31,080. When these facts were confronted to the assessee, the assessee explained that so far as the variation of stock in the trading segment was concerned, it was explained by invoices of Rs.15,51,386 and Rs.2,44,335 which were prepared but physical stock was not despatched at the point of time when survey took place. An amount of Rs.35,359 remained unexplained in this regard. As regards the discrepancy in the manufactured goods stock, it was explained that material worth Rs.16,04,694 and free material worth Rs.2,18,259 lying under dispatch which was not included by the survey team, and goods worth Rs.13,67,703, representing expired products, lying in the stock but not included by the survey team. The Assessing Officer, however, rejected the explanation on the ground I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 4 of 15 that none of the documents seized during the survey corroborates this story. When it was put to the assessee, vide order sheet dated 12 th January 2006, that why not the excess stock found not be treated as unexplained investment of the assessee, and why stock shortage of the assessee not be treated as unaccounted sales, the assessee gave the following justification for the variations in physical stock vis-à-vis the books of accounts:
"5.3 In response to the above show cause notice, the assessee's A.R. Shri K. K. Goriwala, appeared on 30/1/2006 and furnished the reasons for the difference in stock position, which is as under :
Trading stock found during survey 2,99,83,823
Stock as per stock register 2,81,52,743
----------------
Difference (excess) 18,31,080
Less: Items under dispatch on the date of survey
but counted by the survey team 16,97,112
Calculation mistake in survey statement 99,513
----------------
34,455
Add: Quantity difference 1,69,027
Page-wise totaling error in survey statement 6,897
----------------
Difference 2,10,379
=========
Manufacturing stock found during the survey 1,81,76,495
Stock as per stock register 2,13,91,012
----------------
Difference (deficit) (-) 32,14,517
----------------
Adjustments to be made:
Page-wise totaling mistake (+) 87,543
Calculation/multiplication errors (- ) 2,07,743
Items skipped out while counting (+) 1,40,752
Expired goods not counted by the survey team (+) 9,39,951
Certain product batches not counted by survey team (+) 22,80,935
---------------
Total 32,41,438
---------------
Difference 26,921
========"
4. The Assessing Officer noted that the assessee has shifted his stand and is unable to substantiate the explanation given by him. He rejected the I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 5 of 15 explanations of the assessee and proceeded to make the addition for Rs.18,31,080 in respect of excess stock, and of Rs.32,14,517 in respect of stock deficit, by observing as follows:
"5.4.2 Trading stock (excess of Rs.18,31,080) :
As stated in the preceding paras, the assessees vide its submission dated 12.1.2006 stated that goods of Rs.15,51,386/- were lying under dispatch and goods of Rs.2,44,335/- were issued for Bangalore depot and deducted from the stock but they were lying under dispatch, whereas, vide submission dated 30.1.2006, the assessee stated that goods of Rs.16,97,112/- were lying under dispatch, for which bills were raised. For the sake of simplicity, the assessee's two different explanations on the same point are summarized in the following table:
As submitted on 12.1.2006 As submitted on 30.1.2006
Finished stock trading found 2,99,83,823 Finished stock trading found 2,99,83,823
Less: Less:
(a) Sate Invoice prepared but physical (a) Sale Invoice prepared but
dispatch could not take place due to I.T. physical dispatch could not take
Survey but counted by the survey team place due to I.T. Survey but counted
in the stock found 15,51,386 by the survey team in the stock 16,97,112
found
(b) Calculation mistake in survey 99,513
statement
(b) Invoice prepared for Bangalore Add:
Depot but physical dispatch could not 2,44,335 (a) Quantity difference 1,69,027
take place due to I.T. Survey but ____________________________________________ ______________
counted by the survey team in the stock (b) Pagewise totaling error in
found survey statement 6,897
Net amount 2,81,88,102 Net amount 2,83,63,122
Less: Stock as per company's records 2,81,52,743 Stock as per stock register 2,81,52,743
Difference that could not be reconciled 35,359 Difference that could not be 2,10,379
by assessee reconciled by assessee
As stated earlier, no documentary evidence in the form of sale bills/invoice, challan, outward slip, etc. were found during the course of survey, which could substantiate, the claim of the assessee that the goods were lying under dispatch. This shows that after the survey, the assessee has created evidences to reconcile the difference in stock found during the course of survey. All these circumstances only prove a point that the assessee is trying to reconcile the difference in stock with unverifiable and contradictory facts. Therefore, the assessee's submission cannot be relied upon and thus, an addition of Rs.18,31,080/- is made to the total income on account of unexplained investment. Penalty proceedings u/s. 271(l)[c] of the Act are also initiated for furnishing inaccurate particulars of income and concealment of income.
I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 6 of 15 5.4.3 Manufacturing stock (deficit Rs.32,14,517) :
As stated hi the preceding paras, the assessees vide its submission dated 12.1.2006 stated that goods of Rs.16,04,694/- and free supply of Rs.2,18,259/- were lying under dispatch and the survey team had not counted the same and expired goods of Rs.13,67,703/- were separately kept and hence they were also not counted by the survey team, whereas, vide submission dated 30.1.2006, the assessee stated that certain product batches totaling to Rs.22,80,935/-, expired goods of Rs.9,39,951/- and other goods of Rs.1,40,752/- were not counted by the survey team. Thus, the assessee initially submitted that goods were lying under dispatch but not counted by the survey team but later on it is submitted that certain product batches, expired goods, etc. were not counted by the survey team. Even the figures submitted on 12.1.2006 and on 30.1.2006 do not tally with each other. For the sake of simplicity, the assessee's two different explanations on the same point are summarized in the following table:
As submitted on 12.1.2006 As submitted on 30.1.2006
Finished stock trading found 18176495 Finished stock manufactured found 18176495
Finished stock as per books 21391013 Finished stock as per books 21391013
Deficit 3214517 Deficit 3214517
Less: Adjustments to be made:
[a] Material under dispatch lying at 1604694 [a] Pagewise totaling mistake [+] 87543
dispatch department at Sachin but not
counted by the survey team [b]Calculation/multiplication errors [- ] 207743
[c]Items skipped out while counting
[b] Free supply under scheme under 218259 [d]Expired goods not counted by the [+] 140752
dispatch but not counted by survey survey team
team [d] Certain product batches not [+] 939951
counted by survey team
[c] Expired material separately lying at 13,67,703 [+]2280935
Sachin but not counted by the Survey ----------------
team 3241438
Difference that could not be reconciled 23861 Difference that could not be 26921
by assessee reconciled by assessee
It is also pertinent to mention here that in the case of Trading goods, the assessee submitted that certain goods for which bills were raised and lying under dispatch were counted by the survey team and therefore excess stock was found. Whereas, in the case of manufacturing goods, the assessee submitted that certain goods lying under dispatch were not counted by the survey team and therefore deficit in stock was found. Thus, the assessee is taking one position to explain the deficit and another position to explain the excess stock found, which arc self contradictory.
It is also relevant to mention here that some of the Directors of the assessee company have substantial interest in Desai Clinical Laboratory, a partnership firm which was also covered under survey on the same day. The said pathology laboratory was found to be manipulating its receipts and ultimately disclosed an amount of Rs. 40 lacs as a result of survey. This implies that various reagents and I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 7 of 15 chemicals used in clinical testing by Desai Clinical Laboratory were purchased out of books of account and thus this deficit in the manufactured stock in the hands of the assessee clearly represented nothing but sales of the assessee company outside the books of account. All these circumstances only prove a point that the assessee is trying to justify the difference in stock with unverifiable facts. Therefore, the explanation of the assessee for difference in stock is not acceptable and thus rejected. Therefore, the assessee's submission cannot be relied upon and thus, an addition of Rs.32,14,517/- is made to the total income on account of unaccounted sales. Penalty proceedings u/s. 271(l)[c) of the Act are also initiated for furnishing inaccurate particulars of income and concealment of income."
5. The Assessing Officer did not stop at making these additions. He was of the view that during the relevant previous year, the ratio of sale realization to the raw material consumed had fallen substantially. This ratio was 5.55%, 7.49% and 6.04% for the assessment years 2003-04, 2002-03 and 2001-02 respectively. This trend, according to the Assessing Officer, "proved" that the assessee has suppressed the sales. A reference was also made to the fact that an unaccounted income of Rs.40 lakhs was found in Desai Clinical Laboratory, in which directors were substantially interested. Adopting 6.765% of sales to be raw material, the Assessing Officer computed the unaccounted sales to be Rs.387.62 lakhs, and added the same to be income of the assessee.
6. The Assessing Officer also made an addition of Rs.3,30,398 under section 145 A of the Act in respect of unavailed MODVAT credit. The Assessing officer noted that MODVAT credit in respect of materials during the year was shown at Rs.11,91,658, whereas, in Annexure 3, the credit availed was shown at Rs.8,61,260. The assessee's explanation was rejected as unsubstantiated by records.
7. Aggrieved by the additions so made, assessee carried the matter in appeal before the CIT(A). As for the addition of excess trading stock of Rs.18,31,080, it was confirmed by the CIT(A) while the addition in respect of shortage of stock, which was made by the AO for Rs.32,14,517, it was scaled down to Rs 26,921. Learned CIT(A) deleted the additions of Rs.387.62 lakhs in respect of the unaccounted sales and Rs.8,61,260 respect of the 145A adjustment. While the I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 8 of 15 assessee is aggrieved of the additions upheld by the CIT(A), the Assessing Officer is aggrieved of the relief granted by the CIT(A) None of the parties is thus satisfied and both the parties are in appeal before us.
8. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
9. As far as the appeal filed by the assessee is concerned, only two points are pressed before us- first, with respect to the grievance against the CIT(A)'s confirming the addition of Rs.18,31,080 in respect of alleged unexplained investment in the stock, and - second, in respect of the CIT(A) confirming the addition of Rs.3,30,398.
10. Coming to the CIT(A)'s confirming the addition of Rs.18,31,080 in respect of alleged unexplained investment in the stocks, we find that the learned CIT(A) has confirmed the same by observing, inter alia, as follows:
"The AO added Rs.18,31,080/- as unexplained investment in trading goods by observing that no documentary evidence in the form of sale bills, challan, outward slip, etc., were found during the course of survey, which could substantiate the claim of the assessee that the goods were lying under dispatch and after the survey, the appellant created evidences to reconcile the difference in stock found during the survey. However, the documentary evidences as stated by the AO were very much there as could be verified from the bills. The AO never pointed out as to how the bills produced before him were not correct. At the time of survey itself, the concerned person from the factory of the appellant had stated that the stock taking was not properly done and it needed rechecking and it was pointed out that certain goods had to be excluded or added. It was further submitted that the statement of Shri Satishbhai Dalpatbhai Panchal recorded during the course of survey was supportive of this fact and the relevant portion was as under:-
"Q 11) Span Diagnostics Limited company's trading department present stock value is Rs.2,99,83,823/- while as per your stock statement the stock value is Rs 2,81,75,153/-. Thus, there is a difference of Rs.18,08,670/- value of stock. Please clarify.
A 11) Considering the value of expired/unmarketable goods as well as goods under dispatch for which bill has been prepared account for the aforesaid difference"
I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 9 of 15 Further the statement of Shri Manoj Narendrabhai Vashi, Finished Goods Incharge, during the course of survey was also important and the relevant portion was as under :-
"Q 2 As a Finished Goods Inchargc of Span Diagnostics Limited company, what type of work you are doing 9 Please let us know.
A2 In this company, as a Finished Goods Incharge, my fob function is as under:
Firstly Manufactured Finished Goods are transferred to my department, which I check and thereafter the same is entered into the stock. Thereafter the goods which requires to be kept in cold room I arrange to put the same in the cold room. Similarly the goods to be .stored at room temperature I arrange to put [here. Thereafter as per the order received from dispatch department, advice is prepared and goods are sent to dispatch department then dispatch department do their work.
Q5 Please let us know the details of all the stocks of all divisions as per your stock register, A5 As per the stock register, there is a goods for all divisions of Rs. 2,13,91,012/-, which are as under:
01) PDP Rs.1,02,03,214.20
02) Stimulus Rs. 11,21,326.25
03) ID Rs. 5,97,600.00
04) Cogent Rs. 94,68,872.50
Rs.2,13,91,012.75
I am producing the computer statement for the above details.
Q. 6 According to the finished goods inventory there is a stock of finished goods worth Rs.1,81,76,495/- which is less by Rs.32,14,517/- from the stock shown in the answer to Question No. 5, for which please let us know your clarification A. 6 According to me, the variation in stock requires checking again. The aforesaid variation is not satisfactory and it can be okayed after checking. There may be query of only Rs.25,000 as per my account Q. 7 Above staled stock has been written down in your presence and the same has been rechecked. Now what is your explanation for this ?
A7 According to me, it requires checking again."
The above statements proved that reconciliation was required and discrepancies were pointed out at the time of survey itself but the survey team did not act further. There was no question of unexplained investment since almost the entirety of trading stock was imported under the proper licence, there was a tally and identification of each item of purchase and corresponding sale, the sales were I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 10 of 15 subject to levy of sales tax, the appellant was required to maintain record of trading stock under the Drugs & Cosmetic Act, 1940 where the company was required to obtain license in Form 10 under rule 21 and the company had to maintain record for sale and distribution, no evidence was found by the survey team which suggested purchases outside the books of account, all were evidenced by dispatches, challans, sales invoices, packing slip, gate pass, etc. forming part of regular registers maintained in the normal course of business and there was no reason to make any corroborative noting about the same in any of the loose papers. Further, explanation was furnished and copies of sales invoices for stock under dispatch for Rs.16,97,112/- were also submitted and the Stock inventory taken by survey team. The appellant also relied on the following decisions wherein it is held that once other agencies accepted the books and the result other agency could not object to the same :-
a) Kumar Aerosols (P) ltd. vs. ACIT (1996) 55 TTJ (Del) 385
b) Motipur Sugar Factory (P.) LTD, vs. CIT (1974) 95 1TR 401 (PAT)
c) R J. Trivedi (HUF) vs. CIT 144 ITR 877 (MP)
I have considered the submissions and have gone through the details filed by the appellant. The fact of the case are during the course of survey u/s. 133A of the Act stock inventory was prepared after physical verification and stock in excess of book stock was found in the form of trading goods. The appellant has tried to explain the discrepancy by preparing a reconciliation statement but even in that statement the reconciliation could not be made because of two different submissions filed by the appellant during the course of assessment proceedings. The statement filed on 12.1.2006 claims that the sale invoices prepared were in respect of trading goods worth Rs.15,51,386/- whereas the statement filed on 30.1.2006 claims it to be worth Rs.16,97,112/- on the ground that this stock was ready for dispatch and sale invoices were prepared but due to action u/s. 133A of the Act the said dispatch could not be made. Further the difference that could not be reconciled was worked out at Rs.35,359/- vide submission dated 12.1.2006 and Rs.2,10,379/- as per submissions dated 30.1.2006. As already pointed out by the AO no such sales invoices were found during the course of survey and therefore this version of the appellant is not verifiable. Further, the contention of the appellant that the employees of the company whose statement was also recorded during survey operations had also stated that the stock inventory needed rechecking and therefore the appellant's version was correct, is also not at all relevant since anyone could claim that the stock was not properly inventorised. In view of this, I hold that the appellant's explanation regarding excess trading stock found is without any merit specially in view of the fact that the appellant has also claimed in another ground of appeal that certain free supplies and expired goods were not counted by the survey party which resulted in deficit in manufacturing stock since the two -versions are contradictory. In view of the same addition made by the AO on account of excess trading stocks is hereby confirmed."
I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 11 of 15
11. We have noted that the assessee had given the details of the invoices, at pages 26-30, which were drawn up at the point of time of survey but the invoiced goods was still at the factory premises and was, as such, included in the stock inventoried by the survey team. We have also noted that during the course of statement being recorded, it was repeatedly stated by the concerned employee, i.e Manoj N Vashi, that the variations are required to be checked again and the verifications are required to be done. The variations were not accepted to be on account of increase in stock. It was also explained that as per order received from dispatch department, sale advise is prepared and goods are sent to dispatch department, and then dispatch department does its work. It is thus clear that any point of time of the functioning of the unit, there will be some material in respect of which advice is prepared, and the accounting is therefore done, and the matter is under dispatch. The raising of invoice cannot be a function of the dispatch department. In view of this factual situation, and in view of statement of the employee recorded during the survey, the variations on accounts of goods invoiced but under dispatch are fully justified. The copies of related invoices are part of the record before us. There is no mention of any quantity of goods under dispatch separately. In these circumstances, in our considered view, the explanation of the assessee cannot be rejected as beyond the preponderance of probabilities. As for the observation that these bills were not amongst the seized documents, it is for the survey team to decide which document they want to pick up. It is not the case that all the sale invoices were picked up by the survey team but these invoices were not there. Just because a document was not taken by the survey team would not mean that such a document did not exist at that point of time. Similarly, learned CIT(A) has simply brushed aside the calculation mistakes/quantity difference in the inventory taken by the survey team. If there is a calculation mistake, as we find it to be, there cannot be any justification for not making an adjustment in respect of the same. Just because there is a difference in the figures of stock as per inventory taken and the books of the assessee, it cannot simply be treated as unexplained. The reconciliation given by the assessee is required to be considered in a fair and objective manner, and on the basis of preponderance of I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 12 of 15 probabilities. When we examine the reconciliation in this light, we do find that the assessee's explanation is reasonable, in accordance with the ground realities and material on record and it deserves to be accepted. In view of these discussions, as also bearing in mind entirety of the case, we are of the considered view that only the amount of Rs.2,10,379 which has remain unexplained deserves to be confirmed, and the balance amount of unexplained investment in the stock deserves to be deleted. The assessee gets the relief accordingly.
12. As regards the second issue, i.e. addition of Rs.3,30,398, learned representatives fairly agree that the issue is covered, in favour of the assessee by Hon'ble Supreme Court in the case of CIT Vs Indo Nippon Co Ltd [(2003) 261 ITR 275 (SC)] read with CIT Vs Lok Nete Bala Sahib Desai SSK Ltd [(2011) 399 ITR 288 (Bom)]. Learned Departmental Representative, however, relied upon the stand of the Assessing Officer.
13. In view of the above position, we delete the addition of Rs.3,30,398 as well.
14. Grievances of the assessee are thus upheld and the appeal is partly allowed in the terms indicated above.
15. Coming to the grievances raised by the Assessing Officer, there are only two grievances in this appeal- first, that the CIT(A) erred in deleting the addition of Rs.3,87,62,300 in respect of the alleged suppressed sales, and - second, that the CIT(A) erred in deleting the addition of Rs.31,87,596 in respect of the unaccounted sales of stock which was found short, vis-à-vis stock as per the books of accounts, at the time of survey.
16. As for the first point i.e. addition on account of suppressed sales of Rs.3,87,62,300, we find that, as learned CIT(A) has rightly held, it is wholly devoid of any merits at all. There is legally sustainable basis for this addition.
I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 13 of 15 The Assessing Officer has been very casual in making the estimation. In one paragraph, he expresses his doubts due to the fall in ratio of raw material to sales, and, in a somewhat mechanical manner and without giving serious consideration to such a big addition, he quantifies the impact of his suspicion. We have noted that the impugned addition was made on the basis of the underlying presumption that the ratio of raw material to the sales must remain constant from year to year. It is too simplistic an approach to the complex real life situations, and it can only hold good when assessee is making only one product and all the business variables remain the same. That is seldom possible. The only merit of this approach, if it can be said to be a merit, is simplicity of the approach. At best fall in such a ratio can be starting point for investigating the matter further. The Assessing Officer, however, did not even put the assessee to notice by issuance of a specific show cause. No defects have been pointed out in the books of accounts. The suspicion in the mind of the Assessing Officer, even when bonafide, cannot be reason enough to reject the books of accounts and justify such an addition which is based on surmises and conjectures without even an iota of evidence. In these circumstances, we approve the relief granted by the CIT(A) and decline to interfere in the matter.
17. Coming to the second issue, we find that the CIT(A), in a very detailed order on this issue, has restricted the addition of Rs.32,14,517 to Rs.23,861 by observing as follows:
"Before me, the Id AR submitted that at the time of survey, the value of stock in manufacturing segment as per stock register was Rs.2,13,91,013 while the value of stock found by the survey team was lower at Rs.1,81,76,495. The value position was as under:
Particulars Amount (Rs.) Manufacture segment stock in the stock 2,13,91,013 register as per inventory printout on 8 June Physical stock as per survey team 1,81,76,495 ________________ Difference (Shortage of physical stock) 32,14,517 The alleged shortage or absence of stock was considered by the AO as unaccounted sale on the presumption that .the stock could not be found. During the assessment I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 14 of 15 proceedings, the appellant furnished explanation reconciling the difference as under:-
Finished stock manufactured found by survey team 1,81,76,495 Add: Material under dispatch lying at dispatch 16,04,694 department at Sachin but not counted by the survey team.
Add: Free supply under scheme under dispatch but 2,18,259 not counted by survey team.
Add: Expired material separately lying at Sachin but 13,67,703 not counted by the Survey team.
Add: Difference that could not be reconciled by 23,861 32,14,517
assessee. ____________ _____________
Finished Goods as per Stock Register 2,13,91,013
18. Having heard the rival contentions and having perused the material on record, we see no reasons to disturb the well reasoned findings of the learned CIT(A). The difference between the inventory figure, as taken by the survey team, and as per the books of accounts of the assessee is reasonably explained as above, and learned DR has not been able to controvert the same. All that the learned DR emphasizes upon is the delay in the explanation given by the assessee, but delay per se cannot be reasons enough to reject the explanation.
There were clear errors in the inventory taken by the survey team and clear inconsistency in their approach. Learned CIT(A) was thus justified in granting the impugned relief.
19. In view of the above discussions, and bearing in mind entirety of the case, we uphold the relief given by the learned CIT(A) on this also, and we decline to interfere in the same.
20. In the result, the appeal filed by the Assessing Officer is dismissed.
I.T.A. No.405 and 518/Ahd/2007 Assessment years: 2003-04 Page 15 of 15
21. To sum up, while appeal of the assessee is allowed, the appeal of the Assessing Officer is dismissed. Pronounced in the open court today the 7 th day of March, 2016.
Sd/- Sd/-
S S Godara Pramod Kumar
(Judicial Member) (Accountant Member)
Dated: 7 th day of March, 2016.
Copies to: (1) The appellant (2) The respondent
(3) Commissioner (4) CIT(A)
(5) Departmental Representative (6) Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Ahmedabad Benches, Ahmedabad