Income Tax Appellate Tribunal - Delhi
Star Wire (India) Ltd., Faridabad vs Department Of Income Tax on 30 January, 2015
ITA 4023/Del/2011
CO 342/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G' NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No. 4023/Del/2011
Assessment Year: 2009-10
Asstt.Commissioner of Income Tax, vs M/s Star Wire (India) Ltd.,
Central Circle-I, Faridabad. 35, Link Road, 2nd Floor,
Lajpat Nagar-III,
New Delhi-110024
C.O. No. 342/Del/2011
( IN ITA No. 4023/Del/2011)
Assessment Year: 2009-10
M/s Star Wire (India) Ltd., vs ACIT, Faridabad.
nd
35, Link Road, 2 Floor,
Lajpat Nagar-III,
New Delhi-110024
(Appellant) (Respondent)
Appellant by: Shri Ramesh Chandra, CIT DR
Respondent by: Shri P.D. Mittal, FCA
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
The above captioned appeal of the revenue as well as CO of the assessee have been preferred against the order of the CIT(A)-I, Ludhiana dated 23.6.2011 in Appeal No. 66/IT/CIT-I/LDH/2010-11 for AY 2009-10. 1 ITA 4023/Del/2011 CO 342/Del/2011 These appeals are being clubbed and disposed of together for the sake of brevity and convenience.
ITA No. 4023/Del/2011 of the Revenue
2. Effectively, the revenue has raised following two grounds in this appeal:-
" i) The Ld. CIT (A) has erred both in law and on facts of the case in deleting the addition of Rs. 82 lacs made by the A.O. relying on incorrect facts and without appreciating that a. Rs.82 lacs were found and seized from the residence of Sh. S. K. Goyal who could not furnish any explanation regarding source of cash found and had surrendered this amount as undisclosed income during the course of search on 29th January 2009 and it was only on 21.4.2009 that he had changed his stand by filing an affidavit dated 19.02.2009 saying that this amount belonged to the Star Wire (India) Ltd.
b. This amount was never included in the surrendered amount of Rs. 7 crore made by the Star Wire (India) Ltd. as declared u/s 132(4) during the course of search as an additional income over and above the regular income and it was only on 21.4.2009 that the company filed an affidavit dated 19.02.2009 saying that this amount was earlier given to Shri Goyal and then wrongly added the same in already declared undisclosed income.
c. It was only as an afterthought that the assessee company added this amount also and wrongly presented the same as declared undisclosed income.
2 ITA 4023/Del/2011 CO 342/Del/2011 d. As the assessee company had never declared this amount as undisclosed income during the course of search and such declaration was made only on 21.4.2009 this cannot be treated as a declaration u/s 132 (4) of the I T Act.
ii) The ld. CIT(A) has erred both in law and on the facts of the case in deleting addition of Rs. 60 lacs made on the basis of document found during search operation which was an agreement to sale land and ignoring the fact that iii.
ii.
a. The purchaser has unequivocally denied having paid in cash of Rs.60 lacs, in the statement u/s 131 before the A 0, who had duly informed this fact to the assessee during the assessment proceedings.
b. In the agreement the entry of Rs.60 lacs received as cash was inserted in ink.
c. As per agreement, earnest money was shown at Rs. 75 lacs but the assessee company claimed that only Rs. 15 lacs, received in cheque was returned and cash of Rs.60 lacs was forfeited.
d. The forfeiture of only cash amount, and not the cheque amount, which is not as per the agreement, defies logic and further the cancellation agreement dated 19.01.2011 filed before CIT (Appeals), appears to be an afterthought."
3. Briefly stated the facts giving rise to this appeal are that a search and seizure operation was carried on at the business premises of the assessee company at 21/4, Mathura Road, Ballabhgarh, Faridabad and its registered 3 ITA 4023/Del/2011 CO 342/Del/2011 office at 35 Link Road, Lajpat Nagar-III, New Delhi on 29.1.2009. Search operation u/s 132(1) of the Income Tact Act, 1961 (for short the Act) was also carried out at the residential premises of the directors of the company and other premises of the Star Wire (India) Ltd. group of cases simultaneously. During the search and seizure operation, cash jewellery, documents and books of accounts were seized and impounded in the course of search operation from the business premises of the assessee and residential premises of the directors of the company. Assessment jurisdiction over the assessee has since been transferred to Central Circle-I, Faridabad by the order of CIT, Kolkata dated 26.3.2009 passed u/s 127 of the Act. The seized documents and the appraisal report in the group were received by the AO on 10.6.2010 after affording due opportunity of hearing. The AO made addition of Rs. 82 lakh on account of cash seized from Shri S.K. Goyal, second addition of Rs. 60 lakh on the basis of document. During the search operation and third addition of Rs.10,48,319 on account of difference found in the stock of the assessee.
4. The aggrieved assessee preferred an appeal which was partly allowed by deleting first and second addition but the CIT(A) upheld part addition of Rs. 4 lakh on account of difference in stock of the assessee. Now, the revenue has filed present appeal against the impugned order of deletion of 4 ITA 4023/Del/2011 CO 342/Del/2011 first and second addition. At the same time, the assessee has also preferred cross objection against part confirmation of addition pertaining to difference in stock.
Ground no. 1 of the revenue
5. Apropos ground no. 1 of the revenue ld. DR submitted that the cash amount of Rs. 82 lakh was found and seized from the residence of Shri S.K. Goyal who could not furnish any explanation regarding source of cash and had surrendered this amount as undisclosed income during the course of search on 29.1.2009 and it was only on 21.4.2009 that Shri S.K. Goyal changed his stand by filing an affidavit dated 19.2.2009 saying that this amount belonged to Star Wire India Ltd. i.e. assessee company. Ld. DR further submtitd that this amount was never included in the surrendered amount of Rs. 7 lakh by the assessee as declared u/s 132(4) of the Act during the course of search as an additional income over and above the regular income. The DR vehemently contended that it was only on 21.4.2009 on which the company filed an affidavit dated 19.2.2009 saying that this amount was earlier given to Shri S.K. Goyal and then wrongly added the same in already declared undisclosed income. The DR also contended that the stand of the ssessee company was an afterthought that the assessee 5 ITA 4023/Del/2011 CO 342/Del/2011 company had added this amount in the declared amount of undisclosed income of Rs. 7 crores as the assessee company had never declared this amount as undisclosed income during the course of search and seizure operation and such declaration was made only on 21.4.2009 which cannot be treated in declaration u/s 134 of the Act.
6. Replying to the above, the AR reiterated submissions and contentions of the assessee which were placed before the CIT(A) during the first appellate proceedings. The submissions and contentions of the assessee before the CIT(A) were as under:-
"I. "It is true and admitted that a sum of Rs.82,00,000/- was found in the possession of Dr SK Goel, CEO of the Assessee Company at the time of search on 29 January 2009 and out of the said amount, a sum of Rs.81,00,000/- was seized by the Income Tax Department on the said date.
II. The Assessee Company has admitted before the Assistant Director of Inspection (Investigation), Faridabad that the above amount of Rs.82,00,000/- belong to the Assessee Company and will form part of the declared income / income surrendered.
III. That accordingly the Assessee Company has accounted for the above amount under the head miscellaneous income vide schedule PL-8 and in this manner form part of the declared income of RS.16,93,55,210/-.6
ITA 4023/Del/2011 CO 342/Del/2011 IV. That in support of above contention the Assessee Company hereby rely upon the annual accounts for the year ending 31st March 2009 read with details of miscellaneous income: extract of the day book showing the accounting of the above amount in the books of the Assessee Company V. That further reliance is also placed on the affidavit of the Managing Director of the Assessee Company Shri Mahander Kumar Gupta dated 19th February 2009 wherein the above amount was admitted in the income of the Assessee Company. Further reliance is also placed on the affidavit of Dr S K Goel dated 19th February 2009 wherein Dr Goel has also supported the above facts.
VI. That in the manner aforesaid it is clearly established that the sum of Rs.82,00,000/- (in question) has already been included in the declared income of the Assessee Company and the addition thereof made by the Learned A.O. is apparently and primarily the duplication of said amount.
That it may be added here that the Assessee Company has made disclosure / surrender of income of Rs.700.00 Lacs initially in respect of cash found, other amounts due for debtors and also an accounted business expenditure found recorded in the seized material. To be specific the Assessee Company has surrendered Rs.630.00 Lacs consisting Rs.240.00 Lacs in respect of cash found and seized, plus Rs.390.00 Lacs in respect of Sundry Debtors and balance Rs.70.00 Lacs in respect of the an accounted business expenses. Thus in this manner the Assessee Company has made a surrender of Rs.700.00 Lacs plus Rs.82.00 Lacs 7 ITA 4023/Del/2011 CO 342/Del/2011 aggregate Rs.782.00 Lacs. The entire amount has been accounted for in the books of accounts."
7. On careful consideration of above submissions and contentions of both the parties, we observe that the AO made this impugned addition with following observations and findings:-
"20. This shows that the above amount of Rs. 82 lakhs given to Sh. S.K. Goel represents to the undisclosed income of M/s Star Wire India ltd. Thus the total amount of surrender in the hands of M/s SWIL has been increased from Rs. 7.00 Crores to Rs. 7.82 Crores.
21. Sh. S.K. Goel has also filed an affidavit dated 19-02-2009 submitting therein that during the course of search operation a surrender of Rs. 102 Lakhs was made and the same may be considered to be modified and the surrender may be treated at Rs. 20 Lkahs. In view of the above facts of the case it is found that the assessee has declared total disclosure of Rs. 7 .82 Crores.
22. From the above facts of the case it is noticed that the assessee has not declared above Rs. 82,00,000/- admitted as undisclosed income on behalf of . Sh. S.K. Goyal, therefore, this amount of Rs. 82,00,000/- is added back in the taxable income of the assessee. Penalty proceedings u/s 271(1)(c) are separately initiated as the assessee has furnished inaccurate particulars of its taxable income. Further, I am satisfied that the assessee has not substantiate the manner in which the undisclosed income was derived. Therefore, penalty proceedings u/s 271AAA are initiated separate in this case."8
ITA 4023/Del/2011 CO 342/Del/2011
8. During the first appellate proceedings before the CIT(A), the CIT(A) deleted the above addition with following conclusion:-
"5. I have considered the submission of the appellant on the issue and AO's observation in this regard. It is clear from the details included under the head miscellaneous income that the amount of Rs . 82 Lakhs has been added on account of the cash seized from the residence of S.K. Goyal and the cumulative amount of Rs. 7,83,76,699/- after deduction of Rs. 70 lakhs on account of unexplained expenses which have separately been disclosed in four assessment years, has been credited in the profit and loss account. As such the explanation of the AR in this regard is actually correct and the AO has completely misread the accounts to come to the conclusion that the disclosed amount of Rs. 82 Lakhs did not form part of the total income. Therefore this addition is deleted."
9. On careful consideration of above contentions and submissions of both the parties and on careful perusal of record placed before us, we observe that as per ledger account, day book and general register of the assessee (PB page No. 25-27), we observe that the cash amount seized from the residence and bank locker of Shri S.K. Goyal has been declared under affidavit made on 19.2.2009 (Paper Book page no. 36-37) by Shri M.K. Gupta, the Managing Director of the assessee company which was filed only on 21.4.2009. The main contention of the AO while making this addition is 9 ITA 4023/Del/2011 CO 342/Del/2011 that the assessee has not declared impugned amount as undisclosed income. The explanation of the assessee is twofold viz. first that the said amount belongs to assessee company and will form part of declared income of surrendered income; secondly, the assessee company has accounted above amount under the head miscellaneous income vide Schedule PL-8 and in this manner form part of the declared income of Rs.16,93,55,210 and the same contentions were raised before CIT(A). But these details are not confirmatory with the documents submitted by the assessee before the authorities below and before this Tribunal as the statement of income submitted along with return of AY 2009-10 does not reveal same facts. From impugned order of CIT(A) we note that the first appellate authority has simply decided the issue in favour of the assessee by holding that the amount of Rs.82 lac has been added on account of the cash seized from Shri S.K. Goyal and the cumulative amount of Rs.7,83,76,699 after deduction of Rs.70 lac on account of unexplained expenses instead of adjudicating the issue in the line of AO's allegation making the addition and assessee's submissions, as reproduced hereinabove in para 6 of this order. We are unable to see any document or computation supporting the intentions of the assessee and we are also unable to see any justification to support observations and conclusions of the CIT(A). We further note that there is no 10 ITA 4023/Del/2011 CO 342/Del/2011 mention of any fact in the statement of Shri M.K. Gupta recorded u/s 132(4) of the Act on this issue and the affidavit dated 19.2.2009 filed on 21.4.2009 cannot be said as statement recorded on oath u/s 132(4) of the Act.
10. In view of above facts and circumstances, we are of the considered opinion that the same facts pertaining to the basis adopted by the AO for making addition and explanation and contentions of the assessee on factual matrix requires examination and verification at the end of the AO. Hence, we deem it proper to restore the issue to the file of AO for limited purpose as to whether the impugned amount of Rs. 82 lac admitted on behalf of Shri S.K. Goyal has not been declared by the assessee in its computation and return of income for AY 2009-10. The impugned order is set aside and the issue is restored to the file of the AO with a direction that the assessee should be allowed due opportunity of hearing. Accordingly, ground no. 1 of the revenue is deemed to be allowed for statistical purposes as indicated above.
Ground no.2
11. Apropos ground no. 2, ld. DR submitted that the CIT(A) was not justified in law and on facts of the case in deleting the addition of Rs. 60 lakh made by the AO on the basis of document found during the search 11 ITA 4023/Del/2011 CO 342/Del/2011 operation which the agreement to sale of land. Ld. DR further contended that the CIT(A) has ignored the fact that the purchaser has unequivocally denied having paid Rs. 60 lakh to the assessee in the statement recorded u/s 131 of the Act. The DR also contended that the entry of Rs. 60 lakh was made and inserted in ink later while other recitals of the agreement was typed on original script.
12. Ld. DR vehemently contended that the forfeiture of only cash amount of Rs. 60 lakh and not cheque amount of Rs. 15 lakh defies logic and further cancellation of agreement dated 19.1.2011 appears to be an afterthought because the agreement was never acted upon and forfeiture of only cash amount of Rs. 60 lakh cannot be said as per terms and conditions of the agreement. The DR prayed that impugned order may be set aside by restoring that of the AO.
13. Ld. AR replied that the AO has added impugned amount of Rs. 60 lakh to the income of the ssessee company treating the same as assessee's own undisclosed income which was later introduced in the books of accounts of the assessee. The AR further pointed out that primarily amount in question was received in cash from Smt. Gayatri Agarwal and others as an advance against agreement to sale of plot measuring 8611 sq yards situated 12 ITA 4023/Del/2011 CO 342/Del/2011 at Sector 58, Faridabad. The AR further has drawn our attention towards paper book page no. 42 to 44 which consists of the photocopy of the agreement to sale of land dated 27.8.2007 and submitted that the photocopy of the agreement as well as receipt dated 27.8.2008 was found and seized at the office premises of the assessee company during the search and seizure operation vide Annexure A-1. The AR further pointed out that there was no way that the assessee could have anticipated and attributed the search operation and therefore made alleged interpolation with the agreement to sale in the order to explain any cash that could have been found during the search and seizure operation. The AR vehemently contended that the AO was not logical in drawing a conclusion and making a double addition of Rs. 60 lakh, firstly in the form of cash seized which ahs been declared u/s 132(4) of the Act buy the assessee company and secondly, again in the form of unaccounted cash as per the document i.e. agreement to sale of land dated 27.8.2008.
14. On careful consideration of above rival submissions, at the outset, we observe that the AO made impugned addition of Rs. 60 lakh on account of undisclosed income of the assessee with following conclusion:-
"From the above facts, it clearly emerges that the cash of Rs.60 Lakhs which was inserted in the document later on by 13 ITA 4023/Del/2011 CO 342/Del/2011 the assessee is its own undisclosed income of the assessee which is introduced in its books of accounts. Considering the above facts of the case, this amount of Rs.60 Lakhs wrongly credited in the books of account is added back in the taxable income of the assessee u/s 68 of the LT. Act. Assessee has furnished inaccurate particulars of its taxable income, therefore penalty proceedings u/s 271(1)(c) of the LT.Act, 1961 are initiated separately. Further, I am satisfied that the assessee has not substantiate the manner in which surrender of undisclosed income was made, therefore, penalty proceedings u/s 271AAA of the Act, are also initiated on this issue."
15. During the first appellate proceedings, the assessee company submitted following arguments and contentions:-
"8. During the course of appellate proceedings the AR of the appellant submitted his arguments:-
That the Learned Assessing Officer has Rs.60,00,000/- to the income of the Assessee Company vide discussions contain in para 23 (internal page 12) of the assessment order onward upto para 25 (internal page 16). Primarily the amount in question was received in cash from Smt Gayatri Aggarwal & Others as Earnest Money for the transfer of plot bearing number 219, 220, 236 & 237 measuring 8611 sq. yards situated at Sector 58, Faridabad. The total sale consideration agreed upon in the said agreement was Rs.6,99,90,000/-. The photocopy of the above agreement dated 27th August 2008 as well as the photocopy of the receipt dated 27th August 2008 was found at the office premises of the Assessee Company situated at 35, Link Road, Lajpat Nagar-III, New Delhi, and lying seized vide annexure A-I. The photocopy both these documents are also attached herewith for your ready perusal.14
ITA 4023/Del/2011 CO 342/Del/2011 That the perusal of the Assessment Order specifically para 23 of the Assessment Order show that the statement u/s 131 of one of the purchaser Shri Kailash Chand Agarwal was recorded on 26th November 2010 on the back of the Assessee Company. In the said statement one of the purchaser Shri Kailash Chand Agarwal has denied of any payment in cash in the said transaction. The above statement was never brought to the notice of the Assessee Company, furthermore no opportunity even for namesake was granted to the Assessee Company to cross-examine the said witness.
That the above agreement was never acted upon and was ultimately cancelled on 19th January 2011. It is submitted that the sum of Rs.60,00,000/- as above received as Earnest Money was forfeited.
That the legal presumption in terms of Section 132 (4A) is that the documents found and seized and the contents thereof are true. The presumption fall in the category MAY PRESUME under the Evidence Act.
That in the above matter the Agreement to Sell dated 27- 8-2008 creates presumption that the content thereof are true. Furthermore and to be specific the transaction of the receipt of Rs.60,00,000/- in cash mentioned in the said agreement will be presumed to be true. And mere deny will not disprove the contents of the document.
15 ITA 4023/Del/2011 CO 342/Del/2011 In view of the above legal position it is humbly submitted that the addition of Rs.60,00,000/- may kindly be deleted. However incase anything in this regard is found unexplained or unproved the Assessee Company is ready to explain and to prove the same at your convenience. It is prayed that while disposing of this appeal the evidence in the form of the statement of Shri Kailash Chand Aggarwal recorded u/s 131 may kindly be ignored as the same was never confronted to the Assessee Company. Furthermore the said statement cannot relied upon on the face of it on the ground that the denial is not based on any evidence even for namesake."
16. From the impugned order, we observe that the CIT(A) deleted the addition made by the AO while granting relief for the assessee with following observations and findings:-
"10. I have considered basis of addition made by the AO and the arguments of the AR on the issue. It is clear that the document of agreement to sell was found and seized during the course of search operation wherein the recordings of having received Rs. 60 Lakhs cash had been made and the assessee during his statement recorded at the time of search operation in response to question No. 8 when confronted with the said document clearly admitted to have received the cash in pursuance of agreement to sell and it was stated that the cash found at the time of search included the cash received as recorded on the said paper. It is not understood as to on what basis the AO has preferred to rely upon the statement of Sh. Kailash Chand Aggarwal as against the document found and seized during the course of search operation. It is normally expected that the buyer of property who has paid cash and has 16 ITA 4023/Del/2011 CO 342/Del/2011 not been searched by the department would have the opportunity to deny having paid any cash in pursuance of the agreement to sell. However in such matters the evidentiary value of document found and seized during the course of search operation is substantially higher then the statement of the buyer recorded u/s 131 almost one year and ten months after the date of search. There is no way that the assessee could have attributed the search operation and therefore made alleged interpolation on the agreement to sell in order to explain any cash that could have been found. This action attributed by the AO to the assessee defies any logical explanation. As against this the buyer has all the reasons to disown the cash paid in order to avoid the consequences in terms of reopening of assessment u/s 153C. The normal course of action in this case for the AO should have been to proceed against the buyer on the basis of evidence found in the case of the assessee company/its managing director. The only issue that could raise eyebrows in this regard is that assessee forfeited only the cash amount but not the cheque amount, but this can apparently be attributed to mutual agreement between the two parties. As such I find no logic in AO's conclusion in making a double addition of Rs. 60 Lakhs once in the form of cash seized which has been declared u/s 132(4) and secondly in the form of unaccounted cash as per the document. Therefore addition so made is deleted."
17. On careful consideration of above submissions and perusal of record, inter alia assessment order as well as impugned order of the CIT(A), we observe that the AO held that the cash of Rs. 60 lakh which was inserted in the document later on by the assessee as its own undisclosed income of the assessee. The AO held that the action of the assessee is an afterthought to 17 ITA 4023/Del/2011 CO 342/Del/2011 introduce Rs. 60 lakh in its books of accounts and the AO held that the same amount was wrongly credited in the books of accounts and the AO made an addition in this regard u/s 68 of the Act. In the impugned order, para 7 of page 6, we observe that the CIT(A) considered the fact that the AO has not accepted the fact that the assessee has entered into an agreement to sell for sale of land measuring 8611 sq yards for a total consideration of Rs. 6,99,900 with Smt. Gayatri Devi, Shri Kailash Chand Aggarwal and Shri P.C. Gupta on 27.7.2008 for which an advance of Rs. 75 lakh was received by the assessee form the above mentioned persons. However, the Assessing Officer made addition by holding that the assessee inserted the document subsequently to justify its own undisclosed income and the AO made an addition of Rs. 60 lakh under section 68 of the Act. Per contra, the CIT(A) allowed relief for the assessee by holding that there is no logic in making a double addition once in the form of cash seized and secondly in the form of unaccounted cash as per document.
18. On careful perusal of assessment order, impugned order and other relevant record placed before us, at the outset, we observe that admittedly the document of agreement to sale dated 27.8.2007 was found seized during the course of search operation conducted on 29.1.2009 on the assessee company. We also observe that in the statement of oath under Section 132(4) 18 ITA 4023/Del/2011 CO 342/Del/2011 of the Act, Shri Mahinder Kumar Gupta, MD of assessee company in response to question no. 8 admitted to have received the cash of Rs. 60 lakh in pursuance to agreement to sale and stated that the cash found at the time of search included the cash received as recorded on the said document i.e. agreement to sale dated 27.8.2008. The CIT(A) rightly held that the buyer of the property who has paid cash and has not been searched by the department would have the opportunity to deny having paid any cash in pursuance to the agreement to sale, therefore the Assessing Officer was wrong in relying upon the statement of Shri Kailash Chand Aggarwal. In the totality of the facts and circumstances of the case, we are also inclined to hold that it cannot be presumed that the assessee could have anticipated a search and seizure operation and therefore, the assessee company made alleged interpolation by ink for inserting cash receipt of Rs. 60 lakh on the agreement to sale dated 27.8.2008 in order to explain any cash that could have been found during the search and seizure operation. Accordingly, we hold that the Assessing Officer was not on logical footing in making double addition of Rs. 60 lakh once in the form of cash seized which was declared by the assessee company as its undisclosed income under Section 132(4) of the Act and second time in the form of unaccounted cash as per document seized during the search operation. In view of foregoing discussion, we 19 ITA 4023/Del/2011 CO 342/Del/2011 reach to a conclusion that the Assessing Officer made addition without any basis and logic which was rightly deleted by the CIT(A) on proper appreciation of facts and circumstances and we are unable to see any discrepancy, ambiguity or any other valid reason to interfere with the findings of the CIT(A). Accordingly, ground no. 2 of the revenue is also dismissed.
C.O.No.342/Del/11
19. The assessee company has raised following cross objections pertaining to the part confirmation of addition of Rs. 4 lakh on account of excess stock found during the course of search and seizure operation:-
"1. The Id. Assessing Officer as well as Id. CIT(A) have erred while adding Rs. 4,00,000/- on the ground of alleged excess stock found at the time of search in spite of the fact that the entire stock found tally with the excise records maintained by the assessee company.
2. The Id. Assessing Officer as well as ld. CIT(A) is wrong while accepting the stock inventory prepared by the survey team of the Income Tax Department on estimate basis and not on actual weighment basis.20
ITA 4023/Del/2011 CO 342/Del/2011
3. That the addition of Rs. 4, 00, 000/- on account of alleged excess stock at our Mandi Gobindgarh office is illegal, unjust against the facts as well as against the law."
20. Ld. AR submitted that the value applied by the search team about the excess stock found during the search operation was not correct price of the goods/stock found. The AR further contended that the correct cost price of the stock found at the time of search and seizure operation was Rs.1,89,53,888 and the assessee company had declared the cost of stock found at Rs.1,93,34,313. Thus, in this situation, no adverse inference can be taken. The AR further submitted that the search team inventorised the stock of the assessee company consisting 728.815 m.t. in the form of steel ingot/billet etc. and the said stock was valued at Rs.2,03,82,636/- which gives an average of Rs.27,96,666.82 per 100 m.t. The AR vehemently contended that there was no basis before the search tem while applying this average rate and in fact, the rate applied by the search tem was the sale rate of goods estimated on the basis of cost plus expected profit markup during that period which cannot be applied for valuing stock/goods found during the course of search and seizure operation.
21. Replying to the above, the DR submitted that the basis of valuation and cost/rate adopted by the search tern can be different and there may be multiple mode of valuation of goods/closing stock but the assessee could 21 ITA 4023/Del/2011 CO 342/Del/2011 not give any explanation about the physical excess stock of about 16 m.t. found during the course of search and seizure operation. The DR, therefore, submitted that the CIT(A) rightly confirmed a part of addition in this regard by valuing the excess stock of 16 m.t. at the rate of 25,000 m.t. on reasonable basis which cannot be said to be high and excessive.
22. On careful consideration of above submissions and contentions, we observe that the Assessing Officer made impugned addition with following observations and findings:-
"27. The submission offered by the assessee is not found to be satisfactory on the grounds that on the date of survey inventory was prepared in the present capital expenditure of Shri Kishan Gupta director of Mrs. Mahawar iron Stores Pvt. Ltd. who is also looking after the business affairs of M/s Star Wire (1) Ltd. Shri Kishan Gupta during his statement could not produce any evidence like purchase and sale bills to verify the difference in market price. The assessee also failed to substantiate his above reply regarding difference found in stock. Therefore, the stock found in stock of Rs.10,48,319/- is added back in the taxable income of the assessee."
23. During the first appellate proceedings, the CIT(A) deleted the part addition and confirmed the part addition of Rs. 4 lakh with following observations and conclusion:-
"14. I have considered the basis of the addition made by the Assessing Officer and the arguments of the AR on the issue.22
ITA 4023/Del/2011 CO 342/Del/2011 The perusal of inventory prepared at the time of survey operation shows that stock weighing 728.8 m.t. was inventorised. Whereas the stock as per books of accounts was only 712.1 m.t.s. The appellant has been able to explain the difference in rates applied by the survey team and the actual rates as per the purchase bills. The survey team has applied average rate of Rs.28,000 per m.t. and Rs. 27,600 per m.t. whereas the rates as per the purchase invoices very from Rs. 22,933 to Rs. 28, 400 and therefore, the actual rates as applied by the appellant on the basis of purchase invoices is correct way of valuing the stock. However there is a physical excess stock of about 16 m. t. for which the assessee has not given any explanation during the assessment proceedings and during the appellate proceedings it has been contended that this issue had not been raised by the Assessing Officer presumably on the ground that the weighment was done on ad hoc basis. I do not agree with the explanation given by the assessee for the excess stock found as there is no evidence to back the contention of ad hoc weighment. Therefore an addition of Rs. 4 lakh is confirmed. ( 16 m. t. x Rs. 25,000 per m. t.). "
24. From bare reading of above observations of the Assessing Officer and CIT(A), we come to a conclusion that the search team found excess stock of about 16 m.t. for which assessee has not given any cogent, justified and acceptable explanation during the assessment and appellate proceedings. The CIT(A) rightly held that there was no evidence to support the contention of ad hoc weighment as advanced by the assessee. Therefore, the CIT(A) was right in taking excess physical stock into consideration and valuing the same 23 ITA 4023/Del/2011 CO 342/Del/2011 @Rs.25,000 per m.t. as valuation of excess stock has to be made on the same method which assessee is following regularly. We, therefore, are of the opinion that the CIT(A) rightly confirmed the addition of Rs. 4 lakh by reasonably estimating the value of excess stock of 16 m.t. at Rs. 25,000 per m.t. Finally, we hold that the cross objections raised by the company are devoid of merit as the onus was on the assessee to explain excess stock of 16 m.t. found at the time of search which was not discharged. The CIT(A) was also justified in taking average rate of Rs. 25,000 per m.t. as this seems to be reasonable and near to the average cost of stock. In view of above, we hold that the findings and conclusion of the CIT(A) are justified and we have no valid reason to interfere with the same. Accordingly, COs of the assessee being devoid of merits are dismissed.
25. In the result, the appeal of the Revenue is deemed to be partly allowed on ground no. 1 for statistical purposes and appeal of the revenue on ground no. 2 as well as cross objections of the assessee are dismissed. 24 ITA 4023/Del/2011 CO 342/Del/2011 Order pronounced in the open court on 30.01.2015.
Sd/- Sd/-
(S.V. MEHROTRA) (CHANDRAMOHANGARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 30th JANUARY 2015
'GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. CIT(A)
4. CIT 5. DR
By Order
Asstt. Registrar
25