IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `A ', NEW DELHI)
BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No. 4734/Del/2012
Assessment year : 2009-10
DCIT, Circle 31(1), Vs. M/s. Aman Marble Traders,
New Delhi Ansal Bhawan,
K.G. Marg, New Delhi.
GIR / PAN:AAAFA7825M
(Appellant) (Respondent)
Appellant by : Shri Y. Kakkar, DR
Respondent by : Shri Salil Agarwal Adv.
Shri Sanjeev Jain, CA
Shri Shailendra Gupta, CA
ORDER
PER T.S. KAPOOR, AM:
This is an appeal filed by Revenue against the order of Ld. CIT(A)
dated 21.06.2012. The Revenue is aggrieved with the action of Ld. CIT(A)
by which he had deleted the addition of Rs.54,40,436/- made by A.O. on
account of surrender made by assessee on account of difference between
physical stock found at the time of survey and stock as per books of
accounts . The Revenue has filed revised grounds of appeal wherein it has
further taken a further ground that retraction made by assessee after a period
of 6 months was nothing but an afterthought to reduce tax liability.
2. The brief facts of the case are that a survey operation u/s 133A was
conducted at the premises of assessee on 01.10.2008 and was concluded on
02.10.2008. During survey operation, a complete list of stock lying at the
2 ITA No.4734/Del/2012
two premises of the assessee were prepared and it was valued with the help
of assessee. Value of stocks as on the date of survey on the basis of books
of accounts was also calculated by applying gross profit ratio of the earlier
year. The survey team found that there was difference of Rs.83,06,867/-
between physical stock and stock as per books. Therefore, assessee was
asked to explain the difference. The assessee was unable to explain the
difference and, therefore, it offered the amount of difference of
Rs.83,06,867/- as income during the previous year. The survey team also
found the difference in physical cash and cash as per books of accounts and
it being unexplained, the assessee offered for taxation the difference of cash
amounting to Rs.17,62,608/-. However, in the return of income filed by
assessee, the assessee declared additional income of Rs.46,19,039/- only
consisting of cash surrender of Rs.17,62,608/- and rest of Rs.28,45,443/- on
account of difference in stock. The A.O. observed that the assessee had
surrendered an amount of Rs.83,06,867/- on account of difference in stock,
therefore, the assessee was show caused as to why not the difference in
amount offered and amount surrendered on account of stock at the time of
survey be not treated as additional income of assessee. The assessee vide
letter dated 19.12.2011 submitted that difference in stock was due to
different method of valuation and it further submitted that it has been
following FIFO method and further there were certain clerical mistakes
which have been rectified and, therefore the exact difference on account of
stock was only Rs.28,45,443/- and not Rs.83,06,867/-. However the A.O.
held that valuation of stock was done in the presence of the assessee and
assessee had itself accepted the surrender and the explanation given by
assessee is only an afterthought and, therefore, he made addition of
Rs.54,50,436/- representing difference between the value of stock originally
3 ITA No.4734/Del/2012
surrendered during survey and that offered in its return of income.
Aggrieved, the assessee filed appeal before Ld. CIT(A) and made various
submissions. Ld. CIT(A), on the basis of various submissions, deleted the
addition by holding as under:
"6. I have perused the order of the Assessing Officer dated
29.12.2011, written Submissions filed by the AR of the appellant and
considered the facts of the case. In the course of the appellate
proceedings, I also perused the assessment record and the survey
folder containing the survey proceedings and the submissions made
by the appellant in its letter dated 31.3.2009 filed before the Assessing
Officer subsequent to the survey operation. The appellant in this letter
dated 31.3.2009, explained in detail the valuation the stock position
as on the date of survey and the stock position after reconciliation and
correction of errors. Therefore, it is important to reproduce the
submissions of the appellant made in this letter dated 31.3.2009
below:
1. That survey u/s 133A took place on 01.10.2008. Books of
accounts, stock register and other documents were examined during
survey. Physical cash was counted. Physical stock inventory was
prepared. The result of stock verification and cash verification was
found as under:
a. Stock Position (as on 01.10.2008 as per survey)
Physical stock taken and valued Rs.2,12,13,048/-
Stock as per Books/stock register Rs.1.29.06.182/-
Difference being excess stock found Rs.83,06,866/-
b. Cash Position (as on 01.10.2008)
Physical cash found Rs.23,96,400/-
As per cash book Rs.6,33,792/-
Difference being excess cash found Rs.1762608/-
The above excess stock and excess cash was surrendered vide
statement dt 1.10.2008
2. That now, in the end of March 2009, the books and stock register
etc. has been reconciled for the purpose of calculating the payment of
last due installment of advance tax of A. Y 2009-2010. During the
course of reconciliation, certain errors have been noticed. On
correction of such errors, the stock position as on date of survey i.e.
01.10.2008 stands recalculated as under:
Correct Stock position as on 01.10.2008:
4 ITA No.4734/Del/2012
Physical Stock Rs.1,61,66,131/-
Stock as per books/stock register Rs.1,33,09,700/-
Difference being excess stock Rs.28, 56,431/-
A chart showing the details of the stock position as taken at the time of
the survey vis-a-vis as corrected is attached. The difference in
quantity and the valuation at the time of survey vis-avis as
corrected are given in succeeding paragraphs.
3. Details. Explanations and evidences of differences.
a. The quantity of physical stock found at the time of the survey
vis-a-vis as per corrected details is the same. Thus it need no
explanation.
b. In corrected physical stock, the same rates have been taken as
has adopted in the details of corrected actual stock.
c. Difference in quantity as per books at the time of survey vis-a-vis
corrected as per books
Stone
As per survey, physical quantity as per books was 63017.41 sq. ft.,
however, corrected quantity is 64084.47 sq. ft. The working of correct
quantity along with supported documents are attached. (Al to A8)
Marble
As per survey, physical quantity as per books was 56874.84 sq. ft.,
however corrected quantity is 80487.39 sq. ft. The working of correct
quantity along with supported documents are attached.
Super Marble A
As per survey, physical quantity as per books was 15233.11 sq. ft;
however, corrected quantity is 18399.78 sq. ft. The working of correct
quantity along with supported documents are attached.
Marble A
As per survey, physical quantity as per books was 7950.26 sq. ft;
however, corrected quantity is 4446.58 sq. ft. The working of correct
quantity along with supported documents are attached.
Difference in rates:
The survey team has adopted the rates for valuing the physical stock
on the basis of last bills of purchase of relevant items, except for one
item namely 'Super Marble A'. In this item ,the last purchase bill is @
Rs.140/- per sq.ft, however it has been noticed that the rate of this
item has been adopted @ Rs.198/- per sq ft .there is no basis for
adopting this rate of R5.198/-. Rather, the rates adopted for other
items on the basis of last purchase bill is also incorrect. It is incorrect
method of valuation of stock. The assessee had been maintaining day
5 ITA No.4734/Del/2012
to day stock register which was duly examined by the survey party.
The stock register is maintained on FIFO method. The cost of the
balance stock at any point of time is calculated on the basis of
average cost of the stock available at that point of time.
Now the rate for the stock as per books at the time of survey was taken
as calculated in the stock register on the basic of average cost of stock
available coupled with FIFO method. Thus, the rates given as per the
stock register were the correct rates to be applied for the stock
available at the time of survey.
However, the rates in the stock register as on the date of survey were
obviously calculated on the basis of data feeded in the stock register.
Now in above paragraphs, it has been explained with evidences that
there was certain clerical feeding errors in the stock register which
existed at the time of survey. These errors now stand corrected, as
explained above, on account of which, the actual stock as per the
books at time of survey also stand marginally changed, as per chart
and detailed attached.
Now on correcting these errors, apart from correction in stock figures
as per books, changed, marginally the cost price of the item also. This
change in the rates is consequential and obvious and is manifest from
the corrected stock register also which is available for your
verification.
Further, the changes are very apparent and fully verifiable with
reference to the stock register as maintained at the time of the survey,
as it stands after correction and with reference to relevant sales
,purchase bills etc.
4. Thus in substance the change in the stock position can be
summarized as under:
- Physical Quantity of the stock found at the time of survey remain
unchanged.
- The quantity noticed as per stock register undergoes minor changes
on account of some wrong feeding errors in the computerized stock
register. On correcting these errors, consequential changes have
come. All correction are fully verifiable with reference to old stock
register, corrected stock register and relevant sale bills, which were
incorrectly feeded in the stock register.
The rates adopted in the stock as per books have gone minor changes
on account of account of correction of wrong feelings. It is also a
consequential change on account of carrying out the correction. The
method of valuation is Average cost price coupled with FIFO method.
6 ITA No.4734/Del/2012
The rates adopted by survey party for the physical stock are
absolutely wrong. The survey party, in six cases, adopted the rates as
per last purchase bill and for one item namely "
Super Marble A" adopted as Rs 198/- per sq. ft. against Rs 140/- per
sq. ft. as per the last bill. As per the correct method, always applied by
the assessee, the rates should be the average cost price coupled with
FIFO method for the stock available at any point of time.
Thus, for calculating the value of physical stock, we have applied the
Average cost coupled with FIFO method.
5) That in view of above I the difference in the stock at the time of
the survey calculates as excess stock of Rs 28, 56,431/- and excess
cash of Rs 17.62,608/- i.e total difference of Rs 46,19,039/-
6) That in view of above facts, it is submitted that the figure of Rs
1,00,69,475/ - as worked out on 01.10.2008 at the time of the survey,
correctly should be only Rs 46,19,039 /:
.Accordingly, it is requested and submitted that the surrender figure of
Rs 1,00,69,475/- in the statement dt 01.10.2008 be please corrected as
Rs 46,19,039/-.
In Result, the surrendered amount on account of stock and cash for A.
Y 2009-2010 is only Rs 46,19,039/-
7) That we have already paid taxes as under:-
Rs 20,000/- as advance tax in Sept. 08
Rs 8,00,000 as advance tax on 06.10.2008
Rs 8,00,000 as advance tax on 20.10.2008
Rs 4,00,000/- as advance tax on Dee 08
Rs.20,20,000/- Total
I find that the above submissions of the appellant in letter dated
31.3.2009 were completely ignored by the Assessing Officer for no
reasons while framing the assessment. The appellant explained the
variation in stock supported by its stock register, purchase bills, sale
register and reconciliation in respect of each and every item of stock
inventory drawn at the time of survey. On the basis of reconciliation,
and due to rectification in day to day stock register, the appellant
submitted before the Assessing Officer that the correct amount of
additional income required to be added would be only Rs.46,19,038/-
and not Rs.1,00,69,415/-. It was also stated that the amount of Rs.46,
19,038/- included the amount of Rs.28,56,431/- being the difference in
stock and RS.17,64,607/- being excess cash found at the time of
survey. These submissions were made on the last day of the immediate
7 ITA No.4734/Del/2012
preceding year much before the return of income was due to be filed
by the appellant. Even during the assessment proceedings, the
Assessing Officer has not pointed out to any discrepancy or incorrect-
figures from the books of accounts contrary to what the appellant
submitted vide his letter dated 31.3.2009.
6.1 In the present case, the appellant relied on the decision of the
Hon'ble Delhi Court in the case of CIT vs. Dhingra Metal Works
(2010) 328 ITR 384 and the decision of the Hon'ble ITAT, Mumbai
Bench '0' in the case of ACIT vs. Chawla Bros. (P) Ltd., Central
Circle-X, Mumbai. In the case of Dhingra Metal Works, the Hon'ble
Delhi High Court has held that the material collected and the
statement recorded during the survey u/s 133A was not a conclusive
piece of evidence itself. It was open to the person who made the
admission to show that it was incorrect and that discrepancy in stock
was reconciled as it was a mistake. Since the assessee has been able
to explain the discrepancy found during the course of survey by
producing relevant evidence, the Assessing Officer could not have
made the addition solely on the basis of the statement made on behalf
of the assessee during the course of the survey. In the case of Chawla
Bros. (P) Ltd., a survey was conducted at the business premises of the
assessee. Pursuant to the survey proceedings, the revenue authority
made certain additions to assessee's taxable income on account of
variation in closing stock. In view of the fact, that the assessee has
reconciled the differences with reasons and since the revenue
authority did not point out anything contrary, then the reconciliation
was said to be correct.
6.2 In the light of the above decisions and in view of the facts of the
present case, I hold that the Assessing Officer was not justified in
making the addition of RS.54,50,436/- as undisclosed income of the
appellant. Therefore, the addition of Rs.54,50,436/- is accordingly
deleted."
3. Aggrieved, the Revenue is in appeal before us.
4. At the outset, Ld. D.R. submitted that it is a case of retraction from
surrender made during survey and retraction has been made after a period of
6 months which is a long period and therefore assessee had tried to evade
8 ITA No.4734/Del/2012
taxes, which is an afterthought. She further submitted that the assessee itself
had agreed for the surrender and stock inventory was prepared with his help
and there was no coercion or pressure on the assessee, as recorded by
Partner of firm as recorded in the statement recorded at the time of survey
and referred to Q.15 of the statement. In this respect, our attention was
invited to paper book page 59 where part of statement recorded was placed.
Ld. D.R. further argued that Ld. CIT(A) had allowed relief to the assessee
holding that assessee was following FIFO method but he has just accepted
the contention of assessee without verifying as to whether in the earlier years
also, the assessee was also following FIFO method or not. Ld. D.R. invited
our attention to paper book page 262 to 278 where copies of break-up of
opening stock in respect of marble and super marble was placed and in this
respect, Ld. D.R. submitted that the value of opening stock does not reflect,
that, the same was also valued on FIFO basis. Arguing further, the Ld. D.R.
submitted that the cash was also found excess for which assessee has not
contested and has not explained the source which itself implies that cash
must have been generated from the business operation and therefore, there
was definitely difference in stock as otherwise, without difference in stock,
there cannot be any difference in cash. In view of above argument, Ld. D.R.
submitted that this case needs to be readjudicated by Ld. CIT(A) as Ld.
CIT(A) has only recorded submissions of the assessee and has allowed relief
without giving any specific findings.
5. Ld. A.R. on the other hand submitted that though the assessee had
stated that the amount was surrendered without coercion or pressure, yet, it
cannot be denied that under the circumstances of survey, one definitely
makes any statement under pressure and moreover, it was submitted that it
was not retraction but a reworking of stock found at the time of survey on
9 ITA No.4734/Del/2012
the basis of actual purchase rates and on the basis of certain rectification in
the calculation of stock which was supported by purchase bills sale bills and
stock registers. He further argued that the assessee had not made any
change in the quantitative stock position as found at the time of survey and it
was only due to wrong recording of certain entries in the stock register and,
therefore, after rectification of above, the correct stock valuation was done
which was submitted to A.O. on 31.03.2009 much before filing of return of
income and each and every item was reconciled along with documentary
evidences. Citing an example regarding wrong recording of entries in stock
register, Ld. A.R. invited our attention to paper book page 74 where a copy
of invoice dated 28.08.2008 was placed. Ld. A.R. invited our attention to
quantity of marble recorded in sq. mtrs. as 60.50 in the bill and submitted
that this quantity was required to be converted into sq. ft. for recording in the
stock register but it was wrongly recorded without conversion. In support,
he invited our attention to paper book page 72 where the said entry was
recorded as 60.50 sq. ft without conversion into sq. ft. Ld. A.R. submitted
that the entries recorded in stock register as placed at paper book 72 were sq.
ft and 60.50 also was recorded as sq. ft, which was actually 60.50 sq. mtrs,
which should have been converted but could not be converted. Further
inviting our attention to the copy of reconciliation of stock placed at paper
book page 71, Ld. A.R. submitted that for arriving at correct valuation of
stock, rectification was required to be made and these mistakes came into the
knowledge of assessee when accounts were being finalized for the purpose
of determination of advance tax. Further, inviting our attention to paper
book page 75, Ld. A.R. submitted that in Bill No.0134, the sale of quantity
mentioned in stock register was 470 sq. ft whereas the actual quantity was
only 70 sq. ft as is apparent from copy of sale register placed at paper book
10 ITA No.4734/Del/2012
page 76. Similarly, it was submitted that the quantity of sale bill No.328 as
placed at paper book page 77, the quantity entered in the stock register was
96 sq. Ft. whereas as per sale register placed at paper book page 78, it was
66 sq. ft. In this way, Ld. A.R. submitted that rectifications were required to
be made to arrive at the correct valuation of stock and, therefore, it was
submitted that before filing of return of income the exact position was sent
to A.O. vide letter dated 31.03.2009 placed at paper book page 67 to 108
wherein full explanation was provided to A.O. along with all documentary
evidence. It was submitted that again during assessment proceedings, the
assessee had furnished the same explanation vide letter dated 19.12.2011
placed at paper book pages 109-134 and A.O. without making any
comments on these submissions, made the addition which was not justified
and, therefore, Ld. CIT(A) after considering all explanation of the assessee,
had given relief to the assessee. He submitted that the A.O. did not reject
the books of accounts and therefore without rejection of books of accounts,
addition was not legal.
6. We have heard rival parties and have gone through the material placed
on record. We find that though assessee had surrendered for the difference
in stock as per physical stock and stock as per books of account but later on
while finalizing its accounts, the assessee noted certain mistakes in the
recording of certain transactions, therefore, he prepared a reconciliation
statement and submitted the reconciled statement along with the explanation
and all documentary evidences to the A.O. vide letter dated 31.03.2009. The
A.O. did not comment upon such explanations. Moreover, again during
assessment proceedings, the assessee had submitted the same explanation to
which also A.O. failed to offer any comments. It was the duty of A.O. to
verify the explanations given by assessee and should have found fault in the
11 ITA No.4734/Del/2012
reconciliation before making addition. We further find that there was no
change in the quantitative stock as on date of survey and as per books of
accounts on the date of survey. The difference in quantities had occurred
only due to wrong recording of certain transactions and the reconciliation
was supported by documentary evidences. The submission of correct
calculation of stock on the basis of documentary evidence and explanation
cannot be termed as retraction as it is in the common knowledge that during
survey operations in a limited period of time, exact stock cannot be
calculated specifically in a case like this where different qualities and
different products were dealt by the assessee. Therefore, the action of
assessee in submitting rectified position of stock was justified and therefore,
action of Ld. CIT(A) in giving relief to the assessee is justified specifically
in view of the fact that A.O. instead of verifying the claim just ignored it. In
view of above, we do not find any infirmity in the order of Ld. CIT(A).
7. Therefore,, appeal filed by Revenue is dismissed.
8. Order pronounced in the open court on 23rd Dec., 2014.
Sd./- Sd./-
( I. C. SUDHIR) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
rd
Date: 23 Dec., 2014
Sp
Copy forwarded to:-
The appellant
The respondent
The CIT
The CIT (A)-, New Delhi.
The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order
(ITAT, New Delhi).
12 ITA No.4734/Del/2012
S.No. Details Date Initials Designation
1 Draft dictated on 19/12/2014 Sr. PS/PS
2 Draft placed before author 22,23,23,23 Sr. PS/PS
Draft proposed & placed before the Second 23/12
3 JM/AM
Member
4 Draft discussed/approved by Second Member 23/12/2014 AM/AM
5 Approved Draft comes to the Sr. PS/PS 23/12 Sr. PS/PS
6 Kept for pronouncement 23/12 Sr. PS/PS
7 File sent to Bench Clerk 23/12/2014 Sr. PS/PS
8 Date on which the file goes to Head Clerk
9 Date on which file goes to A.R.
10 Date of Dispatch of order
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