SHRI SATISH KUMAR GARG,BEAWAR vs. DCIT, CENTRAL CIRCLE, AJMER

In support, reliance was also placed on the Hon'ble Supreme Court decision in the case of Collector, Land & Acquisition v. Mst. Katiji8s Others (1987) 167 ITR 471 (SC), VedabaiAoiasVaijayanatabai Baburao Patil vs. Shantaram Baburao Patil (2002) 122 Taxman 114 and Delhi Tribunal in ACIT vs. Jay Dee Securities 85 Finance Ltd. (2017) 88 Taxmann.com 626.

After hearing both the parties and considering the affidavit of the assessee which is placed on record, we find that there was a reasonable cause for the delay in filing the present appeal and the delay is hereby condoned and the appeal is admitted for adjudication.

Ground No. 1 was not pressed during the course of hearing. Hence, the same is dismissed as not pressed.

In Ground No. 2, the assessee has challenged the confirmation of addition of Rs 80,250/-.

In this regard, the ld AR submitted that during the course of search, the assessee surrendered an amount of Rs.8 Lakhs in his hands on account of 3 Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer advance given to different parties. The surrender was made on the basis of noting found on Annexure LP-2 seized from the residence of assessee. The Ld. AO made the addition on the ground that the assessee has surrendered the amount of advance given but the interest earned on these advances is not declared in the return of income and on this basis, addition of interest amount of Rs.96,000/- was made, adopting the rate of interest of 12% per annum on advance given of Rs.8,00,000/- for whole year. During the course of first appeal, the “hundis” seized were submitted before CIT(A)- Udaipur clearly mentioning the period for which the amounts have been advanced. The dates of money given was ranging from 02.09.2010 to 20.09.2010 therefore it was prayed that the addition of interest for the entire year is unjustified. During the course of appeal proceedings, ld.CIT(A) accepted the contention that the amount have been advanced in the month of September, 2010, however, the contention of assessee that the amounts have been given for two months only, supported by seized material, remained unadjudicated and the interest was calculated from September, 2010 to March, 2011. Further, the Ld. CIT(A) enhanced the rate of interest adopted by AO at 12% p.a to 18% p.a. on the basis of one hundi in the name of M/s Adiya Mineral.

In the above factual background, the ld AR submitted that the action of ld.CIT(A) in enhancing the rate of interest from 12% p.a. to 18% p.a. has resulted into the enhancement made by the CIT(A) and the enhancement has been made without following the mandatory requirement of law i.e. issuing notice u/s 251(2) . No such show-cause u/s 251(2) has been issued by the CIT(A), hence the complete enhancement has been made without providing a reasonable opportunity which is against the mandatory requirement of section 251(2) and principle of natural justice, hence the enhancement made by CIT(A) deserves to be deleted. In support of the contentions, reliance was placed on the case of M/s Shree Jee Jewellers vs ITO (ITA No.393/JP/2017 dated 27.01.2020). In view of 4 Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer these facts, the enhancement made by CIT(A) from rate of interest of 12% p.a to 18% p.a. resulting into enhancement of Rs.26,250/- may kindly be deleted. Further, reliance was placed on the written submissions and the contents thereof read as under: “2.1 It is important to note that in these types of transaction the amount of interest is received in advance. This fact is further supported by the “hundies”seized from the assessee wherein the amount of interest is quantified at the time of giving loan and received in advance. Kindly refer Hundi of Aaditya Mineral Product dated 20.09.2010 placed at PBP-3 wherein it is clearly mentioned that “advance interest of Rs.5600/- paid”

Per contra, the ld. DR relied on the findings of the Assessing Officer as well ld. CIT(A) and our reference was drawn to the findings of the ld. CIT(A) which are contained at para 5.3 which read as under:- Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer

We have heard the rival contentions and perused the material available on record. We find that these are six independent transactions where the different amounts have been advanced by the assessee to various persons and therefore, each of the transactions are to be seen in context of individual terms and conditions and based on what document has been found during the course of search. In respect of one of the transactions with M/s Aditya Mineral products, 8 Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer where the rate of interest of 1.5% per month has been specified on the Hundi document, none of the other documents found during the search specify the rate of interest. The AO has applied rate of interest of 12% per annum and the ld CIT(A) has further enhanced the same to 18% per annum. Similarly, except in respect of M/s Kiran Industries, where the period of maturity has been specified as 18.11.2010, none of the other hundis specify the period for which the amount was advanced and the date of maturity. The AO has considered the whole of the year for which the amount was advanced and the ld CIT(A) has considered period of two months in case of Kiran Industries and in respect of other hundis, period starting from September till end of the financial year. However, the fact of the matter is that the amount has been advanced which is not disputed by the assessee and we deem it appropriate to sustain the rate of interest of 12% per annum as applied by the AO which seems reasonable in the facts and circumstances of the present case except in respect of Aditya Minerals, where it should be calculated at the rate of 18% per annum. Further, in respect of transactions with Kiran Industries, Jai Jinendra textiles and MP Enterprises, the interest should be calculated for period of two months as evidence by the documents found during the course of search and in respect of other transactions, it would be reasonable to calculate the rate of interest from month of September till end of the financial year in absence of anything contrary brought on record which shows the date of maturity before the close of financial year. The ground of appeal

In this regard, the ld AR submitted that a survey operation was carried out at the business premises of assessee i.e. M/s Kutubminar A.C. Products, Industrial Area, Ajmer Road, Beawar on 13.10.2010. In the survey proceedings physical verification of stock was carried out and the same was valued at Rs.5,23,698/- by the department. Since the survey was carried out in the middle of financial year and the accountant was on leave as he suffered a leg fracture and the assessee was also not keeping well. In this situation no entries in books of account could be made after 31.03.2010 but when the survey party asked the details of stock as per books of account the same was made in haste by the accountant, without any verification and on approximate basis. The same is evident from the statements of the accountant. A perusal of the statements reveals that the entire entries were passed by the accountant in just one hour and the stock of Rs.1,04,788/- was calculated as per books on the date of survey, whereas, as per survey party, the stock was of Rs.5,23,698/-. It is important to note that alleged stock as per books at the time of survey was too calculated by applying previous year GP Rate, thus, the stock as per books itself was tentative stock. Under these circumstances, alleged excess stock of Rs.4,18,910/- on the date of survey was worked out.

It was further submitted that during the course of assessment proceedings, it was reiterated before the AO that the alleged stock as per books of accounts was prepared by the accountant in haste and without verification and when the appellant completed the books of accounts there was no excess stock as alleged. Further, a complete reconciliation sheet was filed before the Ld.AO along with complete supporting documents, bills and vouchers, affidavits of suppliers, books 10 Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer of accounts in support of each and every reason of variance between the physical stock valued by the department and alleged stock as per books of accounts and as per the reconciliation there was no such difference in stock as alleged by the department. The said reconciliation filed by the assessee was carefully considered by the AO but the addition was made on a purely legal ground by holding as under:

The assessee preferred an appeal before the CIT(A) against the action of the AO and it was pleaded before the CIT(A) that the action of the AO is unjustified in not accepting the contention of the assessee purely on the premises that the details, although admitted without finding any fault but not granted the relief, as the same were not filed during the course of survey proceedings. Thus, the issue for adjudication before the CIT(A) was limited to the issue whether addition can be made presupposing that once surrender is made u/s 131 then addition is automatic despite being glaring mistakes/factual errors existing and not doubted by the AO. As the plea of the assessee was limited to this extent the submissions, case laws and other details were filed revolving around this plea only. The Ld.CIT(A) on its own, examined the merit and the part addition was sustained on the ground that no evidences has been submitted, without Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer appreciating the evidence in totality and against the said findings, the assessee is in appeal before the Tribunal.

It was submitted by the ld AR that this was the case of survey in the middle of year when the books of accounts were not ready because the accountant of the assessee was on a prolonged leave due to medical reasons and assessee was also not well so books were prepared on the day of survey only, that too without verification of various facts i.e balance sheet of earlier year, stock received but invoice not received etc. During the course of assessment the corrected books of accounts were submitted before the AO in which no fault has been pointed out by the AO. The books of account of the assessee were accepted by the lower authorities. It was submitted that the return of income was filed by the assessee on the basis of these corrected books of accounts and the trading results were accepted by lower authorities. The addition by AO towards surrender made on account of alleged excess stock has been made only on the premises that the reason of variance in stock were not submitted during the course of survey, therefore the same cannot be accepted, however, the closing stock as per books of accounts of the assessee was not disputed which again goes to support that the factual position of the stock as per books of accounts was admitted by the lower authorities and addition was made only on the ground of non submission of these details during the course of survey proceedings. It was submitted that before the CIT(A) the plea of the assessee was limited to the legal issue whether surrender made during survey results into automatic addition when the same has been proved to be wrong based upon correct books of accounts and facts which has been admitted by AO without finding any fault. We would like to draw the attention to page 5 the assessment order wherein the reconciliation statement has been reproduced and a perusal thereof would reveal that the same was supported by extensive evidences and at the end of the reconciliation statement, Ld. AO made the opening remark that the “the submissions of the assessee has been carefully considered”. The Ld.AO has not 12 Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer found any fault in the reconciliation statement. Moreover, when CIT(A) herself accepted the plea of the assessee that admission is subject to factual verification by observing that “the action of the AO in rejecting the reconciliation (of stock found during survey with the stock as per books) filed by the assessee during the assessment proceedings, without examining the same on merits, is not found justified”. Under the facts and circumstances, Ld.CIT(A) failed to appreciate the basis of addition, plea and grounds before her and facts of the case. Ld.CIT(A) further erred while dealing the reconciliation statement on merit, while confirming the addition observed that relevant supporting is not placed before her. It is a case where all supporting evidences were filed before AO as evident from assessment order and submissions made before CIT(A). The filing of evidences was not in dispute, it is also clear that Ld.AO considered all the documents filed before him as evident from the order itself and pointed out herein before. The observation of the CIT(A) that AO has not examined the evidence on merit is contrary to the facts and merely her own presumption or conjecture. It was submitted that the Ld.CIT(A) at her own presumption presumed that the reconciliation filed by the assessee has not been examined by the AO on merits. This finding and observation is contrary to the facts as discussed herein before and therefore resultant action deserves to be deleted. In support, reliance was placed on the decision of Hon’ble Supreme Court of India in the case of ACIT Vs Marico Ltd in SLP (Civil) Diary No. 7367/2020 vide order dated 01.06.2020 wherein it has been propounded by the Hon’ble Court that non rejection of explanation of the assessee in the assessment order would amount to Assessing Officer accepting the view of the assessee. The only reason for making addition was these were not given during survey and post survey proceedings. Therefore, the issue was limited before her. Ld.CIT(A) without appreciating the facts and circumstances and without calling assessment records drawn an inference by citing the sole reason that supporting documents of reconciliation statement was not filed with her. In view of these facts and circumstances, the addition 13

It was further submitted that without prejudice to the above, the lower authorities have accepted the books of accounts of the assessee and profit declared therein but at the same time addition towards alleged excess stock has 14

It was further submitted that the books of accounts were accepted by lower authorities and during the course of survey the alleged difference was arising due to difference in value. It is important to note that closing stock has already accepted by lower authorities, the alleged difference worked out was of intermediate period. As we know, whatever difference, if any, however, we are not accepting the same, has been automatically effected the working of closing stock, which has been accepted, therefore, no separate addition for alleged difference in valuation at intermediate date can be made and would resulted into double addition, since, it has already been incorporated, if any, in the closing stock. In support, reliance was placed on the decision in case of M/s AGL Moulds& Tools, Kannur Vs ITO (ITA No.101/Coch/2019 dated 15.05.2019) and M/s Reliable Space Pvt Ltd Vs DCIT (ITA No.3085/MUM/2015 dated 25.09.2018).

It was further submitted that any difference in valuation of closing stock shall also have effect in the profit of the subsequent year, therefore, it would be always be a revenue neutral. therefore, addition merely on the basis of undervaluation is unjustified and deserves to be deleted.

It was further submitted that without prejudice to the above, the assessee’s explanation in respect of each findings recorded by CIT(A) for partly sustaining the addition is given by way of the table given below: Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer Entry in Reconciliation submitted before Findings of CIT(A) Submissions Reco. lower authorities Statement filed before lower authorities D The rate applied for valuation at Copy of trading After verification of sales bills placed. It the time physical stock taking is account prepared was an admitted fact that the stock has taken from sales book i.e. selling during course of been valued at sales price and only price has been taken for valuation survey is not objection raised by the CIT(A) was with instead of cost price, clearly the furnished. No basis respect to GP rate, therefore, at the value of physical stock taken given for 10% outset CIT(A) is unjust by not allowing during the course of survey profit rate to credit for GP Rate at all (Nil Rate) and includes the gross profit margin of substantiate this confirming the value of stock at the time assessee. Therefore the stock is contention. of survey at selling price. overvalued to the extent of Rs. 51730/- For an instance in the inventory of stock prepared at the time of survey, for items In support of our contention we placed at entry No.12,13,23 value has are enclosing herewith various been taken at Rs. 42, whereas the sale sales invoices of the assessee price of these items is Rs.30 only which which shows that value per item is evident from the sale bills placed. of closing stock has been taken at selling price instead of cost price The assessee adopted GP rate of 10% as corroborative evidence as these and this was not accepted for want of invoices were seized during the trading account prepared during the course of survey/search. course of survey to verify this GP rate.

Per contra, the ld. DR drawn our reference to the order of the AO and submitted that there is no infirmity in the order of the ld CIT(A) wherein she has Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer stated that reconciliation statement submitted by the assessee was not examined by the AO and the AO has dismissed the assessee’s submissions stating that such facts were not brought to his notice during the course of survey. It was further submitted that the ld CIT(A) has thereafter examined the reconciliation statement so submitted by the assessee and has given her findings at Para 7.3 of her order where she has allowed part relief to the assessee. The ld DR accordingly supported the findings of the ld CIT(A) and submitted that no further relief may be granted to the assessee.

We have heard the rival contentions and perused the material available on record. The survey was conducted at the assessee’s premises on 13.10.2010 during the middle of the financial year 2010-11 where the stock as per books was determined at Rs 104,788 and the physical stock has been determined at Rs 523,698, therefore, there was excess stock found during the course of survey amounting to Rs 418,910/-. During the course of assessment proceedings, the assessee submitted a reconciliation explaining the reasons for such difference in terms of stock being valued at market price, not valued at per the specification of particular products, stock received but invoices received after the date of survey etc. The AO has rejected the said reconciliation and explanation so offered along with documentary supporting documentation for the reason that the same was not offered during the course of survey. To our mind, given that the survey was conducted during the middle of the financial year, it is quite likely that there could be some timing mis-match in terms of receipt of physical stock and entries made in the books of accounts and thereafter, once the entries are made in the books of accounts, and necessary reconciliation prepared and submitted, the same should have been examined by the AO and cannot be dismissed summarily. The ld CIT(A) is also of the same view that the said action of the AO is not justified and where the assessee is able to show with evidence that admission made during survey was mistaken, the same should be examined on merits. The ld CIT(A) has thereafter Shri Satish Kumar Garg, Beawar Vs. DCIT, Ajmer examined the reconciliation statement and has held that the assessee has only partly been able to substantiate the differences and reconciliation so submitted. We have also gone through the reconciliation statement and find that the assessee has reasonable explained the differences in the stock with its explanation and supporting documentation. In respect of point no. D, we find that valuation of stock has to be at cost price and not selling price and rate of gross profit of 10% has rightly been reduced to arrive at the correct stock valuation and the addition so made is hereby deleted. In respect of point no. E, the ld CIT(A) has granted relief of Rs 92,082/- and sustained the addition of Rs.6,705/- which is not pressed by the assessee. In respect of point no. F, the assessee has submitted the relevant purchase bills and affidavit of suppliers stating that the goods were dispatched and delivered to assessee prior to survey and invoices were delivered subsequently and the quantity and other particulars matches and therefore, there is no basis for such addition of Rs 166,260/- which is hereby deleted. In respect of point no. G, the assessee has explained the reason for recording short opening stock and we find the said explanation satisfactory. In respect of point no. J and K, the assessee has reasonable explained the difference on account of product differentiation and the addition so made is hereby deleted. In light of aforesaid discussion, the ground of appeal is allowed. In the result, appeal of the assessee is disposed off in light of aforesaid directions.