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Income Tax Appellate Tribunal, JAIPUR BENCHES ‘A’ JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 566/JP/2013
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ‘A’ JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 566/JP/2013 fu/kZkj.k o"kZ@Assessment Year :2009-10 cuke Raghuveer Metal Industries Limited ACIT, C/o Kapil Goel Adv. Vs. Central Circle, A-1/25 Sector 15 Rohini Delhi Alwar, Rajasthan 110085 LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCR 7496 R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Himanshu Goyal (CA) jktLo dh vksj ls@ Revenue by : Sh. K. C. Gupta (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 03/06/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 23/06/2020 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A) (Central), Jaipur dated 26.03.2013 wherein the assessee has taken the following grounds of appeal:- “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (appeals) is bad both in the eye of law and on facts.
2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in conferring the action of A.O in making addition of an amount of Rs. 1,66,92,172/- on account of undisclosed income.
M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar (ii) That the above addition has been conferred despite the fact that the same was made only on the basis of some reply filed by a third person explaining the material found during the course of search & seizure action conducted at his premises. (iii) That the addition has been conferred despite the same having been made totally indulging in surmises and conjectures.
3. On the facts and circumstances of the case, the learned CIT(A) has erred in sustaining the disallowance of Rs. 2,32,193/- being loss claimed by assessee on account of theft of goods.
4. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the disallowance of Rs. 11,00,469/- on account of excess stock of certain item & short stock of certain item found during the survey.
5. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the disallowance of Rs. 44,800/- on account of short stock found during the course of survey.”
2. With the consent of both the parties, the present appeal, along with two other appeals in & 556/JP/2016 was taken up for adjudication on 30.01.2020. The other two appeals have already been disposed off vide order dated 12.03.2020, however, this matter couldn’t be pronounced within the prescribed time due to current situation prevailing in the country on account of Covid-19 Pandemic and non-functioning of the Benches and the matter was released from “reserved for order” category and thereafter, listed for fresh hearing on 03.06.2020. Hence, this appeal has come up for adjudication before us and is being disposed off by this order.
Ground No.1 is general in nature and doesn’t require any specific adjudication and the same is thus dismissed. 2 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 4. In Ground No. 2, the assessee has challenged the action of ld. CIT(A) in confirming the addition of Rs. 1,66,92,172/- on account of undisclosed income.
Briefly stated, the facts of the case are that a search operation u/s 132 were conducted on 17.09.2008 in M/s Kamdhenu Group of companies. Simultaneously, the survey operation were carried out at the business premises of the assessee, a franchisee of M/s Kamdhenu Ispat Ltd, situated at Brikchiawas, Nasirabad Road, Mangaliyawas, Ajmer. Subsequently, the assessee company filed its return of income on 6.09.2010 disclosing loss of Rs. 75,76,150/- which was taken up for scrutiny and the assessment was completed u/s 143(3) vide order dated 23.12.2010 wherein the Assessing Officer inter alia made an addition of Rs. 1,66,92,172/- on account of unaccounted income of the assessee company. In this regard, the relevant findings of the AO are contained at para 3(iv) of the assessment order which reads as under:-
“(iv) Surrender of Rs. 2.5 crores by Sh. Pradeep Agarwal then Director of the company: In the post search proceedings before Investigation wing, Jaipur Sh. Pradeep Agarwal then Director of the company surrendered undisclosed income of Rs. 2.5 crores as unaccounted income of M/s Raghuveer Metal Industries Ltd for the F.Y 2008-09 in his letter dated 02.12.2008 submitted to the Assistant Director of Income-tax (Investigation-II), Jaipur. He further mentioned in the letter that the amount of Rs. 2.5 crores would cover entire loose paper of M/s Raghuveer Metal Industries Ltd and Sh. Pradeep Agarwal and Sh. Ashish Agarwal who has routed through and introduced the undisclosed income as capital and loan in the books of company mention in page no. 21 to 23 of annexure A-5 seized during the course 3 ITA No. 566/JP/2013 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar of search and will file the assessee-wise bifurcation after receiving the photocopies of seized paper. Further in his letter dated 20.01.2009 submitted to the Assistant Director of Income-tax (Investigation-II), Jaipur, Sh. Pradeep Agarwal gave the bifurcation of unaccounted income introduced by following persons in M/s Raghuveer Metal Industries Ltd. Sh. Achin Agarwal Rs. 5,04,690/- Smt. Geeta Agarwal Rs. 15,45,312/- Sh. Pradeep Agarwal Rs. 36,32,837/- M/s Pradeep Kumar Agarwal & sons (HUF) Rs. 26,24,986/- Total Rs. 83, 07, 825/- As such amount of Rs. 1,66,92,175/- was the unaccounted income of the assessee company. However, the assessee company has not included in its income for the year 2008-09 any amount out of Rs. 2.5 crores surrendered on its behalf by Sh. Pradeep Agarwal, Director. In view of it, the assessee company was asked to explain vide notice u/s 142(1) dated 11.11.2010 why it has not included the amount surrendered during search as discussed above in its income for the year 2008-09 relevant to A.Y 2009-10. The assessee company has replied in its letter dated 27.11.2010 that the company was not aware of any such letter submitted by Sh. Pradeep Agarwal to the Assistant Director of Income-tax (Investigation-II), Jaipur nor has the board of Directors of our company ever given sanction to any such letter nor has ever authorized Sh. Pradeep Agarwal to surrender any income as there was no undisclosed income it has further contended that alleged letter is on behalf of Sh. Pradeep Agarwal as is very categorically stated in the letter in the reference column “In the case of Sh. Pradeep Agarwal”. The assessee company has also mentioned that the dispute was going on with Sh. Pradeep Agarwal in the Company Law Board 4 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar and he eventually resigned from the company. The assessee company has further contested that page no. 21-23 of annexure A-5 were neither seized from the premises of the company nor the papers were explained by the company as there were not provided to it. The alleged submission of Sh. Pradeep Agarwal describe the documents as revalued Balance Sheet though his bases and yard sticks would be known to him or the person who has prepared this. We are unable to understand the purpose of preparation of the documents.
Submission of the assessee has been considered and it is not found convincing for the following reasons. i) Since Sh. Pradeep Agarwal being the Director of the company has been authorized by the assessee company to conduct business affairs of the company which included dealing with various departments like sales-tax, Central Excise, Income-tax etc. Therefore, the assessee company cannot take the plea that Sh. Pradeep Agarwal was not authorized to make statement or submission before the Income-tax authorities on behalf of the company. Therefore, whatever has been stated by Sh. Pradeep Agarwal still holds as he has not retracted the contents of the letters submitted by him to Assistant Director of Income-tax (Investigation-II), Jaipur on 02.12.2008 and 20.01.2009. In this regard it is worth noticing that Sh. Sunil Pokharna, one of the directors of the company made a surrender of Rs. 15 lacs on account of excess and short stock found during the course of survey u/s 133A in his statement recorded on 17.09.2008. The company has accepted the contents of the statement of Sh. Sunil Pokharna by admitting in it’s reply filed in this office on 04.12.2010 as follows: “The excess stock found during the course of survey operations has been sold during the normal course of business and the 5 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar total sales consideration was included in the sales reflected in the books of account of the company” When the assessee company has accepted the contents of the statement of Sh. Sunil Pokharna how can it deny the submission/admission made by other director i.e. Sh. Pradeep Agarwal. As such admission made by Sh. Pradeep Agarwal on behalf of the company is also binding on it. ii) Even if, there is a dispute with Sh. Pradeep Agarwal, it cannot be denied that he was not the director of the company when he made submission before the Assistant Director of Income-tax (Investigation- II), Jaipur, therefore the admission made by him as discussed in para above, is binding on the company. iii) Submission of the assessee that the document seized at Page no. 21-23 of annexure A-5 were neither seized from the premises of the company nor the papers were explained by the company, is no ground for denying the contents of the documents. If a document indicating its ownership by the company is seized from the residence of the Director of the company, the company cannot deny its contents only for the reason that it was not seized from the business premises of the company but from the residence of its Director. It is very normal for the Directors to carry business activity of a company from its residence also.
Therefore, finding of documents related to the company from the residence of the Director is not something unusual. Therefore, in the case of the assessee company if a document relating to it has been found from the residence of its Director it is as good as having been found from the business premises of the company.
M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar Any statement made by the Director of a company is binding on the company because company is an artificial entity which works through its Directors. If a Director seized to be the Director of the company, it does not mean that the decisions taken by him during his/her tenure on behalf of the company would cease to exist. Sh. Pradeep Agarwal, then Director of the company, has not retracted his statement regarding surrender of Rs. 2,50,00,000/- made in the hands of the company and his family members out of which Rs. 1,66,92,175/- was surrendered by him in the hands of the assessee company. In this regard I would also like to mention that if an Officer of the Income-tax Department cannot refuse to allow relief to the assessee against an assessment order only for the reason that the assessment order has not been issued by him but by his predecessor. In the similar vein, decision of an earlier Director are binding on the company and its current management.
Even if, the surrender was retracted by Sh. Pradeep Agarwal, it would still be binding on the assessee company and Sh. Pradeep Agarwal in view of following decision of Supreme Court of India & High Courts.”
“In view of the discussion as above it is held that the amount of Rs. 2.5 crores have been correctly surrendered by Sh. Pradeep Agarwal and who has owned unaccounted income to the tune of Rs. 83,07,825/- for himself and other members of his family. Therefore, the remaining amount of Rs. 1,66,92,175 [2,50,00,000 - 83,07,825/-] is considered to be unaccounted income of the assessee company.”
6. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has since confirmed the addition made by the AO holding that 7 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar the finding of the AO cannot be faulted. Against the said finding, the assessee is in appeal before us.
During the course of hearing, the ld. AR submitted that a search operation took place at the premises of Kamdhenu Group on 17.09.2008 including Sh. Pradeep Agarwal, the director of the company. During the course of post search inquiry, on the basis of certain loose papers found, Sh. Pradeep Agarwal surrendered an amount of Rs. 1,66,92,172/- in the name of assessee company through a letter filed by his Counsel before the ADIT (Investigation-II), Jaipur on 02.12.2008. It was submitted that the said letter was executed on the letter head of the Counsel of Sh. Pradeep Agarwal signed by the Counsel himself and thereafter, Sh. Pradeep Agarwal authorized contents of the said letter on 20.01.2009. It was further submitted that another letter was filed by the Counsel of Sh. Pradeep Agarwal on 15.12.2008 which was again executed on the letter head of the Counsel and signed by the Counsel himself and thereafter, the contents of the letter were authorized by Sh. Pradeep Agarwal on 20.01.2009.
8. Further, our reference was drawn to the submission filed by the assessee company before the AO vide letter dated 27.10.2010 in response to the notice issued by the AO u/s 142(1) dated 11.11.2010 and the contents of the said letter read as under:- “To, The Asstt. Commissioner of Income Tax Central Circle, Alwar, Rajasthan Ref: M/s Raghuveer Metal Industries Ltd. 21, Adrash Nagar, Ajmer M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar Sub: Notice u/s 142(1) of the Income Tax Act, 1961 for the Assessment Year 2009-10. Dear Sir, In this regard, we would like to submit the following documents/clarifications/explanations required by your good self.
The letter dated 15/12/2008 referred by you in has come to us as surprise to us and we were not aware of any such letter nor has the board of directors of our company even given sanction to any such letter nor has even authorized Shri Pradeep Agarwal to surrender any income as there was no undisclosed income. The alleged letter is on behalf of Mr. Pradeep Aggarwal as is very categorically stated in the letter in the reference column “in the case of Shri Pradeep Aggarwal”. There was a dispute going on with Shri Pradeep Aggarwal in the Company Law board and he has eventually resigned from the company. The C.L.B documents can be submitted if required. That the ‘D’ Bench of Delhi ITAT in the case of JCIT vs. Bali Medical & Dental Centre (2005) 98 TTJ (Del) 644 held, “It is settled legal position that statement of one person cannot bind the other”. Thus, the surrender made by Shri Pradeep Kumar Aggarwal, cannot be bind the appellant. We would like to further submit that we were never part of the Shri Pradeep Aggarwal group of companies as is evident from the statement of Shri Vijesh Karanwal wherein he has given names of P. K. Gaddi, P. K & Company, P. K. & Sons etc. We are making “Kamdhenu Brand TMT Bar” which the official trade mark of Kamdhenu Ispat Limited and paying royalty to M/s Kamdhenu Ispat Limited which is an entity owned by Mr Satish Aggarwal.
M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar It would not be out of place to mention that as we were not part of the Pradeep Aggarwal Group though Sri Pradeep Aggarwal and his group of company has challenged the centralization of cases in Alwar in the High Court we did not oppose centralization even though we are located far away in Ajmer.
From the documents which have been cited as having been seized during the search and survey operations at the various premises of Shri Pradeep Aggarwal none of them relates to our company. It would not be out of place to mention that nothing incriminating was seized from the premises of the company.
Without prejudice to the above after a close reading of letter provided to us we would like to submit as under: 1. In para-1 he has submitted “all earnings of the assessee stands invested in M/s Raghuveer Metal Industries Ltd. in the form of unsecured loans etc. through various channels.” From the above it is apparent that the assessee stands for Mr Pradeep Agarwal and not M/s Raghuveer Metal Industries Ltd.
2. In Para-2 he has submitted “That the assessee has arranged loans in the name of various persons in his personal files and also directly in the books of M/s Raghuveer Metal Industries and all such loans and other credits are appearing as capital in annexure A-5 Page 21 to 23.” From the above it is apparent again Mr. Pradeep Agarwal may have arranged loans etc. and M/s Raghuveer Metal Industries did not have any undisclosed income.
M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 3. In Para-3 he has submitted “In the group case of Shri Pradeep Agarwal as per Balance Sheet of various individual files on the date of search. The following loans are appearing which have been routed through/introduced in the books of M/s Raghuveer Metal Industries:- Sr. No. Particulars Amount (a) In the file of Shri Achin Agarwal Rs. 5,04,690/- (b) In the file of Smt. Geeta Agarwal Rs. 15,45,312/- (c) In the file of Shri Pradeep Agarwal Rs. 36,32,837/- (d) M/s Pradeep Kumar Agarwal & sons (HUF) Rs. 15,45,312/- Total Rs. 83, 07, 825/-
All the above loans appearing in the books of above individuals are unaccounted money was introduced directly or indirectly in the books of M/s Raghuveer Metal Industries as Capital.
From the above even if the statement is correct it is invariably confirmed that M/s Raghuveer Metal Industries has received funds from Mr Pradeep Agarwal & his family and is duly disclosed in the Balance Sheet and even if there was any undisclosed income that was on the end of Mr. Pradeep Agarwal and not M/s Raghuveer Metal Industries.
In Para-4 he has submitted that “It is further submitted that during the last 3-4 years the assessee has also taken various income/commission for which he has paid commission out of unaccounted/undisclosed income. Such payment of commission being unaccounted stands surrendered in the year of payment in the hands of the relevant person. The same will be quantified 11 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar soon after the photocopies of relevant seized material are provided to us.”
The assessee in letter stands for Mr. Pradeep Agarwal clearly evident from substance of Letter and the para 1-4 above and he may have received such commission.
The page No. 21-23 of annexure A-5 was neither seized from the premises of the company nor the papers were explained by the company as they were not provided also. The alleged submission of even Mr. Pradeep Agarwal describes the document as revalued Balance Sheet though his basis and yardsticks would be known to him or the person who has prepared this. We are unable to understand the purpose of preparation of the documents.
1. Rs. 2.5 Crores has never been surrendered by M/s Raghuveer Metal Industries Ltd. and surrender if any was by Mr. Pradeep Agarwal in his individual capacity as is also evident from the fact that on the letter provided to us he has written that “The above suggestion was given by my counsel as per my direction and consent”. Our contention is further confirmed by the fact that he has signed in his individual capacity.
In addition to our submission above and without prejudice to the above Revaluation amount of Rs. 12,58,50,000/- can’t be taxed and it is not that you accept one submission of Mr. Pradeep Agarwal while not the other. Moreover even if it is presumed that it is his extra capital then it should be taxed in his personal hand.
We hope the above will serve your purpose. If your good self requires any other details/clarifications we shall be eager to provide the same 12 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar to you. However if your goodself is not satisfied with our submission then an opportunity of personal hearing may be granted before any adverse view is taken again us.
Thanking you Yours Truly, For Raghuveer Metal Industries Pvt. Ltd. (Authorized Signatory)”
Further, our reference was drawn to the affidavit of Sh. Sunil Pokhrana, director of the assessee company which was filed before the ld. CIT(A) and the contents of the said affidavit read as under:-
“That I Sunil Pokhrana S/o Sohan Lal Pokhrana R/o 21, Adarsh Nagar, Ajmer solemnly affirms that I am director of M/s Raghuveer Metals Industries Ltd. and I am fully aware about the facts and transaction of this company and I am also competent to file explanation and affidavit on behalf of said Raghuveer Metal Industries Ltd.
2. That I solemnly affirm that in the case of M/s Raghuveer Metals Industries Ltd. & also in the case of Shri Pradeep Agarwal, a search & seizure operation u/s 132 of the Income Tax Act, 1961 was carried out on 17.09.2008 and on the date of search, the deponent, Shri Sunil Pokhrana, Shri Pradeep Agarwal Shri Ashish Agarwal & Shri Vijesh Karnwal were the directors of M/s Raghuveer Metals Industries Ltd. 3. That I solemnly affirm that M/s Raghuveer Metals Industries Ltd., now it shall be called as appellant, has filed as appeal before the CIT(A)-Central, Jaipur against the order dated 23.12.2010 passed u/s 143(3) of the Income Tax Act, 1961 for the Assessment Year 2009-10.
M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 4. That I solemnly affirm that Shri S. L. Poddar, Partner/ Proprietor of M/s S. L. Poddar & Co. was the counsel of Shri Pradeep Agarwal & he was never the counsel of the appellant.
5. That I solemnly affirm that the loose papers Page No. 21-23 of Annexure A-5 was not seized from the premises of the appellant and the description about revaluation of assets of the appellant and the increase in the capital amount of Shri Pradeep Agarwal and of Shri Anil Pokhrana as mentioned in said loose papers are incorrect and not pertaining to the appellant and Shri Anil Pokhrana.
That I solemnly affirm that neither the appellant nor the deponent & other directors, viz. Shri Sunil Pokhrana & Shri Rajesh Pokhrana were aware about revaluation of the assets nor about the increase in the capital amount of Shri Pradeep Agarwal and of Shri Anil Pokhrana.
7. That I solemnly affirm that the appellant has neither authorized to Shri Pradeep Agarwal for the revalualtion of the assets nor such revaluation of assets and corresponding entries in the capital of Shri Pradeep Agarwal and of Shri Anil Pokhrana has ever been authenticated.
That I solemnly affirm that Shri Pradeep Agarwal was never authorized by the appellant for making any surrender of income and the surrender of Rs. 2.5 crores vide letters dated 02.12.2008 and 15.12.2008 before the ADIT (Inv.) as made by him was not on behalf of the appellant as it was not approved by the Board of Directors.”
It was submitted by the ld AR that basis aforesaid documentation available on record, it is to be noted that Shri Pradeep Aggarwal, director of the assessee company was having disputes with the company & other directors & in fact a complaint before the CLB was lodged against him & he 14 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar resigned from the company at last. If we eschew the letters filed by the Counsel of the Ex-Director, Pradeep Aggarwal which was authorized by him after a month, then there is logically no incriminating material on record to justify the additions. It was submitted that the Financials so generated by the Counsel of Pradeep Aggarwal were made indulging in conjectures and surmises. It was further submitted that a statement recorded or confession made by a hostile director cannot be taken as a ground conclusive enough for making an addition on the assessee company. His intent being malafide towards the assessee cannot be doubted. Even otherwise on the basis of a handmade ledger found in the premises of a third party and the third party’s statement cannot be taken as a ground for making any addition in case of assessee and in support, reliance was placed on the following decisions: • CIT vs. Anil Khandelwal (ITA No. 247/2015 & 248/2015 & 248/2015) • DCIT vs. Yash Pal Narendra Kumar (ITA No. 5340, 5341 & 5342/D/2012) • Shri Ketan V Shah and Others vs. ACIT (ITA No. 2321 & 2322/Mum/2013)
It was further submitted that no addition could be made on the basis of loose papers found in the premises of a third party and in support, reliance was placed on the following decisions: • Add. CIT vs. Lata Mangeshkar [1947] 97 ITR 696 (Bom) • Kantilal L. Lunkad, L/H Smt. Pushpa K. Lunkad vs. DCIT (ITA No. 725 & 726/PUN/2014) • ITO vs. Shri Pukhraj Soni (ITA No. 585/Ind/2015)
Without prejudice to above, it was submitted that even if the calculation is done as per the method followed by the AO and confirmed by CIT(A) for making the addition on the basis of document marked as A-5, 15 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar there would not be any basis for making the addition as per detailed working below: As done by the AO: Particulars As on 31.03.2018 As on 30.06.2008 Difference (B- A) (A) (B) Total of Capital 13,66,50,000 26,25,00,000/- 12,58,50,000/- Accounts Fixed Assets 7,89,28,394 17,98,66,704/- 10,10,00,000/- Total Undisclosed Income (Approx) 2,50,00,000/- Unaccounted money on account of loans introduced in 83,07,825/- the assessee’s books Addition made 1,66,92,172/- Correct Calculation( as per Assessee):- Increase in valuation of assets as per the Capital ledger accounts of Anil Pokharana and Pradeep Aggarwal is Rs. 3.90 Cr+ 3.60 Cr + 3.90 Cr + 3.60 Cr = Rs 15 Cr. Particulars As on As on Difference/Increase 31.03.2018 30.06.2008 (B) (B-A) Total of Capital 13,66,50,000 26,25,00,000 12,58,50,000/- Accounts Fixed Assets 15,00,00,000/- Total Undiclosed Income (Approx.) NIL Unaccounted money on account of loans introduced in 83,07,825/- the assessee’s books Therefore Addition to be made NIL
Per contra, the ld. DR submitted that Sh. Pradeep Agarwal was the Director of the assessee company at the time of recording of the statement and in his statement recorded on oath u/s 131 on 19.11.2008 in reply to 16 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar Question No. 56, he has categorically admitted that Page No. 23 of Annexure-A5 was actual balance-sheet of M/s Raghuveer Metal Industries Ltd. wherein unaccounted transactions were also included and the same was surrendered. It was further submitted that in his statement, he has owned such unaccounted income recorded in these documents at various annexure and endorsed the submission of the Counsel when confronted to him. In view of above and on careful consideration of all relevant facts, the addition was rightly made by the AO.
Further, ld DR placed reliance on the findings of the ld CIT(A) which read as under: “………in this group case the search was conducted on 17.09.2008 and the group cases are Raghuveer Metal Industries Ltd. Kamdhenu Ispat Ltd. etc. There is no dispute on the fact that on the date of search Sh. Pradeep Agarwal and Sh. Sunil Pokharna were the main directors of the appellant company. Though it is stated that there was some dispute between the directors even before the date of search but no such fact appear to have been brought to the notice of the search party or the department during the course of search, therefore it cannot be said that Sh. Pradeep Agarwal was not competent to make such disclosure of income. On perusal of such letters dated 2.12.2008 and 15.12.2008 it may be noted that the contents of such letters are very specific. In letter dated 02.12.2008 it is mentioned that on the basis of page no. 21 to 23 of Annex. A-5 which is revalued balance sheet of M/s Raghuveer Industries Ltd. as on 30.06.2008 and in this balance sheet the total capital of both the directors are mentioned at Rs. 262632985/- (129882027 and 132750958). Against such capital, fixed assets were shown at Rs. 179866704/- whereas in the books of accounts of M/s Raghuveer Metal Industries Ltd. the total capital + loan fund was for Rs. 17 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 136650000/- and fixed assets were for Rs. 78928394/-. Accordingly, the capital as per loose papers was at Rs. 262500000/- whereas the capital as per books was at Rs 136650000/- and accordingly, extra capital as per loose papers was shown for Rs. 125850000/-. The reason for extra capital was revaluation of fixed assets for the purpose of the partition between both the directors namely Sh. Pradeep Agarwal and Sh. Anil Pokharan. By such revaluation the fixed asset of Rs. 78928394/- was arrived at Rs. 179866704/- and the difference of Rs. 101000000/- was credited in directors’ capital account by Rs. 5.50 Cr. in each director. The actual undisclosed income of the company shared by both the directors and credited in the capital account was at Rs. 24850000/- (125850000- 101000000) and accordingly surrender of Rs. 2.50 Cr. was made as undisclosed income/unaccounted income of M/s Raghuveer Metal Industries Ltd. to purchase peace of mind. It was also stated in the letter that this surrender will cover the entire loose papers of M/s Raghuveer Metal Industries Ltd. Sh. Pradeep Kumar Agarwal and Sh. Ashish Agarwal who has routed and introduced the undisclosed income as capital and loan in the books of the company. In the subsequent letter dated 15.12.2008, bifurcation of Rs 2.5 Cr was given and undisclosed income amounting to Rs. 8307825/- was admitted in the hands of Sh. Achin Agarwal, Smt. Geeta Agarwal, Sh. Pradeep Agarwal and Sh. Pradeep Agarwal and Sons HUF, by stating that loans in the name of various such persons were raised in the books of M/s Raghuveer Metal Industries Ltd. and that all such loans are unaccounted money which was introduced directly or indirectly in the books of accounts of M/s Raghuveer Metal Industries Ltd. As the undisclosed income to the extent of Rs. 8307825/- was admitted by the individual member of Sh. Pradeep Agarwal, therefore the remaining amount of undisclosed income amounting to Rs. 16692175/- was added in the 18 ITA No. 566/JP/2013 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar appellant’s case. The above fact will indicate that Sh. Pradeep Agarwal one of the main Director of the appellant company was competent to make such surrender and such admission of income is never retracted by him. It is not the case that such addition of income was not based on any document and the fact detailed exercise and basis is given as to how the undisclosed income was determined. Even reference of seized documents is also made. It may also be stated that even if such surrender was not made strictly u/s 132(4) it may not affect the authenticity and validity of such admission. As regards the objection of the appellant that such surrender was based on the revaluation of assets and that for revaluation of assets certain procedures are laid down which were not fulfilled, it may be stated that thought the appellant company is a corporate entity but on the basis of incriminating documents/ papers one of the director made very specific disclosure of undisclosed income and such admission of unaccounted income may not necessarily be as per the parameters and procedures for revaluation of assets but simply non-adherence of procedural requirement may not be a valid ground of negate the authenticity of valid disclosure of income. The other objections of the appellant are broadly of academic nature without any way affecting the validity of surrender of undisclosed income. The ultimate fact remains that on the basis of incriminating documents found from the premises of main director of company, one of the main director admitted undisclosed income. There is nothing on record that such surrender was made under duress or coercion, in fact the admission of unaccounted income was absolutely voluntary act by the main director. It may also be mentioned that though technically the surrender of income was not under sec. 132(4) of IT Act but such surrender was in consequence to search and based on specific incriminating documents and therefore such surrender of income can 19 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar definitely be said to be similar to surrender of income made u/s 132(4) and the admission made u/s 132(4) are definitely having strong evidentiary value. Reliance is placed on the following case laws for the above proposition of law:- • ACIT vs. Hukum Chand & Ors. (2010) 337 ITR 238 (Chhatisgarh) • Rajmal Nawal vs. CIT & Anr. (2003) 183 CTR 144 (Raj.) • Hotel Kiran vs. ACIT (2002) 77 TTJ 87 (Pune) • V. Kubhambu & Sons vs. CIT (1986) 131 CTR 396 (Ker) • Rakesh Mahajan vs. CIT (2008) 214 CTR 218 (P & H) Keeping in view the above facts and circumstances, the finding of the AO making addition of Rs. 16692175/- cannot be faulted. The addition is made by the AO is accordingly confirmed. The ground of appeal is dismissed. “
We have heard the rival contentions and perused the material available on record. Firstly, we refer to the statement of Shri. Pradeep Agarwal recorded u/s 132(4) on 17.10.2008. In response to Question No. 3, he has stated that he is engaged in iron and cement business and he is the Managing Director of M/s Kamdhenu Industries Ltd and the office of said company is located at 24 Shivaji Marg, Karanpura, Delhi and the said statement was thus given in the status and capacity of managing director of M/s Kamdhenu Industries Ltd. There is however, no question which was raised by the Revenue in relation to the assessee company or in terms of any documents/loose papers relating to the assessee company which were seized during the search while recording his statement u/s 132(4) of the Act.
Now, let’s look at his earlier statement recorded u/s 131 on 26.09.2008, in response to Question No.4, he has stated that he is the Director of M/s Raghuveer Metal Industries, Ajmer besides 4 other 20 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar companies and he is also the share holder in this company. In response to Question No. 6, he has stated that besides his family, the family of Sh. Anil Pokharna and family of Sh. Tarsen Singh are also involved in this company in capacity of Director and share holder. In response to Question No. 7, he has stated that M/s Raghuveer Metal Industries is involved in the business of manufacturing iron Bars. In response to Question No. 8, he has stated that Sh. Surendra Kumar is a main person involved in M/s Raghuveer Metal Industries. We therefore find that as on date of recording of aforesaid statement u/s 131 of Sh. Pradeep Agarwal, he was one of the share holders and the Director of the assessee company and besides him, Sh. Anil Pokharna, Sh. Tarsen Singh and their family members were also share holders and directors in the assessee company.
Thereafter, in his another statement recorded u/s 131 on 19.11.2008, in response to Question No. 53 wherein he was shown Annexure A1 to A10 which were seized during the course of search from the residence of Sh. Ashish Agarwal who was incharge of Khamdenu Industries, he has stated that these loose papers are relating to his companies and business establishments which may include accounted and unaccounted transactions, he will give detail information about this transactions latter on and he further stated that on such unaccounted income, he will pay taxes and surrender for income tax purposes. Further, in response to Question No. 56 wherein he was shown pages 23 and 60 of Annexure-A5, he has stated that page 23 shows the balance sheet of M/s Raghuveer Metal Industries Ltd on 30.06.2008. He further stated that the said balance sheet contains both unaccounted and accounted transactions of the actual business of the company. Further, he has stated that according to the said balance sheet whatever profits have not been shown in the books of accounts, he will pay M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar the taxes by accepting the unaccounted income of the current financial year. Now, lets looks at Annexure-A5 page 23, the contents thereof read as under: M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 18. On perusal of the above, we find that it is a handwritten document which is not authenticated by any person. There is no mention of any figure of profit or loss as on 30.06.2008. Further, on perusal of the ledger accounts of Sh. P. K. Agarwal and Sh. Anil Pokharna marked as Annexure-A5 page 21- 22, we find that it contains particulars and corresponding figures about fixed furnace, fixed rolling and furnace, running account and director remuneration and again does not contain any specific figure of share of profit and loss account and their respective share capital as on 30th June, 2008. Further, we find that there is no finding recorded by the Assessing Officer as to the actual profits as per books of accounts as on 30th June, 2008 and the unaccounted profits embedded in the balance sheet as per Annexure A5 page 23 and the veracity of other figures as stated in the aforesaid balance sheet so found as on 30.06.2008 as to whether they corroborate with the assessee’s books of accounts or not. Merely stating that the said document represents the balance sheet of the assessee company will not suffice unless it is established that the financial summary so depicted on the face of the balance sheet represents and includes the actual transactions so recorded in the books of accounts of the assessee company, besides the unrecorded transactions.
We therefore find that firstly, the document so found and seized is from the premises of Shri Ashish Agarwal who was stated to be incharge of Khamdenu Industries, and not from the premises of Shri Pradeep Agarwal, the director of the assessee company which lends credence to the fact that Shri Pradeep Agarwal was not confronted with the said document at the time of recording his statement u/s 132(4) of the Act. There is nothing on record which shows that Shri Ashish Agarwal was confronted with such document and his statement was recorded and his explanation was called for regarding the contents and authencity of such documents. Further, when Shri Pradeep 23 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar Agarwal, the director of the assessee company was confronted with such document while recording his statement u/s 131 on 19.11.2008, he has stated that the said document shows the balance sheet of accounted and unaccounted transaction of the assessee company as on 30.06.2008, whatever profits have not been shown in the books of accounts, he will pay the taxes by accepting the unaccounted income of the current financial year. However, as we have seen above, there are no efforts which have been made by the Assessing officer to verify the contents of the said documents with the books of accounts of the assessee company and to determine the profits which have been reported as on 30.06.2008 and the profits which remain unaccounted. Therefore, merely relying on the statement of Shri Pradeep Agarwal on a standalone basis without any corroborative evidence to show that there is any unaccounted income in the hands of the assessee company will not satisfy the requirements of law to make the addition in the hands of the assessee company.
Now, in terms of subsequent developments in the matter, there are two letters dated 02.12.2008 and 15.12.2008 addressed to the ADIT (Investigation-II), Jaipur by Shri S L Poddar, Counsel for Shri Pradeep Agarwal which have been taken note of by the Assessing officer during the assessment proceedings. It would be relevant to refer to the contents of the said letter dated 02.12.2008 as M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar under:
ITA No. 566/JP/2013 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 21. Thereafter, there is another letter dated 15.12.2008 and the contents thereof read as under:-
ITA No. 566/JP/2013 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar ITA No. 566/JP/2013 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 22. Taking the contents of these two letter dated 02.12.2008 and 20.01.2009 into account, the Assessing Officer held that out of total undisclosed income of 2.5 crores, Sh. Pradeep Agarwal has surrendered Rs. 83,07,825/- in the individual hands of his family members and HUF on account of unaccounted income introduced in assessee company and the balance amount of Rs. 1,66,92,175/- was therefore considered as unaccounted income of the assessee company and a notice u/s 142(1) was issued to the assessee company on 11.11.2010. The assessee company has however disputed such surrender made on its behalf by Sh. Pradeep Agarwal and filed its submission explaining its position to the Assessing Officer vide letter dated 27.11.2010 which were not found acceptable and addition was made in the hands of the assessee company which was subsequently confirmed by the ld CIT(A).
Firstly, we find that the notice u/s 142(1) dated 11.11.2010 is the first communication issued by the Revenue directly addressed to the assessee company regarding the unaccounted income of the assessee company. This is despite the fact that simultaneous survey operations were carried out at the assessee’s premises around the same time when the search operations were carried out on 17.10.2008 in case of M/s Kamdhenu Group of companies and the impugned documents was seized from the premises of Shri Ashish Agarwal and where the Revenue authorities were ceased of these documents, what precluded them from initiating proceedings u/s 153C of the Act. Further, statement of other director Shri Sunil Pokharna was also recorded and there is nothing on record that he was confronted with such documents. Further, there are claims and counter-claims as to whether Shri Pradeep Agarwal has authorized the contents of these two letters in his individual capacity or in the capacity of director of the assessee company, whether he has become hostile and has dispute with other directors, etc. 30 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar However, keeping these issues aside for the moment, in our view, where these two letters have to be considered, they cannot be considered, read and understood in isolation and independent of his statement recorded u/s 131 of the Act and thus, have to be read in furtherance of his statement recorded u/s 131 of the Act. In his statement recorded u/s 131 of the Act, he has stated that the said document shows the balance sheet of accounted and unaccounted transaction of the assessee company as on 30.06.2008, whatever profits have not been shown in the books of accounts, he will pay the taxes by accepting the unaccounted income of the current financial year. However, as we have seen above, there are no efforts which have been made by the Assessing officer to verify the contents of the said document with the books of accounts of the assessee company and to determine the profits which have been reported as on 30.06.2008 and the profits which remain unaccounted. Now, merely going by the contents of these two letters, the Assessing Officer held that out of total undisclosed income of 2.5 crores, Sh. Pradeep Agarwal has surrendered Rs. 83,07,825/- in the individual hands of his family members and HUF on account of unaccounted income introduced in M/s Raghuveer Metal Industries and the balance amount of Rs. 1,66,92,175/- was therefore considered as unaccounted income of the assessee company. We therefore find that the Assessing officer has merely gone by the statement of Shri Pradeep Agarwal which suits his individual requirement without independently verifying the same with the books of accounts of the assessee company. The same is also apparent from contents of the letter dated 02.12.2008 where Shri Pradeep Agarwal has confirmed similar surrender of unaccounted income in the hands of M/s Kali Metals Ltd which read as under:
“(2) That as per Annexure A-7, the balance sheet of M/s Kali Metals Pvt ltd was there in which the total profit of Rs 1,13,02,911/- whereas 31 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar in the books of accounts the profit is only Rs 68 lacs so we surrendered Rs 50 lacs as unaccounted income of M/s Kali Metals Pvt ltd for the current financial year 2008-09.”
The above nature of surrender in respect of M/s Kali Metals was identical to surrender in case of the assessee company in respect of unaccounted income and also matches with his statement recorded under section 131 of the Act dated 19.11.2008 where he has talked about the unaccounted income of the assessee company as well as M/s Kali Metals. However, the Assessing officer has accepted the said working in respect of M/s Kali Metals where the profits as per books and as per seized documents were worked out, however, there was no similar exercise done either by Shri Pradeep Agrawal or by the Assessing officer to determine the profits as reported in the books of accounts and as per the seized document in case of assessee company. This shows the inherent inconsistency in the approach of the Assessing officer and also shows how he was merely swayed by the statement of Shri Pradeep Agarwal to suit his individual requirements.
Further, let’s look at the matter from another perspective. The ld CIT(A) has returned a finding that the document so seized represents the revalued balance sheet of the assessee company as on 30.06.2008 and “the capital as per loose papers was at Rs. 262500000/- whereas the capital as per books was at Rs 136650000/- and accordingly, extra capital as per loose papers was shown for Rs. 125850000/-. The reason for extra capital was revaluation of fixed assets for the purpose of the partition between both the directors namely Sh. Pradeep Agarwal and Sh. Anil Pokharan. By such revaluation the fixed asset of Rs. 78928394/- was arrived at Rs. 179866704/- and the difference of Rs. 101000000/- was credited in directors’ capital account by Rs. 5.50 Cr. in each director. The actual undisclosed income of 32 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar the company shared by both the directors and credited in the capital account was at Rs. 24850000/- (125850000-101000000) and accordingly surrender of Rs. 2.50 Cr. was made as undisclosed income/unaccounted income of M/s Raghuveer Metal Industries Ltd. to purchase peace of mind.”
As per the aforesaid findings returned by the ld CIT(A), there is thus an extra capital which is represented by revaluation of fixed assets for the purposes of partition between the two directors. Such extra capital has been credited in respective capital account. To our mind, revaluation of fixed assets generate corresponding reserves in nature of revaluation reserves and thereafter, the assessee company can use such revaluation reserves for specified purposes including distribution to the shareholders at the time of liquidation of the company. However, merely revaluing the fixed assets doesn’t generate any profits and that too, unaccounted profits which can be brought to tax in the hands of the assessee company. Though the assessee company is disputing any such revaluation exercise as actually been conducted and thereafter implemented by passing appropriate entries in the books of accounts, even if, we go by the aforesaid findings of the ld CIT(A), the revaluation reserve so created by revaluation of fixed assets doesn’t generate any immediate cash flows in the hands of the assessee company and give rise to any taxable income which can be brought to tax. In our view, such revaluation at best could be used to determine the enterprise value of the assessee company and the basis for liquidation of the assessee company and distribution among the shareholders and liability if any will therefore arise in the hands of individual shareholders and not the assessee company.
In light of aforesaid discussions, merely relying on the statement of Shri Pradeep Agarwal on a standalone basis without any corroborative evidence to show that there is any unaccounted income in the hands of the 33 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar assessee company will not satisfy the requirements of law to make the addition in the hands of the assessee company and the addition so made is hereby directed to be deleted. In the result, the matter is decided in favour of the assessee company and against the Revenue and the ground of appeal is thus allowed.
26. In Ground No. 3, the assessee has challenged the sustenance of disallowance of loss of Rs. 2,32,193/- on account of theft of goods.
27. Briefly stated, facts of the case are that during the course of assessment proceedings, the AO observed that the assessee has claimed loss on account of theft of goods amounting to Rs. 2,32,193/- and on perusal of letter dated 28.08.2008 submitted by the assessee company to the Superintendent, Central Excise Range, Ajmer, it was observed by the AO that the goods stolen were recovered by the Police and have been handed over to the assessee company. Accordingly, the claim of loss on account of theft of goods by the assessee company was found not tenable, hence disallowed which on appeal, has been confirmed by the ld. CIT(A).
During the course of hearing, the ld. AR referring to the invoice out of which goods were lost and partially recovered back, submitted that 15.400 MT of Kamdhenu TMT- Bar was sold for Rs. 5,98,965/-and out of which, 9.430 MT goods were recovered back and in this manner, proportionally a loss of Rs. 2,32,193/- was incurred which was claimed by the assessee company. In support , weighment slip of goods returned, affidavit of Director of the assessee company were also filed during the course of assessment proceedings and which were not considered and appreciated by the lower authorities. M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 29. Per contra, the ld. DR relied on the findings of the lower authorities and submitted that a theft had occurred in the premises of the appellant for goods amounting to Rs. 2,32,193/- for which an FIR was lodged before the police authorities. However subsequently such stolen goods of Rs. 2,32,193/- were recovered by the police and handed over to the assessee. In this circumstances, there was no case for claim of such amount as business expenditure because loss on account of theft in as much as there is no loss as the stolen goods were recovered and received back by the appellant. Therefore, there is nothing wrong in the finding of the AO and confirmation by the ld CIT(A) in rejecting the claim of the appellant for Rs. 2,32,193/- and making addition accordingly. He accordingly supported the findings of the lower authorities.
We have heard the rival contentions and perused the material available on record. On perusal of records, we find that goods worth Rs 5,98,965/- were initially lost and out of which, goods worth Rs 3,66,772/- were recovered and the remaining goods worth Rs 2,32,193/- were permanently lost and a claim of Rs 2,32,193/- was made by the assessee. Such a loss of goods during the course of business is an eligible loss while computing the income under the head “Income from business/profession” and has rightly been claimed by the assessee. In the result, we set-aside the order of the lower authorities and the matter is decided in favour of the assessee and against the Revenue. In the result, the ground of assessee’s appeal is allowed.
Regarding Ground No. 3 and 4, the relevant facts and findings of the ld CIT(A) which are under challenge before us reads as under: M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar “6.1 The ground No. 3 is against the disallowance of Rs. 11,00,469/- whereas the ground no. 3 is against the disallowance of Rs. 44,800/- on account of excess stock of certain items and short stock of certain items. As both the ground are related to addition on account of shortage and excess stock therefore both these grounds are taken up together. 6.2 As regards addition of Rs. 11,00,469/- on account of excess stock, the AO’s findings are as under:- “Addition on account of excess stock of certain items & short stock of certain items found during. The survey u/s 133A:- Excess stock of certain items was found during the course of survey operation u/s 133A in the case of Assessee Company at its factory premises at Mangaltyawas, Nasirabad Road, Ajmer, in view of it, the assessee was asked vide notice u/s 142(1) of the Act dated 30.09.2010 as under:-
“Following amounts were admitted and surrendered as unaccounted/unexplained/undisclosed investment in stock by Sh Pokharna in his statement under consideration in view of excess stock over and above the stock as per books of account on 17.09.2008 found on physical verification. He has further admitted that these amounts would be the additional income of the company in addition to the regular income, declared by the company for the year 2008-09. (a) Rs. 4,28,498/- Excess Stock of TMT Bar surrendered. (b) Rs. 36,314/- Excess Stock of Runner & Rizer surrendered. (c) Rs. 2,55,697/- Excess stock of End Cutting, Stag (Mix), Miss Roll (Mix) (d) Rs. 3,79,960/- Excess stock of scrop, Ferro Ferro Silicon, etc.
M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar Similarly, stock of Rs. 4,48,005/- was found to be short of certain items. However, on going through the return of income filed for A.Y 2009-10 it is seen that no income on account of excess stock or short stock surrendered has been declared. In view of it, you are required to explain why an addition of Rs. 11,00,469/- on account of excess stock admitted during the Survey and Gross profit on short stock considering it to sales out of books, should not be made to the income of the company of the year 2008-09. The assessee has replied in its submission filed on 04.12.2010 that the excess stock found during the course of survey operation has been sold during the normal course of business and the total sales consideration was included in the sales reflected in the books of account in the company. In the absence of proper documentary evidence like Profit & Loss account upto the period of survey i.e. upto 17.09.2008 and P & L account for the period 18.09.2008 to 18.03.2010 mere statement that the excess stock has been sold during the normal course of business and sales have been properly accounted for does not explain that the excess stock has been included in the income of assessee. In view of it, an addition of Rs. 11,00,469/- is made to the income of the assessee. 6.3 As regards addition of Rs. 44,800/- on account of shortage of stock the findings of the AO are as under:- “Short stock of certain items: The assessee has not filed any reply regarding stock of Rs. 4,48,005/- found short of certain items. In view of it, an addition of Rs. 4,48,007/- is made to the income of assessee by applying rate of 10%.”
ITA No. 566/JP/2013 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 6.5 I have carefully considered the submission of the appellant as also the findings of the AO. It may be noted that during the course of survey u/s 133A certain items of stock were found excess for Rs. 11,00,469/- whereas certain specific items of stock were found short for Rs. 4,48,007/-. There is no dispute on the value of such stock found excess as well as short. It may be mentioned that it is not a case where the stock of same nature, same item have been found short at one place and excess at other place and if the stock of the same nature would have been found short and excess at different premises then definitely the appellant would have got benefit of netting of the stock position for determination of excess or less stock. But as the appellant is maintaining stock inventory on item-wise and value-wise, therefore, the stock of specific items is found excess for Rs. 11,00,469/- and less for Rs. 4,48,005/-. Therefore the stock of different items cannot be adjusted against each other and such contention of the appellant giving benefit or valuation of stock is rejected. As regards excess stock of Rs. 11,00,469/- the appellant’s case is that the excess stock is found during the course of survey was sold during the A.Y under consideration and the total sale consideration was included in the sales reflected in the books of accounts, whereas the AO’s case is that the appellant has failed to prove by necessary documentary evidence as to how income on account of undisclosed stock to the extent of Rs. 11,00,469/- was shown in the return. In this connection it may be mentioned that as the excess stock amounting to Rs. 11,00,469/- was admitted to be undisclosed income as on date of survey therefore income to such an extent as on date of survey was to be shown separately in the total income of the A.Y under consideration. During the appellate proceedings also the appellant had failed to justify as to how by 38 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar making sales of such stock the total income was offered for taxation. In this background the AO was justified in making such addition of Rs. 11,00,469/-.
As regards addition of Rs. 44,800/- on account of short stock the AO’s case is that such short stock of Rs. 4,48,005/- indicated that the stock has been sold in unaccounted manner and the AO accordingly applied GP rate of 10%. The appellant has not disputed application of GP rate of 10%. The appellant also did not dispute such short stock for Rs. 4,48,005/- as also why the stock was found short to such an extent. In this background when neither the value of short stock is disputed nor the application of GP rate of 10% is disputed. The action of the AO determining profit of Rs. 44,800/- appears to be fair and reasonable in as much as short stock indicated that such stock sold in unaccounted manner. The action of the AO is accordingly confirmed.”
During the course of hearing, the ld. AR submitted that the surrender was made during the survey and in the absence of trading account when the assessee could not substantiate that the excess amount of stock was duly sold with other sales and hand infact formed part of the P & L a/c. Without prejudice to the above, the GP rate on the said undisclosed stock be applied, GP of the assessee for the year under consideration is 1.25%. Books of the assessee has not been rejected, this stand has been taken by the department in succeeding years. Regarding short Stock, it was submitted that the shortage of stock should be deducted from excess stock. Without prejudice to the above, the GP rate applied by the AO is excessive as the GP of the assessee company is 1.25%.
Per contra, the ld. DR relied on the findings of the lower authorities. 39 M/s Raghuveer Metal Industries Ltd Vs. ACIT, Alwar 34. We have heard the rival contentions and perused the material available on record. Admittedly and undisputedly, the excess stock amounting to Rs. 11,00,469/- not recorded in the books of accounts was found as on date of survey and surrendered by the assessee company. Therefore, the undisclosed income by way of investment in such excess stock was to be offered to tax in the return of income which the assessee has failed to do so. In the result, we affirm the findings of the lower authorities in this regard. Regarding short stock which has been sold out of books, the AO has estimated gross profit rate of 10% and the ld AR has contended that 1.25% declared by the assessee may be applied in the instant case. Before the AO and the ld CIT(A), the assessee has not contested the rate of gross profit rate on such out of books sale and hence, we are not inclined to examine the fresh plea raised before us and interfere in the findings of the lower authorities and the same is hereby confirmed. In the result, the ground of appeal is dismissed.
In the result, appeal of the assessee is disposed off in light of aforesaid directions.
Order pronounced in the open Court on 23/06/2020.
Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 23/06/2020 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Raghuveer Metal Industries Limited, 2. izR;FkhZ@ The Respondent- ACIT, Central Circle-, Alwar 3. vk;dj vk;qDr@ CIT 40