DCIT CENTRAL CIRCLE 2, TUTICORIN vs. VVD & SONS (P) LIMITED, TUTICORIN

आयकर अपीलीय अिधकरण, ‘सी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी वी. दुगा� राव, �ाियक सद� एवं �ी मनोज कुमार अ�वाल, लेखा सद� के सम� । Before Shri V. Durga Rao, Judicial Member & Shri Manoj Kumar Aggarwal, Accountant Member आयकर अपील सं./I.T.A. Nos.2150, 2151 & 2152/Chny/2018 िनधा�रण वष�/Assessment Years: 2010-11, 2011-12 & 2012-13 The Deputy Commissioner of Vs. M/s. VVD & Sons (P) Limited, Income Tax, No. 182, Palayamkottai Road, Central Circle 2, Tuticorin 628 008. Madurai. [PAN:AAACV8438J] (अपीलाथ� /Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by Shri R. Clement Ramesh Kumar, CIT for : Shri M. Rajan, CIT ��थ� की ओर से/Respondent by Shri R. Vijayaraghavan, Advocate : सुनवाई की तारीख/ Date of hearing 24.08.2023 : घोषणा की तारीख /Date of Pronouncement : 13.09.2023 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: These three appeals filed by the Revenue are directed against the common order of the ld. Commissioner of Income Tax (Appeals) 19, Chennai, dated 16.04.2018 relevant to the assessment years 2010-11, 2011-12 and 2012-13.

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Consequently, since the Revenue was prevented by sufficient cause, the delay of three days in filing the appeals stands condoned and admits the appeals for adjudication.

In assessment year 2011-12, the Revenue has raised following grounds: 1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case. 2. The CIT(A) has deleted the additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, sworn statement given by the commission etc. The learned CIT(A) failed to note the Executive Director, D Kabilan, one of the Directors on 17.11.2015.

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In assessment year 2012-13, the Revenue has raised following grounds: 1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case. 2. The CIT(A) has deleted the additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, commission etc. The learned CIT(A) failed to note the sworn statement given by the Executive Director, D Kabilan, one of the Directors on 17.11.2015. 3. (a) The learned CIT(A) deleted the additions made to the contractors on the ground that they are labourers and TDS deduction is not applicable to such payments. The seized materials verification reveal that the payments were made under salary head and not under contract head. Further from the verification of the materials it is observed that the EPF deduction is made to the labourers who are working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers.

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(b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant has categorically deposed that entire sum was paid to the respective contractors were given payment through bearer cheques, without effecting TDS. The assessee's claim that the labours are enrolled for EPF and payments routed through head labourers and which fall within the purview of TDS provision does not have any merits. 4. In respect of disallowance of expenditure, by cash purchase of copra from Shajahan and his concerns at Rs. 12,85,000/- for the A.Y. 2011-12 and Rs. 1,61,15,268/- 2012-13, the assessee has furnished the evidence before the Assessing Officers for the discrepancy found The same explanation was also furnished before the ADIT, thereby also enclosing copy of assessee's ledger copy with the supplier. The reason appears was non enclosure of certain purchases on account of weight shortage and inferior quality thereby raising debit notes on those defective items, but the supplier entered it as cash receipt. The evidence was derived only by way of ledger extracts. The observation of the learned CIT(A) the assessee has offered purchases from bogus bought notes could have little relevance in this matter. 5. The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal. 6. The learned CIT(A) has allowed the appeal on the ground that there found to be assessee maintained tally software till April 2011 and from May, 2011 it had adopted SAP software for its accounting purpose. While, the AO has mistakenly taken the figure for 12 months instead of 11 months figures and compared with the supplier's books, lead to mismatch between the tally system and SAP system of accounting. This resulted the AO to conclude with suppression of purchase amounting to Rs. 1,46,33,106 along with estimated gross profit of Rs. 51,84,210/-, which was an erroneous addition. 7. There was a typographical error in the Assessment order i.e. instead taking the period April, 2011 and May, 2011 to March 2012 the AO has mentioned as April, 2011 to June, 2011. It is pertinent to note that though the AO has stated that no reply was given for the said discrepancy, the assessee had furnished proof of his reply on 07.03.2016 before the ADIT (Inv.), Madurai. Copies of which was also furnished before the Assessing Officer vide letter dated 14.12.2017, wherein the assessee has explained that as per SAP, the wastage of packing materials were deducted only at

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the end of the each financial year. Also it was explained that as per the SAP, the closing stock Was valued at weighted average rate of raw material, but as per the return the closing stock was valued at the cost price existing at the end of the month i.e. 31st March which is the accounting standard followed by the company. The assessee has not explained clearly about the grounds on which the difference has cropped up. 4. The Revenue has also raised following additional grounds for the assessment years 2010-11, 2011-12 and 2012-13: 1. The Ld.CIT(A) erred in observing that all the additions made in the assessments framed u/s. 143(3) r.w.s 153A for the AYs 2010-11 to 2012-13 can be deleted on the sole ground that there were no seized materials recovered at the time of search. 1.1 The Ld.CIT(A) erred in failing to appreciate that as per the provisions of Sec.153A of the Act, the assessing officer has to mandatorily issue notice u/s.153A of the Act to assess or reassess the total income of each of the six assessment years immediately preceding the year in which search action u/s. 132 of the Act was initiated or requisition u/s. 132A was made. The Ld.CIT(A) failed to appreciate that total income of the assessee cannot be brought to tax if the scope of Section 153A is limited to only undisclosed income on the basis of seized materials. 1.2 The Ld.CIT(A) erred in failing to appreciate that on the issue of addition to be made in the assessments framed u/s.153A on the basis of seized materials, the SLP filed by the Revenue has been accepted the Hon'ble Apex Court in the case of Pr. CIT Vs. Gahoi Foods Pvt. Ltd (117 Taxmann.com 118) and is still pending, thus the issue has not attained finality. 1.3 The ld. CIT(A) erred in failing to appreciate that there is no express provision in the Act that the additions made in the search assessment can be made only on the basis of seized materials. 5. Brief facts of the case are that the assessee, M/s. VVD and Sons (P) Limited is engaged in manufacture & sale of coconut oil & gingili oil, in operating wind mill and also in letting out ware-house etc. The assessee originally filed its return of income for the assessment year 2010-11 on 30.09.2010 admitting a total income of ₹.8,01,28,368/-. A search and seizure operation under section 132 of the Income Tax Act, 1961[“Act” in

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short] was conducted on 17.11.2015 in the group cases of M/s. VVD and Sons (P) Ltd. During the course of search, several incriminating documents relating to unaccounted transactions were unearthed and seized. A notice under section 153A of the Act dated 27.12.2016 was issued to the assessee and in response thereto, the assessee has filed its return of income for the assessment year 2010-11 on 27.01.2017 admitting a total income of ₹.9,58,25.049/- which includes the undisclosed income of ₹.1,42,68,681/- now offered for purchase of coconut through bought-notes. During the search, it was noticed that the following payments were made to family members as 'Salary' for the F.Y 2009-10 under the heads: Salary details Amount in (Rs.) Special Salary 93,65,580 Commission Charges 41,07,910 Total 1,34,73,490 6. After scrutinizing the books of account of M/s. VVD & Sons (P) Ltd. as well as considering the sworn statement recorded from Shri D. Kabilan, one of the directors of the assessee company, the Assessing Officer disallowed the claim of expenditure made in terms of special salary, commission charges to the extent of ₹.1,34,73,490/- for the assessment year 2010-11 and brought the same to tax. Similarly, the Assessing Officer disallowed ₹.1,21,52,578/- for the assessment year 2011-12 and ₹.2,46,55,591/- for the assessment year 2012-13.

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8.1 On the legal issue, Ld. CIT-DR submitted that during the course of search operation, difference was found in physical stock and book stock which constitute incriminating material. Once incriminating material is found, Ld. AO is duty bond to issue notice u/s 153A and make assessment or reassessment of total income for specified period. The Ld. CIT-DR also submitted that salary payments have been disallowed on the basis of statement recorded from the director of the assessee-company. To support the same, Ld. CIT-DR relied on the recent decision of Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. (149 Taxmann.com 399). The Ld. CIT-DR submitted that the issue in AY 2010-11 is salary disallowance and disallowance of contractual payment

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for want of TDS u/s 40(a)(ia) and the factual findings recorded by Ld. CIT(A), in the impugned order, is not acceptable.

8.2 The Ld. AR, on the other hand, supported the impugned order and submitted that the additions are not based on any incriminating material and therefore, no such addition could have been made by Ld. AO as held by Hon’ble Delhi High Court in the case of CIT V/s Kabul Chawla (380 ITR 573) which has been approved by Hon’ble Supreme Court in Abhisar Buildwell Pvt. Ltd. (149 Taxmann.com 399). The Ld. AR submitted that the salary payment has been disallowed merely on the statement without verifying the factum of rendering of services. Similar salary payments made by the assessee to same parties, has been accepted in assessment in subsequent years. Further, the recipients have offered the salary to tax in their respective hands. The Ld. AR submitted that CBDT circulars debar investigating authority to obtain confessional statement without collecting corroborating evidences.

8.3 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Based on the sworn statement recorded from Shri D. Kabilan, one of the directors of the assessee company, the Assessing Officer disallowed the claim of expenditure made in terms of special salary, commission charges to the

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extent of ₹.1,34,73,490/- for the assessment year 2010-11 and brought the same to tax. Similarly, the Assessing Officer disallowed ₹.1,21,52,578/- for the assessment year 2011-12 and ₹.2,46,55,591/- for the assessment year 2012-13 which was deleted by the ld. CIT(A) on further appeal. The case of the assessee is that the payments of special salary and commission charges were disallowed merely on the statement without verifying the factum of rendering of services. Further, the recipients have offered the salary to tax in their respective hands which do not nullify impugned additions. The above facts are not in dispute.

8.4 The submission of the ld. DR is that during the course of search operation, difference was found in physical stock and book stock which constitute incriminating material. However, the above submission is not acceptable for the reason that the assessee was liable to submit the details of physical stock and book stock during the course of assessment proceedings, and for which there was no need to undertake search operation under section 132 of the Act. We are of the opinion that difference found in physical stock and book stock alone cannot constitute incriminating material and thus, the contention of the ld. DR is rejected.

8.5 The addition made by the Assessing Officer was merely on the basis of statement and is not corroborated by any documentary evidence.

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It is not denying the fact that statement was on oath and can be used as evidence. However, mere statement cannot be the basis of addition. Without credible evidence, the Department cannot make addition purely based on the confessions made during search/survey operation as envisaged by the CBDT vide instruction F.N. 286/2/2003 dated 10.03.2003 and reiterated by the Board vide its letter dated 18.12.2014.

8.6 So far as incriminating material is concerned, in the case of PCIT v. Abhisar Buildwell (P) Ltd. (supra), the Hon’ble Supreme Court has held as under: 14. In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, AO assumes jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during course of search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessment/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be reopened by AO in exercise of powers under section 147/148 subject to fulfilment of conditions as envisaged/mentioned under section 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under section 147/148 of the Act and those powers are saved.

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The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs. It shall be worthwhile to mention here that in order to implement the law laid down by the Hon’ble Supreme Court in the above judgement, the CBDT issued Instruction No. 1 of 2023 dated 23.08.2023 vide letter F. No. 279/Misc./M-54/2023-ITJ. Under the above facts and circumstances, without any incriminating material evidence found during the course of search under section 132 of the Act, the assessment order passed under section 143(3) r.w.s. 153A of the Act for all the assessment years under appeal are liable to be quashed in view of the above decision of the Hon’ble Supreme Court as well as subsequent instructions notified by the CBDT. Accordingly, the additional grounds raised by the Revenue for the assessment years 2010-11, 2011-12 and 2012-13 are dismissed.

8.7 However, on merits, with regard to addition made towards disallowance of expenditure towards special salary & commission charges, we are of the opinion that the additions made by the Assessing Officer are unwarranted, which was rightly deleted by the ld. CIT(A). Thus, we find no infirmity in the order of the ld. CIT(A) on this issue. Accordingly, the ground raised by the Revenue is dismissed for the assessment years under appeal.

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9.1 The assessee carried the matter in appeal before the ld. CIT(A). While deleting the addition, the ld. CIT(A) has observed as under: 6.4 Coming to the ground relating to payment made to contractors without making TDS, it is submitted by the AR that the contract-labourers are in the muster roll of the appellant and are covered by the ESI/PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the four contract-labourers' cases. In fact they are the regular workers borne in the acquaintance roll of the appellant. As regards the payments made to these four people TDS provisions were not attracted, as the entire payments do not relate to them only and it is to be disbursed further to the workers coming under their control. Without prejudice to the above, it is seen that it was brought to the notice of the assessing officer that the appellant directly paid labour charges to the labourers

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through the head labourer and all the labourers are borne in the Provident Fund records of the appellant and the assessing officer never disputed the above claim of the appellant in the impugned orders. When all the labourers are treated as persons directly employed by the assessee for the purpose of Provided Fund Act and merely because the wages are disbursed through the head labourer for convenience, it cannot be said by any stretch of imagination that there was an element of contract involved. Further it is seen that the assessing officer was misled by the statement given by Shri Murugesan as reported in the appraisal report and never bothered to examine the liability of the appellant to deduct tax at source independently with reference to the facts of the case. From the facts I am convinced that the appellant directly engaged labourers borne in the Provident Fund records and made payments through the head labourer and therefore there is no liability to deduct tax at source. In view of this factual position, the entire disallowance made under section 40a(ia) viz., Rs.53,24,000/- (AY 2010-11), Rs.66,43,701 (AY 2011-12) and Rs.87,42,300 (AY 2012-13) is deleted. Accordingly the grounds for the AY 2010-11 to 2012-13 are hereby allowed. 9.2 Aggrieved, the Revenue is in appeal before the Tribunal.

9.3 The Ld. CIT-DR submitted that the payments were contractual in nature which would require TDS under section 194C of the Act.

9.4 The Ld. AR, on the other hand, submitted that the payments have been made to individuals who are directly employed by the assessee as recorded by Ld. CIT(A) in the impugned order.

9.5 We have heard the rival contentions, perused the materials available on record and gone through the orders of authorities below. In the assessment order, the Assessing Officer made disallowance towards payment made to contractors for want of TDS. Before the ld. CIT(A), the AR of the assessee has submitted that the contract-labourers are in the muster roll of the assessee and are covered by the ESI/PF Act.

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Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the four contract-labourers' cases. In fact they are the regular workers borne in the muster roll of the assessee. In fact, the above fact was brought to the notice of the Assessing Officer during assessment proceedings. As regards the payments made to these four people, TDS provisions were not attracted, as the entire payments do not relate to them only and it is to be disbursed further to the workers coming under their control. After considering the submissions of the AR of the assessee, the ld. CIT(A) has observed that the assessee has directly paid labour charges to the labourers through the head labourer and all the labourers are borne in the Provident Fund records of the assessee. When all the labourers are treated as person directly employed by the assessee for the purpose of PF Act and merely because the wages are disbursed through the head labourer for convenience, it cannot be said that there was an element of contract involved. No incriminating material like contract agreement, etc. was brought on record. Further, the ld. CIT(A) has observed that the Assessing Officer was misled by the statement given by Shri Murugesan as reported in the appraisal report and never bothered to examine the

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liability of the assessee to deduct tax at source independently with reference to the facts of the case. In view of the above undisputed facts, the ld. CIT(A) has rightly deleted the disallowance made under section 40(a)(ia) of the Act by holding that the assessee has directly engaged labourers borne in the Provident Fund records and made payments through the head labourer and therefore, there was no liability to TDS. Considering the above facts and circumstances, we are of the opinion that the ld. CIT(A) has rightly deleted the disallowance made under section 40(a)(ia) of the Act and thus, the ground raised by the Revenue is dismissed for all the assessment years under appeal.

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added further amount of ₹.3,00,000/-. On appeal, the ld. CIT(A) deleted the addition. While deleting the addition, the ld. CIT(A) has stated that after going through the summary of coconut purchase ledger, the claim of the assessee was correct and that there was a totalling mistake. By considering the submissions that inasmuch as the entire amount of ₹.1,71,32,430/- was offered to tax as bought note purchases and the same was credited in the profit & loss account, which the Assessing Officer wrongly mentioned in the assessment order as ₹.1,74,32,430/-, thereby adding a further sum of (₹.1,74,32,430 – 1,71,32,430) ₹.3,00,000/- was not called for. Considering the above facts, we find that the ld. CIT(A) has correctly deleted the addition of ₹.3,00,000/-, which was erroneously added to the total income of the assessee. Thus, the ground raised by the Revenue is dismissed for AY 2011-12.

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The details of such cash purchases made during FY: 2011-12 relevant to A Y: 2012-13 are as under: Name of the party Rs. Appu Traders 10,31,396 Achu Traders 38,44,058 Shajahan Traders 93,50,320 Madeena Traders 7,40,000 Alfas Traders 11,49,494 Total 161,15,268 During the post-search investigation, when Shri D. Kabilan, Executive Director of VVD Group, was specifically asked about the above cash purchases of copra from Shajahan group concerns, he had not given any explanation on this aspect, in spite of sufficient opportunities afforded to him. The assessee-company’s authorized representative has filed a reply on 20.12.2017. His reply is considered fully and the same is not acceptable. Since the assessee-company's claim of purchase of copras by making cash payments, as detailed in the above Table. violates the provisions of Section 40A(3),entire payments made by cash by the assessee-company M/s, VVD & Sons (P) Ltd. to the above concerns during the financial year : 2011-12 relevant to the Assessment Year: 2012-13 amounting to Rs.l,61,15,268/- are disallowed and added to the total income. 11.1 The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) has observed as under: 6.6 Disallowance of expenditure violating the provisions of section 40A(3) by cash purchase of copra from Shajahan group concerns for AY 2011-12 & 2012-13: These additions were made based on the entries in the ledger account of the assessee in the books of accounts of various concerns owned by Mr. Shajahan seized from the residential premises of Mr. Shajahan. The AR submitted that the seizure was not from the appellant, and the assessing officer never supplied copies of ledger copies, seized from Shri Shajagan’s premises, to the appellant and sought explanation on this issue. On the other hand the AO simply stated in the order that no explanation was given by the appellant. Considering the submissions of the AR and the materials on record, I am of the view that the AO erred in making the said addition without affording an opportunity to the appellant to cross-examine Shri Shajagan by providing the copies of documents from which the AO drew support for making such an addition. It is a trite law that any material or evidences collected at the back of

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the assessee has no evidentiary value unless opportunity of cross examination was given. Even otherwise, the appellant has booked purchases through bogus bought notes, which were offered for taxation in the return filed after search in response to notice under section 153A and this being so, there was absolutely no necessity for the appellant to omit the purchases from Mr. Shajahan. In view of the above, the addition for the AY 2011-12 (Rs. 12,85,000) and 2012-13 (Rs.1,61,15,268) is deleted. This ground of appeal for both the AYs is allowed.

11.2 Aggrieved, the Revenue is in appeal before the Tribunal for the assessment year 2012-13.

11.3 The Ld. CIT-DR submitted that the payments were made in cash in violation of the provisions of section 40A(3) of the Act and the assessee could not afford any plausible explanation.

11.4 The Ld. AR, on the other hand, submitted that all the payments were made through banking channels and there was no violation of the provisions of Sec.40A (3) as alleged by Ld. AO.

11.5 The Ld. AR further submitted that no material was seized from the assessee but the additions are merely on the basis of material seized from third parties.

11.6 It was also submitted that the opportunity of cross-examination was never provided to the assessee and the said material was not confronted. Therefore, these additions could not be sustained in law.

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11.7 We have heard the rival contentions, perused the orders of authorities below. In the assessment order, the Assessing Officer made the additions based on the entries in the ledger account of the assessee in the books of accounts of various concerns owned by Mr. Shajahan seized from the residential premises of Mr. Shajahan. Moreover, the seized materials were not unearthed from the assessee. Further the Assessing Officer has called for explanation from the assessee by providing copies of ledger copies seized from Shri Shajahan’s premises, based on which addition was made in the hands of the assessee. The ld. CIT(A) has also noted that there is a trite law that any material or evidence collected at the back of the assessee has no evidentiary value unless opportunity of cross examination was afforded to the assessee. The ld. CIT(A) has further noted that the assessee has booked the purchases through bought notes, which were offered for taxation in the returned filed after search in response to the notice under section 153A of the Act. Accordingly, the ld. CIT(A) has deleted the addition made by the Assessing Officer for both the assessment years under appeal. We find that no cash payment was made by the assessee. Moreover, all the purchase of copras are through agent and the payments were made to these agents through banking channel i.e., RTGS. In view of the above, we find no reason to interfere with the order passed by the ld. CIT(A) on

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this issue and accordingly, the ground raised by the Revenue is dismissed for the assessment years under appeal.

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broker for copra purchase for M/s. VVD & Sons. These Pollachi Traders get supply of copra from the farms at Pollachi. " 6.3 During the course of search assessment proceedings Shri Kandasamy, a broker of copra purchase of M/s, VVD & Sons, was issued a summons u/s. 131 and a sworn statement was recorded from him on 16.11.2017. The reply to Q. No, 8, 9 & 10 are reproduced as under: “About the details of traders arranged by him Shri Kandasamy stated that the following are the traders in Kerala who supply copras to M/s. VVD & Sons viz. 1. Achu Traders, Palakkad 2. Appu Traders, Palakkad 3. Madeena Traders, Palakkad. 4. Alfas Traders, Palakkad. 5. Shajahan Traders, Palakkad The actual purchases made Pollachi were shown as if they were bought in Kerala. Shri Shajahan has also admitted that he acts as a 'commission agent' only for raising of bogus invoices in his four traders' name and sales invoices to M/s. VVD & sons, which are verifiable with reference to the statements recorded from Shri Shajahan during the search on 17.11.2015 in Q,No, 2 & 3 which are reproduced as under: “I have been working as a copra commission agent from 2003 to various companies, after the demise of my father, I am also an agent of M/s. VVD & Sons Pvt. Limited. Apart from being commission agent for copra, I am also an agent for rice, softwood sand, cement pipe, sand etc. I used to supply copras required for VVD & Sons through Senthil, Natarajan and Chinna(herein after called “three persons”) from Pollachi to VVD & Sons. In order to avoid sales tax levied by Tamil Nadu Shri Kandasamy ,the broker of VV& Sons, asked me to raise sales invoices as told by them for this I get a commission of Rs. 1000/- per load.” Further Shri Shajahan has stated in his above sworn statement recorded on 23.12.2015 in reply to Q. No. 5, about the method adopted for supply of copra to M/s. VVD & Sons and M/s. VVD's mode of payment for the supply made by Shajahan as follows: 6.4 He has stated that Shri Natarajan, Senthil and Chinna are the three persons who had purchased copra in and around Pollachi and on their direction Shri Shajahan has prepared sales invoices for the specified quantity, the rate as fixed by M/s. VVD & Sons Pvt. Limited. Thereafter, he has prepared purchase bill in his concern name M/s. Appu Traders, M/s. Achu Traders, M/s. Alfas Traders, M/s. Madeena Traders and M/s. Shajahan Traders at the rate as reduced by 0.25 paise per kg. After raised the purchase bills, he has logged into Kerala commercial tax website and used to upload the transaction as inter-state purchase and prepared sales invoices in favour of M/s. VVD & Sons (P) Limited for the same quantity of copra in the firms names at the rate as increased by 0.25 paise per kg. After preparing sales bills in favour of Ms. VVD & Sons (P) Limited he has stated to have handed over the sales invoices to the persons namely Chinna. Natarajan, Senthil, who were waiting at Kerala Check post. Thereafter, the lorry driver carrying the copras had driven the lorry with goods into Kerala and stayed there for an hour and after one hour, again the lorry driver with load copra returns to Tamil Nadu with

22 I.T.A. Nos.2150-2152/Chny/18

the sales bills drawn by Shri Shajahan in favour of Ms. VVD & Sons. He has stated to have not known the details of where the copras were supplied. He has also stated that with the raising of purchase bills and thereafter raising sales invoices in favour of Ms VVD & Sons, his work is done/over. For which work done Shajahan he has stated to have received a commission amount of Rs. 1000-2000 per load from M/s. VVD & Sons Pvt. Limited. Shri Shajahan has also stated that he is not aware of the money deposited by M/s. VVD & Sons (P) Limited for his having supplied to copra t M/s. VVD & Sons. The assessee has also stated that the money transactions are known only to Shri Chinna, Senthil and Natarajan. 6.5 From the above facts, it is learnt that the real suppliers are Shri Chìnna, Senthil and Natarajan of Pollachi and not Shajahan since he has supplied the copras in the capacity of a commission agent alone and not as a seller. This fact is also confirmed from the above mentioned facts and also from the statements recorded from the three persons Shri Chinna, Natarajan and Senthil. 6.6 During the search assessment proceedings while recording sworn statement recorded u/s. 131 from shri Gothandapani @ Chinna on 16.11.2017 it is ascertained that shri Gothandapani has made purchases of copra from farmers at Pollachi and supplied copras to M/s. VVD & Sons from his own concern name i.e. M/s. Sree Karpagam traders through Shri Kandasamy, the broker of M/s. VVD & Sons, who is a Tuticorin based broker for VVD & Sons. 6.7 Also it is ascertained from Shri Natarajan that he has purchased copras from farmers at Pollachi and supplied copras to M/s. VVD & Sons, on information given by Shri Kandasamy, the broker of M/s. VVD & Sons. For this supply the payment is sent to Shajahan in the names of M/s. Alfas Traders, M/s. Madeena Traders in the bank accounts opened in the said concerns name of Shri Shajahan at Pollachi. Shri Natarajan has stated that a self bearer cheque singed by Shajahan would be available with him always to encash the payment. Soon after the VVD & Sons makes payment through RTGS for the above supply of copra he would receive a SMS and then he would withdraw the amount by presenting the self bearer cheque signed by Shajahan, which is already available with him. Similar, is the case with Shri Rengaraj @ Senthil in respect of copra purchase and supply to M/s. VVD & Sons. 6.8 During the course of search on 17.11.2015 certain books such as a note book (Kasthuri book) were found seized vide Ann/PC/MS/B&D/S dated 17.11.2015 containing bank account numbers and cheque books details maintained by the Shri Shajahan. However, During the search assessment proceedings it was found on verification of the said note and cheque books seized that though the bank accounts have been opened in Shajahan's firms names were actually maintained and operated by the above three persons as detailed below. Name of the trader Bank/account No. Operated by Alfas Traders IDBI 000451 to 000500 Natarajan Alfas Traders ICICI, Pollachi 016726 to 016750 Natarajan Alfas Traders IDBI 169091 to 169140 Natarajan Appu Traders Axis Bank 025521 to 025535 Chinna Appu Traders Axis Bank 037427 to 037425 Chinna Appu Traders Axis Bank 053276 to 053358 Chinna

23 I.T.A. Nos.2150-2152/Chny/18

From the above it is very clear that Shri Shajahan has opened bank accounts in his traders names but were operated by the three persons at Pollachi. It is also confirmed from their sworn statements that the sms regarding the payment made through RTGS by M/s. VVD & Sons has also received by the three persons. Moreover, the said three persons only have withdrawn the payments credited through RTGS by presenting the self cheques issued by Shajahan. After withdrawing the payments from RTGS, the three persons have made in turn payments to the farmers from whom they have purchased the copras and commission to Shri Shajahan, who is a commission agent. Having played the major role in supplying the copra to VVD & Sons, the three persons have failed to disclose the farmers' identity such as name, address, quantity purchase, PAN No. Whether any returns filed in their names, bank account details of the farmers made by them. It is worth to mention the three persons have made note of purchase of copra from farmers in loose sheets only, that would be destroyed by them then and there, as averred by them in their statement. The said three persons stated during hearing that they do not maintained any books of accounts for such a voluminous purchase of copras and supply. It is surprised to note that the purchases made by the three persons from farmers runs into crores of rupees but during search as well as search assessment proceedings the three including Shajahan failed to disclose the farmers particulars, which is a significant information in ascertaining the real truthfulness of the sales them to M/s. VVD & Sons. 6.9 From the above narration, it is found that Shri Shajahan and his concerns are not real suppliers of copra from his firms run by Shri Shajahan are found to be only "colorable devices" used by the assessee-company M/s. VVD & Sons P. Ltd. to accommodate for raising sales bill for their copra purchases from traders in Pollachi to avoid sales-tax, leviable in Tamil Nadu. Evidences found highlight that VVD group has purchased copra from three persons S/shri Senthil, Natarajan and Kothandapani @ Chinna who had withdrawn the amounts from bank by presenting bearer-cheques, as discussed in the earlier paras of this order. 6.10 To verify the above facts of the case as presented above, during search assessment proceedings, further necessary actions were made by way of deputing this office Inspector to examine and verify the instruments of payments as available in the records of various banks in Pollachi and on verification made , it was found from the sample instruments for payment made by VVD Company towards copra purchases found that almost all the instruments were only self-bearer cheques and not account-payee cheques, given by Shajahan to the three persons namely Natarajan, Senthil and Chinna, which were encashed by them. The copies of self cheques issued by Shri Achu Traders, Madeena Traders issued Shri Shajahan to the three persons are incorporated below, as a sample of proof for having verified the instruments issued by Shri Shajahan [scan copy of cheque] 6.11 Even though VVD& Sons P Ltd. claims that all the payments are only through RTGS, the same has not been proved by the three persons and Shri Shajahan because during the hearing, they did not provide the necessary details of the farmers from whom copras wee purchased by them, this leads to raise a suspicion whether the copras were really purchased from farmers or someone else. If they had purchased from farmers, the onus lies on Shajahan and the three persons

24 I.T.A. Nos.2150-2152/Chny/18

to prove that the purchases were from In the absence of farmers details, it could be construed that all the RTGS payments said to be made by M/s. VVD & Sons have not at all reached the farmers either. Shri Shajahan has also stated in his statements that he has worked as commission agent alone, for which he has stated to have received his commission part. In this circumstances, it is not ascertainable whether the entire RTGS payment has been received by Shri Shajahan or the three persons or other then the four persons. 6.12 From the above facts it is not ascertainable as to who is the final and actual with receiver of the RTGS payments made by VVD & Sons. In such a situation as regard to copra purchases said to have been made remained doubtful as to who is the real supplier of copra to VVD & Sons, since Shajahan and the three persons remains silent and stated throughout the proceedings that they are only the agents for supplying copras by getting only commission payment. 6.13 From the findings made as discussed in the earlier paragraphs, a fact is obvious that Shri Shajahan has been paid by the VVD & Sons only a sum of 1000/- to 2500/- per load as his part of commission. Shri Shajahan was asked to raise fake purchase invoices to M/s. VVD & Sons and provide sales accommodation entries, for which act he has been paid commission. The entire payment towards fake purchase of copras from Shajahan including the commission paid for raising such fake invoices are considered unlawful u/s. 37(1) of the I.T. Act, which warrant disallowance of the same. Further “As per the provisions of Section 40A(3) of the Income Tax Act, 1961 where the assessee-company incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise than by way of an account payee cheque drawn on a bank or an account-payee bank draft, exceed Rs.20,000/-, no deduction shall be allowed in respect of such expenditure." The entire financial transactions entered by VVD Company by making RTGS payment with the three persons and Shajahan are only paper transactions which attract the provisions of Sec.40A(3) of the 1.T. Act, 1961. Since VVD & Sons had employed a plan in which Shajahan was made to act as a middle man by preparing fake invoices, giving accommodation entries for sales, issuing self bearer cheques and not an account payee cheque or account payee bank draft to the three persons, which clearly brings to light the real intention of VVD & Sons to inflate the purchases for evasion of income tax. 6.14 One more fact is again recollected from the statement recorded from Shri Shajahan that the main broker of M/s. VVD & Sons, Shri KADASAMY has only contacted the three persons for placing orders for purchase of copras and not Shri Shajhan and also the payments of RTGS for the said supply are also en-cashed by the three persons only and not Shajahan, to whom the money was meant. By seeing all the facts of the case, it is very clear Shajahan is not real the supplier of copras to M/s. VVD & Sons. The real suppliers are the three persons who had obtained copras from farmers and supplied through Shajahan to M/s.VVD & Sons. By doing so, primarily, M/s. VVD & Sons hasbenefited in a way by avoiding payment of sales tax to Tamil Nadu Government. Secondly, the three persons have made payments to the farmers at Pollachi by withdrawing from the bank accounts maintained by Shajahan's concerns on presenting of self bearer cheques issued by Shajahan. This

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scheme of action attracts the provision of Section 40A(3) because the identity of the RTGS payments made in the various bank accounts of Shajahan firms (namely M/s. Achu Traders, M/s. Alfas Traders, Madeena Traders, Shajahan Traders, Achu Trades) have not been brought into limelight by the three persons and Shri Shajahan. In the absence of such an identity of farmers (suppliers of copra) the entire payment made to Shri Shajahan through RTGS is considered as payment made in violation of Section 40A(3) of the I.T. Act. 6.15 The assessee's authorized representative has filed his reply on 20.12.2017 regarding the purchases of copra from Shajahan group concerns. The content of his reply were fully considered and the same are not acceptable. An amount of Rs. 24,74,00,745/- is disallowed and added u/s 40A(3) towards violation of the provisions of the said Section for the A.Y 2012-13, since the payments towards purchase from Shajahan were made through bearer-cheques and not through account payee cheques or account-payee demand drafts as required u/s 40A(3). 6.16 It is abundantly clear that actually no sale of copra took place between M/s. Appu Traders and M/s. VVD & Sons. Only in order to reduce the tax liability as well as to avoid provisions of Sec. 40A(3) , M/s. VVD & Sons had resorted to a kind of dubious method, as if through purchases were made from Shajahan and his group concerns. The whole exercise is only a colourable device employed by M/s. VVD & Sons to reduce the tax liability by utilizing the name of Shajahan and his group concerns, as supplier of copras. 6.17 Tax planning must be a legitimate provided it is within the framework of law. The assessee company had employed colourable devices, which cannot be part of its tax planning and it cannot encouraged or entertained on the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It could be concluded that the method adopted by the assessee company is only a sham transaction arranged for purchase of copras, which was got executed through the three Pollachi agents S/shri Chinna, Natarajan and Senthil as if through Shri Shajahan & his group concerns. The whole exercise is only a colourable device employed by M/s. VVD & Sons to reduce the tax liability by utilizing the name of Shajahan and his group concerns, as supplier of copras. 6.18 As per the above discussion it is very clear that the assessee company has violated the provisions of the Sec. 40A(3) of the Act, with regard to the purchase of copras claimed by it to have been made from Shri Shajahan and his group concerns. Therefore, the entire transaction amount involved therein amounting to Rs. 24,74,00,745/- considered for substantive addition in the hands of M/s. VVD & Sons.

12.1 The assessee carried the matter in appeal before the ld. CIT(A) for the assessment year 2012-13. After considering the submission of the assessee, the ld. CIT(A) has observed as under:

26 I.T.A. Nos.2150-2152/Chny/18

6.4. Now coming to the ground relating to disallowance made u/s. 40A(3) the facts are to be crisply brought out to know the exact modus operandi adopted by the appellant. The appellant used to acquire copra from wherever they are available at competitive price with an eye on the quality of the same also. As per the invoices raised by the Kerala supplier, payments are made by the appellant through RTGS. The AR submitted that the AO had gone through the books of account of Kerala supplier and found that cash payments were made. Any how the fact remains that the appellant paid the entire money only through RTGS and without appreciating these facts, resorted to disallowance u/s.40A(3) as if cash payments were made by the appellant. It is seen from the assessment order that the AO has admitted the fact that payments were made through RTGS. In fact the AO attached the photo copy of the bearer cheque issued by the Kerala supplier only and nowhere the AO has proved that appellant indulged in cash payment. The AO has not made a mention or proved that for the purchase of copra cash payments were made by the appellant. Likewise, the AO has also not refuted the purchase of copra. I am of the considered view that so long as the appellant has not made cash payments and all the payments were through RTGS, invoking the provisions of section 40A(3) is not correct and hence the resultant disallowance also is uncalled for. Further, the main contention of the appellant is that all the payments to the group concerns of Mr. Shajahan were made by RTGS and the same is not disputed by the AO. On the other hand, the assessing officer relied on the books of accounts seized from the residential premises of Mr Shajahan without giving an opportunity to the appellant for cross examination. In this regard, a copy of the letter addressed by the AR to the AO is reproduced below: 20.12.2017 To The Assistant Commissioner of Income Tax Central Circle -2, Income Tax Staff Quarters Campus Kulamangalam main Road, Meenambalpuram Madurai 625 002 Dear Sir, PAN: AACV8438J – VVD AND SONS (P) LTD - Asst. Year: 2012/13 to 2015/16 – Purchase of Copras from Shajahan Traders Group – Reply for queries in the course of hearing. With reference to the above company and in response to the queries in the Course of hearing, in continuation of my letter dt. 08.11.17, I further state the following: You have informed that Shajahan group is to be treated as an agent and therefore any payment by cash made by Shajahan group has to be treated as paid by the assessee; based on his statement that he is acting as an agent on behalf of the assessee. In this connection, I submit that the purchases from Shajahan group is accounted as purchase in the books of the assessee and

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accounted as sales in their books of accounts. They have also filed sales tax as well as income tax return treating as sales to the assessee. In this circumstances, he cannot be treated as an agent of the company. In spite of the above explanation if you proposed to consider them as an agent please provide an opportunity of cross examination to the assessee. So I request you to accept the fact that the payments are made by RTGS to the Shajahan group. No cash payment was made from the company. So the addition for violation of Sec. 40A(3) is not acceptable and could not be added. -------------------------------------------------------------------------------------------- The seized material or evidences collected at the back of the appellant has no evidentiary value unless an opportunity of cross examination is given. Even after thorough investigation by Investigation team, there is absolutely no evidence brought on record to prove that part of the amount paid by RTGS came back to the appellant. Any disallowance under section 40A(3) can be considered only in the case of group concerns of Shri Shajahan and not in the hands of the appellant. The AR also brought to the notice of the undersigned that similar addition on this count has been made in the case of M/s.Appu Traders, Achu Traders, Shajahan Traders, Madina Traders and Alfa Traders. The disallowance under section 40A(3) cannot be made twice, once in the case of group concerns of Mr. Shajahan and again in the hands of the appellant. The main contention of the appellant is that all the payments to group concerns of Mr. Shajahan were made by RTGS and the same is not disputed by the assessing officer. On the other hand the assessing officer relied on the books of accounts seized from the residential premises of Mr Shajahan without giving the opportunity of cross examination. As discussed in the preceding para the seized material or evidences collected at the back of the appellant has no evidentiary value unless the opportunity of cross examination is given. Even after thorough investigation by investigation team, there is absolutely no evidence brought on record to prove that part of the amount paid by RTGS came back to the appellant. Any disallowance under section 40A(3) can be considered only in the case of group concerns of Shri Shajahan and not in the hands of the appellant. The disallowance under section 40A(3) cannot be made twice, once in the case of group concerns of Mr. Shajahan and again in the hands of the appellant. In view of the above discussion, all the additions made in the impugned orders are deleted in the absence of any incriminating evidences recovered at the time of search, which would justify the additions made by the assessing officer. From the fact that Shri Shajahan has issued only sales invoices in the name of the appellant, the former cannot be called as a commission agent but only a supplier of copra. Further the above seller has filed IT returns showing his business sales of copra. In the circumstances the AO's conclusion that Shri Shajahan is a commission agent is erroneous. Therefore, the disallowance by treating the RTGS payments as cash payment is not correct and the consequent addition of Rs.24,74,00,745/- for the AY 2012-13

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in the case of the appellant is not correct and the resultant addition is deleted. Accordingly the grounds of appeal for this AY is allowed. 12.2 Aggrieved, the Revenue is in appeal before the Tribunal.

12.3 The Ld. CIT-DR submitted that the findings of Ld. AO establishes that the actual purchases were made from Pollachi parties and not from Kerala parties as claimed by the assessee. The Pollachi parties were paid in cash which justifies invocation of section 40A(3) of the Act.

12.4 The Ld. AR, on the other hand, controverted the same and submitted that the purchases were evidenced by copies of invoices. All the payments were made to Kerala parties through RTGS. All these parties were filing Sales Tax return. Considering all these evidences, the impugned additions have been deleted.

12.5 We have considered the rival contentions. The case of the assessee is that the assessee used to acquire copra from wherever they are available at competitive price with an eye on the quality of the same. As per the invoices raised by the Kerala suppliers, payments were made by the assessee through RTGS. However, the Assessing Officer disallowed the entire expenditure by holding that the assessee made bogus purchase. On appeal, the ld. CIT(A) has noted from the assessment order that the Assessing Officer has admitted the fact that

29 I.T.A. Nos.2150-2152/Chny/18

payments were made through RTGS. Moreover, the Assessing Officer has not made a mention in the assessment order that for the purchase of copra, cash payments were made by the assessee and moreover, the Assessing Officer has also not disputed the purchase of copra. In view of the above, the ld. CIT(A) has rightly observed that the disallowance by treating the RTGS payments as cash payment was not correct and consequently, deleted the addition of ₹.24,74,00,745/- for the assessment year 2012-13.

12.6 We also find that the Assessing Officer failed to establish that the assessee made purchases by paying cash. It is a fact that the entire payments were made by the assessee through RTGS to its agent. It is a mere allegation by the Assessing Officer that the assessee purchased the copras by paying cash. The assessee, in fact, made payments through RTGS only. In turn, the agents issued bearer cheques according to their convenience. Therefore, the Assessing Officer was not justified in invoking the provisions of section 40A(3) of the Act in the case of the assessee. Thus, we find no reason to interfere with the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed.

30 I.T.A. Nos.2150-2152/Chny/18

Gross Profit = Unaccounted purchases Rs. 1,46,33,106 ---------------------------------------------------------------------- X (GP Ratio) 26.16 [100 minus GP Ratio i.e. 26.16] = Rs.51,84,210/ The gross profit on undisclosed production out of unaccounted copra purchases for the financial year 2011-12 relevant to the Assessment Year: 2012-13 is worked out, as above, at Rs.51,84,210/-. This as to be added. Thus, the total addition works out to Rs.1,98,17,3 16/- i.e. expenditure incurred on account of unaccounted and undisclosed income - Rs.1,46,33,106 plus Gross Profit on the same - Rs.51,84,210/-. 13.1 On appeal, the ld. CIT(A) has observed as under: 6.9. The next ground relates to addition of Rs, 1,98,17,316/ (Rs.1,46,33,106 plus gross profit Rs.51,84,210/-) towards alleged undisclosed purchases: The AR submitted with regard to the above addition as under: The appellant till April 2011 was maintaining the accounts in Tally system. From May 2011 it

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switched over to SAP system of accounting. The AO took the value of purchases as appearing in the SAP from May 2011 to March 2012 (i.e., for 11 months) and compared the figures of purchases as taken from the parties ledgers from April 2011 to March 2012 (12 months), In effect the AO by mistake compared the 11 months' figures of the appellant with that of 12 months' figures of the parties. Naturally there is every likelihood of arriving at a variation. Based on this (wrong) methodology adopted by the AO, he arrived at the suppression of purchases. Even the AO has brushed aside the reply given in this regard explaining the reasons for the variation with detailed reconciliation. Finally based on this wrong calculation, the AO arrived at the deemed gross profit and added the impugned sum. I have gone through the observation of the AO and the submissions of the AR. It is a fact that the appellant was all along maintaining Tally system of account till April 2011 and from May 2011 switched over to SAP system of accounting. The AO instead of taking 12 month figures has taken only 11 months figures and compared them with the suppliers' books of account for 12 months. Naturally the result would be against the appellant due to omission of 1 month's figures. This mistake drove him to come to a conclusion that there was suppression of purchases for an amount of Rs. 1,46,33,106/- + estimated deemed gross profit of Rs.51,84,210/- to totalling to Rs.1,98,17,316/- and accordingly he added the said sum. After going through the calculation of the AO, I am of the considered view that this wrongful addition is due to the erroneous adoption of purchase figures. It is seen that the AO had not considered the reply of the appellant which had he considered would not result in such a huge unwanted addition. In the circumstances I have no hesitation to hold that this addition cannot be sustained. Hence this ground of appeal is allowed. 13.2 Aggrieved, the Revenue is in appeal before the Tribunal. 13.3 The Ld. CIT-DR supported the computations made by Ld. AO.

13.4 On the other hand ld. AR submitted that there was erroneous adoption of purchase figures by AO which has been corrected by ld. CIT(A).

13.5 We have considered the rival contentions. In the assessment order, the Assessing Officer took the value of purchases as appearing in the SAP from May 2011 to March 2012 (i.e., for 11 months) and compared the figures of purchases as taken from the parties ledgers from April 2011

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to March 2012 (12 months), In effect the Assessing Officer, by mistake compared the 11 months' figures of the assessee with that of 12 months' figures of the parties. Naturally there is every likelihood of arriving at a variation. Based on this (wrong) methodology the Assessing Officer arrived at the suppression of purchases. Thus, the ld. CIT(A) has observed that the addition was due to erroneous adoption of purchase figures, the Assessing Officer made an huge unwanted addition and thus, the ld. CIT(A) was reluctant to sustain the addition. We also find that the Assessing Officer was not able to establish suppression of purchases made by the assessee. It was mere allegation of the Assessing Officer and on which no addition can survive. Accordingly, we confirm the order of the ld. CIT(A) on this issue and dismiss the ground raised by the Revenue.

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the seized material differs from the value of closing stock as shown in the return of income for the FY 2011-12. The difference is furnished as under: As per SAP As per return Difference Chennai Tuticorin Total of income 3,34,41,092 7,97,33,443 11,31,74,535 8,84,02,000 2,47,72,535 The company has submitted the closing stock valuation statement for the F.Y 2011-12. It is nothing but the re-submission of the balance sheet break-up and there is no proper explanation for the difference between book stock and the returned stock. The addition on account of suppression in the value of closing stock is worked out at Rs.2,47,72,535/-. The entire amount of Rs.2,47,72,535/- is treated as suppression of stock and is added to the total income. 14.1 On appeal, the ld. CIT(A) has observed as under: 6.10. The last ground relates to purported suppression of closing stock (AY 2012-13). The AR submitted that during the FY 2011-12 the appellant company switched over from Tally system of accounting to SAP system of accounting. The AO was of the view that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. The appellant duly given a reconciliation statement and reasons for the difference before the AO. Unfortunately this was not considered properly. The appellant vide its letter dated 14/ 12/2017 submitted as under: "5. At the end of the financial year, the actual value of closing stock (with quantity) is furnished to central excise department. The copy is enclosed herewith. 6. In the SAP, the closing stock is valued at the weighted average rate for raw material and packing material. In the balance sheet, the closing stock is valued at cost price prevailing at the end of the month i.e. 31st March. It is the accounting standard followed by the company. 7. In the SAP, the wastage of packing materials are not taken into account. It was deducted manually at the end of the year. 8. The stock as on 31.03.12 as per SAP was Rs. 11,31,93,820/- whereas the actual stock was Rs. 8,84,01,709/- In the case of copra and coconut oil, the value of the stock is higher in balance sheet. Hence the actual closing stock value is correct." The assessing officer never bothered to examine the above reply with reference to the records maintained by the appellant, but he simply stated in the assessment order that the reply was not acceptable without giving reasons for non- acceptance. It is seen that the assessing officer merely followed the appraisal report without independent application of mind and without conducting sufficient enquiries regarding the submission made by the appellant.

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After considering the reply of the appellant with reference to the records maintained by the appellant, I find that the reply is acceptable in respect of facts and figures submitted by the appellant and the appellant was free to follow the weighted average method for SAP and cost price method for income tax purposes. On going through the details contained in the SAP system of accounting, it is seen that there is no suppression of stock as wrongly concluded by the AO. Accordingly the closing stock as on 31.3.2012, as reported in the return of income by the appellant requires no tinkering and it shows the correct position as on that date. In the circumstances, the addition of Rs.2,47,72,535/- towards suppression of stock, is hereby deleted. This ground of appeal is hereby allowed. 14.2 Aggrieved, the Revenue is in appeal before the Tribunal.

14.3 The Ld. CIT-DR submitted that it was the onus of the assessee to reconcile the stock discrepancies which was not done.

14.4 On the other hand, the Ld. AR submitted that the assessee switched over to SAP system of accounting and the discrepancies were merely computational errors.

14.5 We have heard the contentions. With regard to the purported suppression of closing stock for the assessment year 2012-13, it was the submissions of the ld. Counsel that during the financial year 2011-12, the assessee switched over from Tally system of accounting to SAP system of accounting. In the assessment order, the Assessing Officer has noted that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. However, the assessee has duly submitted the reconciliation statement and reasons for the

35 I.T.A. Nos.2150-2152/Chny/18

difference before the Assessing Officer, which was unfortunately not considered. Before the ld. CIT(A) the assessee has produced copy of the actual value of closing stock (with quantity) as furnished to the Central Excise Department. After considering the detailed written submission filed by the assessee as was submitted before the Assessing Officer, which was not considered by him, the ld. CIT(A) observed that the closing stock as on 31.03.2012, as reported in the return of income by the assessee do not warrant any further alteration and it shows the correct position as on that date. Accordingly, the ld. CIT(A) deleted the addition of ₹.2,47,72,535/- towards suppression of stock. Thus, we find no illegality in the order passed by the ld. CIT(A) and accordingly, the ground raised by the Revenue is dismissed.

Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 13.09.2023 Vm/- आदेश क� �ितिलिप अ�ेिषत/Copy 1.अपीलाथ�/Appellant, 2.��यथ�/ to: Respondent, 3.आयकर आयु�/CIT, 4. िवभागीय �ितिनिध/DR & 5. गाड� फाईल/GF.