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Income Tax Appellate Tribunal, JODHPUR BENCH,
Before: SHRI SANDEEP GOSAIN & SHRI MANOJ KUMAR AGGARWALSmt. Alpana Gupta, 4-A-15,
O R D E R PER BENCH The present appeal has been filed by the Revenue against the order of the ld. CIT(A)-4, Jaipur dated 02/12/2019 for A.Y. 2017-18, wherein the Revenue has raised following grounds of appeal:
“1. The ld. CIT(A) has erred in law and on facts (independently & severally) in granting relief to the assessee. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting addition of Rs. 1,71,693/- in respect of interest expenses. 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting addition of Rs. 10,18,703/- on account of disallowance u/s 40(a)(ia) of the Act in respect of Muddat Expenses.
2 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in restricting the addition to Rs. 5,09,175/- in respect of stock discrepancy of Rs. 1,89,59,087/- .” 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
The brief facts of the case are that the assessee is engaged in the business of trading of agricultural commodities in the name & style M/s Manoj Kumar & Sons. She also runs a Dal Mill at Sri Ganganagar. She filed her return of income on 31.10.2017 declaring total income of Rs.1,36,68,250/-. Search and seizure proceedings were conducted at the residential and business premises of ‘Gupta group of Sri Ganganagar & Bikaner’ on 11.08.2016. Notices were issued and assessee filed her reply. The A.O. after making detailed enquiry and verification passed assessment order on 20/12/2018 assessing total income of the assessee at Rs. 3,39,63,530/- by making various disallowances.
Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering submissions as well as material placed before him, given part relief to the assessee. Against the said order of the ld. CIT(A), the Revenue has preferred present appeal before the ITAT.
3 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. 5. Ground No. 1 of the appeal is general in nature and does not require any adjudication on our part.
Ground No. 2 of the appeal relates to challenging the order of the ld. CIT(A) in deleting the addition of Rs.1,71,693/- in respect of interest expenses. At the outset, the ld.CIT-DR has submitted that the assessee was paying heavy interest on the loans taken by her and on the other hand, she was advancing these interest bearing funds to other without charging interest and in this regard, the A.O. asked to explain as to why interest expenses proportionate to the interest free loans should not be disallowed out of interest expenses. He has further submitted that the AR of the assessee agreed to the proposed disallowance and these facts were duly recorded at point No. (2a) and (2b) of the proceeding sheet entry dated 06/12/2018. The ld. CIT-DR has relied on the order of the A.O.
On the contrary, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and has further submitted that the loans given by the assessee are out of interest free funds available with her. The assessee was having opening capital of Rs.2,07,85,100/- and closing capital of Rs.3,39,96,200/- which is much more than the interest free funds given by her. Hence, no interest bearing funds have been diverted for giving interest free advance. It is a settled law that 4 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. where assessee was having both interest bearing funds and interest free funds, then it has to be presumed that interest free loans were given out of interest free funds. For this purpose, reliance is placed on the following decisions: - (i) CIT Vs. Reliance Industries Ltd. (2019) 175 DTR 1 (SC) (ii) CIT Vs. Ram Kishan Verma (2016) 132 DTR 107 (Raj.) (HC) (iii) CIT Vs. Vijay Solvex Ltd. (2015) 113 DTR 382 (Raj.) (HC)
We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From perusal of the record, we found that the ld. CIT(A) has deleted the additions so made by the A.O. by observing as under:
“6. I have perused the written submissions and the order of the AO. I find that the assessee was having opening capital of Rs. 2,07,85,100/- and closing capital of Rs. 3,39,96,200/- which is much more than the interest free advance given by the appellant. It is a settled law that when the assessee was having both interest bearing funds and interest free funds then it has to be presumed that the interest free loans were given out of the interest free funds. The various cases relied upon by the AR also supports his case: CIT Vs Reliance Industries (2019) 3 CTR 149 (SC)
5 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. CIT Vs HDFC Bank Ltd. (2014) 366 ITR 0505 (Bom)(HC) CIT Vs UTI Bank Ltd. (2013) 215 Taxman 8 (Guj) (HC) (Magz.) CIT Vs Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj)(HC) CIT Vs Reliance Utilities & Power Ltd. 313 ITR 340 (Bom(HC). 6.2 Considering the totality of the facts and circumstances of the case, the disallowance of Rs. 1,71,693/- made by the A.O. is deleted. The appellant gets relief in Ground No. 3.” From perusal of the record, we noticed that the assessee was having opening capital of Rs.2,07,85,100/- and closing capital of Rs.3,39,96,200/- which is much more than the interest free funds given by her. Hence, no interest bearing funds have been diverted for giving interest free advance. It is a settled law that where assessee was having both interest bearing funds and interest free funds, then it has to be presumed that interest free loans were given out of interest free funds. The Hon’ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. (2019) 175 DTR 1 (SC) has held that the interest free funds available to the assessee were sufficient to meet its investment, it could be presumed that funds were given to subsidiaries out of interest free funds and therefore, interest referable to funds given to subsidiaries is allowable as deduction under sec. 36(1)(iii). Similarly, the Hon’ble Jurisdictional High Court in the case CIT Vs. Ram Kishan Verma (2016) 132 DTR 107 (Raj.) (HC) has held that since the advances were far below the available capital of the assessee and the AO 6 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. was not able to pin pointedly come to a definite conclusion which proves the nexus between interest bearing loans vis-à-vis interest free loan/advances, disallowance has been rightly deleted. Further, when there was no agreement to charge interest from the persons to whom the assessee advanced short term loan/advance, the AO could not disallow part of the interest. The Hon’ble Rajasthan High Court also in the case of CIT Vs. Vijay Solvex Ltd. (2015) 113 DTR 382 (Raj.) (HC) has held that assessee admittedly had its own funds and such funds/reserves being substantially higher than the advances to debtors, no notional interest or hypothetical interest could have been disallowed on such facts. It may be that the assessee on account of business expediency advanced money to sister concerns or other concerns at a lower rate of interest or did not charge interest, that by itself does not prove that the assessee diverted interest bearing loans to said firms.
Considering the totality of facts and circumstances and the decisions of the Hon’ble Courts, we do not find any reason to interfere in the order of the ld. CIT(A) qua this issue. Accordingly, we uphold the same.
Ground No. 3 of the appeal relates to challenging the order of the ld. CIT(A) in deleting addition of Rs.10,18,703/- on account of disallowance u/s 7 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. 40(a)(ia) of the Income Tax Act, 1961 (in short, the Act) in respect of Muddat Expenses.
The ld. CIT-DR has submitted that the major default made by the assessee in making TDS is in respect of Muddat payments, which is also known as Muddat interest. Muddat is in nature of interest. Muddat is charged or paid at several instances. He also submitted that Muddat is paid when funds are received in advance from the purchaser for supply of goods and the seller makes late supply of goods. He further submitted that since the Muddat is in the nature of interest, therefore, the provisions of Section 194A of the Act is applicable on the same. He relied on the order of the A.O.
On the contrary, the ld AR has reiterated the same arguments as were raised before the ld. CIT(A) and has further submitted that the ‘Interest’ is defined in section 2(28A) of Income Tax Act, 1961 which reads as under:-
Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized.
8 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. He further submitted that from the above definition it can be noted that for qualifying any payment as interest it should be with reference to money borrowed or debt incurred. The definition further includes service charges but those charges should be in respect of money borrowed. Thus, if the charges are in respect of debt or in respect of any credit facility then such charges are included in the definition of interest. A payment having no nexus with deposit, loan or borrowings is out of the ambit of definition of interest as per section 2(28A) of the Act. In the present case, muddat paid by the assessee is neither on the money borrowed nor on any debt incurred. It represents cash discount given by the assessee on receipt of the payment of sale prior to the stipulated period. Thus, muddat so given do not fall in the definition of interest u/s 2(28A). Accordingly, assessee is not required to deduct tax at source u/s 194A and consequently no disallowance u/s 40(a)(ia) can be made. Reliance in this connection is placed on the following decisions:-
(i) CIT Vs. Cargill Global Trading Pvt. Ltd. (2011) 335 ITR 94 (Del.) (HC) (ii) PCIT Vs. M Sons Gems N. Jewellery Pvt. Ltd. 239 Taxman 530 (Del.) (HC) (iii) Omkara Impex and Merchandise Pvt. Ltd. Vs. ITO (2018) 53 CCH 0201 (Ahd.) (Trib.)
9 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. 12. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From perusal of the record, we found that the ld. CIT(A) has deleted the additions so made by the A.O. by observing as under:
“9. I have perused the written submissions and the order of the AO. After careful perusal of the AO order and submission, I find that the appellant has not pressed disallowance out of freight expenses. Therefore the disallowance of 30% of freight expenses made by the AO is confirmed.
10. In respect of disallowance of muddat expenses, I am of the view that in the present case muddat given/received by the assessee represents cash discount given/received by the assessee on receipt/payment towards purchase/sale prior to the stipulated period. Thus the muddat paid by the assessee is entirely different than the interest as defined u/s 2(28A). Accordingly the assessee is not required to deduct the tax at source u/s 194A and consequently the provisions of Section 40(a)(ia) are not applicable. Simply because the assessee has agreed for disallowance, the addition is not justified. Accordingly, the addition of Rs. 10,18,703/- (Rs. 33,95,677 * 30%) made by the A.O. is deleted. The appellant gets relief of Rs. 10,18,703/- on account of muddat expenses. In effect, this ground of the appeal is partly allowed.”
10 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. From the above, we observe that the muddat paid by the assessee is neither on the money borrowed nor on any debt incurred. It represents cash discount given by the assessee on receipt of the payment of sale prior to the stipulated period. Thus, muddat so given do not fall in the definition of interest u/s 2(28A) of the Act. Accordingly, assessee is not required to deduct tax at source u/s 194A and consequently no disallowance u/s 40(a)(ia) can be made. In this regard, the AR has relied on the decision in the case of CIT Vs. Cargill Global Trading Pvt. Ltd. (2011) 335 ITR 94 (Del.) (HC) wherein it has been held that discounting charges paid were not in respect of any debt incurred or money borrowed, instead, assessee has merely discounted sales consideration on sale of goods, same could not be construed as an interest within the meaning of section 2(28A). SLP filed by the revenue against this order was dismissed by Hon’ble Supreme Court reported in 21 Taxmann.com 496. In the case of PCIT Vs. M Sons Gems N. Jewellery Pvt. Ltd. 239 Taxman 530 (Del.) (HC), the Hon’ble Delhi High Court has held that the discounting charges is not covered by the definition of interest u/s 2(28A) and the assessee is not payer of the discounting charges, hence, section 194A is not applicable. Similarly, the Coordinate Bench of the Ahmadabad Tribunal in the case of Omkara Impex and Merchandise Pvt. Ltd. Vs. ITO (2018) 53 CCH 0201 (Ahd.) (Trib.) has held that discounting charges are outside the 11 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. purview of interest expenses, therefore, in our considered view, the question of making any disallowance on account of non-deduction of TDS on such discounting charges does not arise. Discounting charges paid by the assessee are not akin to interest on finance expenses. Therefore, no disallowance on account of non-deduction of TDS u/s. 194A r.w.s. 40(a)(ia) of the Act can be made.
In view of the above facts and circumstances of the case and after considering the decisions of the Hon’ble Courts as well as the decision of the Coordinate Bench Ahmadabad Tribunal, we do not find any reason to interfere in the order of the ld. CIT(A) qua this issue. Accordingly, we uphold the same.
Ground No. 4 of the appeal relates to challenging the order of the ld. CIT(A) in restricting the addition to Rs.5,09,175/- in respect of stock discrepancy of Rs.1,89,59,087/-.
The ld. CIT-DR has vehemently opposed the prayer of assessee to uphold the order of ld. CIT(A) and submitted that the ld. CIT(A) has erred in restricting the addition to Rs. 5,09,175/- in respect of stock discrepancy of Rs. 1,89,59,087/-. He has further submitted that a survey U/s 133A of the Act was undertaken at the business premises of the assessee. The factory of the assessee was also located at the said premises. He further submitted 12 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. that during the course of survey, the stock of goods at the factory premises of the assessee were physically taken and valued. He also submitted that during the survey, stocks of many grains were found in excess of the stock recorded in the books of account of the assessee. The ld. CIT-DR has relied on the order of the A.O.
15. On the contrary, the ld AR has reiterated the same arguments as were raised before the ld. CIT(A) and has further relied on the written submissions filed before the ITAT and the same is reproduced below: “The excess stock determined by the AO suffers from the following defects:-
(i) Excess stock of Chana 1142.65 qtl. valued at Rs.85,69,875/-:- In the process of converting the gram into dal, steam is used to break Chana in two pieces to convert the same in Dal. Due to this weight of Chana eventually increases as it soaks some water in it. It emerges every year and regularly excess stock/ gain is declared by the assessee in the books of accounts as evident from the following table:-
S. No. A.Y. Excess/(Shortage) % of excess/ (in Qtls) gain 1 2014-15 6191 3.29% 2 2015-16 11882 4.73% 3 2016-17 8333 4.10% 4 2017-18 2505 1.31% During the year also the assessee has shown excess of 2505 Qtls on processing of 1,91,167 Qtls gram which gives ratio of excess at 1.31%. Thus this excess is required to be considered in working out the excess stock found at the time of survey. In this case up to the date of survey, the 13 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. assessee has processed 91106 Quintals of Chana. On this processing the normal increase in weight by applying the percentage of 1.31% comes to 1193.49 Quintals which is more than the excess stock of 1142.65 qtl. determined at the time of search/survey. Hence, there is no excess stock of chana. The excess stock found is due to natural process of manufacturing and already considered by the assessee in the books of accounts. Thus, the Ld. CIT(A) has rightly held that there is no excess stock found in survey in chana.
(ii) Excess stock of Chana Dal 254.41 qtl Rs.22,38,800/-:- In the stock register the weight of Chana Dal received is entered on bare weight whereas sale is entered including weight of PP bags as sales are made including the weight of PP bags. Further the physical stock found was counted including PP bags. This resulted into excess stock of Chana Dal of 254.41 Qtl. on one hand and shortage of PP bags of 76,761 pcs on the other hand. This fact was explained to AO but he denied the claim of assessee by holding that the weight written on the bag of dal is net weight and not gross weight. This is incorrect. In fact assessee sold the dal inclusive of the weight of PP Bag which is evident from the kanta parchi & sale bill wherein the total weight of dal sold is equivalent to the weight mentioned in the kanta parchi. Hence, credit to the extent of weight of PP bags included in Chana Dal should be given against the excess Chana Dal found. The weight of PP bags is 300 gms and therefore, the weight of PP bags found short works out to 230.28 qtl (76761 * 0.300) whereas excess stock of chana dal found is 254.41 qtl. leaving a minor difference. However, the Ld. CIT(A) though accepted the contention of assessee took the weight of PP bags at 200 gms per bag and thus, held that excess stock of channa dal to the extent of 153.52 qtl. (76761*0.200) is explained. Accordingly, he deleted the addition of Rs.12,28,176/- (153.52*8000) though even as per his working its value should be Rs.13,50,976/- (153.52*8800). In any case 14 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. since such excess stock has been set off against the value of short stock found, the assessee has not challenged it before the Hon’ble ITAT. In these facts finding of Ld. CIT(A) on this issue be confirmed.
In respect of short stock Rs.92,57,721/- determined by the AO, he held that the same is sold in the market on which assessee earned profit of Rs.5,09,175/- for which addition is made. Once this finding is given and upheld by Ld. CIT(A), the assessee has availability of funds to the extent of Rs.97,66,896/- (92,57,721 + 5,09,175). In search neither such cash was found nor any evidence was brought on record by the AO that such cash was utilised in investment in any other asset. Therefore, the amount available on sale of short stock needs to be considered as utilized in the excess stock found. After considering the discrepancy explained in Para 1 above, the excess stock works out at Rs.86,51,861/- (1,84,49,912- 85,69,875-12,28,176) whereas the sale value of short stock is Rs.97,66,896/-. Therefore, the Ld. CIT(A) has rightly allowed the set off of realisation of short stock against the excess stock found. The AO has not allowed such set off only for the reason that set off of deficit stock of Gwar or Barley or Dhaniya or Gwar Gum cannot be set off against the excess stock of Chana or Chana Dal or other item. This finding of AO is not correct as when certain business stock is found short and some stock is found in excess, the set off of the realisation of short stock needs to be allowed against the value of excess stock. Therefore, the Ld. CIT(A) has rightly restricted the addition of Rs.1,89,59,087/- made by the AO to Rs.5,09,175/- . In view of above, order of Ld. CIT(A) be upheld by dismissing the ground of department.”
We have heard the rival contentions and perused the material placed on record carefully. The ld. CIT(A) has dealt with this issue by observing as under:
15 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. “13. In this ground, two issues are involved. Firstly whether the excess stock computed by the AO is correct or not and secondly the set off of sale proceeds of short stock found is available against the excess stock found or not.
13.2 In respect of excess stock of channa for Rs. 85,69,875/-, I find that the appellant due to natural process, was regularly showing the excess stock in books while preparing the accounts. The position of excess stock declared in regular books for the year under consideration and in last three years is tabulated as under: % of excess A.Y. Excess/(Shortage) (in S. No. Qtls) 3 . 2 9 % 1 2014-15 6191 4.73% 2 2015-16 11882 4.10% 3 2016-17 8333 4 2017-18 2505 1.31% 14. From the above table it can be noted that the assessee has already shown excess stock to the extent of 1.31% in the regular books. The excess stock determined by the AO as on date of search is 1141.65 Qtls. which is 0.597%. This excess stock percentage is less than 1.31% declared by the assessee. Therefore the addition made to the extent of Rs. 85,69,875/- is deleted as the same is already declared by the appellant in the regular books of accounts.
14.2 In respect of excess stock of Rs.22,38,800/- in channa dal, I found that the difference is due to purchase of channa dal in loose and sale in PP bags including weight of PP bags. The assessee has claimed weight of PP bags at 300 gms but no evidence of actual weight is filed. However, it is a fact that weight of PP bags is included in the sale quantity. Therefore, I 16 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. find that it would be reasonable if the weight of PP bag is considered at 200 gms. On this basis the excess stock to the extent of 153.52 Qtls. (76,761*0.200) is explained. Accordingly, the addition of Rs. 12,28,176/- (153.52 * 8000) is deleted.
14.3 In respect of set-off of sale proceeds of short stock, I find that there is no dispute as to the fact that stock to the extent of Rs. 92,57,721 was found short which has been presumed by the AO as sold in the market and earned profit of Rs. 5,09,175/-. Thus up to the date of survey the assessee was having funds to the extent of Rs. 97,66,896 (92,57,721 + 5,09,175) which remained with the assessee.
In search neither this cash was found nor any evidence was brought by the AO that this cash was utilised in investment in any other asset. Therefore the normal presumption is that such amount received on sale of short stock is remained invested in the excess stock. Therefore, the set off of Rs.97,66,896/- is allowed to the assesse.
In view of above the excess stock after considering the defect in working of excess stock works out to Rs.86,51,861/- (1,84,49,912 - 85,69,875 12,28,176). As against this the realization from short stock found is Rs. 97,66,896/-which is much more the excess stock of Rs. 86,51,861/- finally determined supra. Hence, the addition made by the AO at Rs. 1,89,59,087/- is restricted to the profit of Rs. 5,09,175/- being profit earned on sale of alleged short stock.
From perusal of the record, we observe that in survey carried out at the business premises of assessee, physical stock of goods was taken wherein certain items like Chana, Chana Dal and other allied products of 17 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. Chana as also stock of Mustard and Bardana were found in excess of the stock recorded in the books by Rs.1,84,49,912/- whereas stock of Gwar, Barley, Dhaniya, Gwar Gum, etc. were found short by Rs.1,07,16,264/-. In search, statement of assessee was recorded wherein she explained the reason for difference and filed the working as per which the excess stock worked out at Rs.50,98,056/. She further explained that this excess stock also does not appear to be correct but finally in reply to Q. No.2 & 3 she surrendered Rs.40 lacs on account of stock. The working of excess stock/ short stock determined at the time of survey was as under:- Excess stock found in survey S. Item Quantity Rate Value (Rs.) No. 1. Chana 1142.65 7500/Qtl 85,69,875 Qtls 2. Chana Dal 254.41 Qtls 8800/Qtl 22,38,800 3. Chana Chilka 593.64 Qtls 2250/Qtl 13,35,690 4. Mustard 599 Qtls 260/Qtl 7,66,662 5. Cattle Feed 1090.50 2650/Qtl 28,89,825 Dal Qtls 6. Bardana 1346 pcs 10/pc 13,460 TOTAL 1,84,49,912 Short stock found in survey S. Item Quantity Rate Value (Rs.) No. 1. Chan Chura 126.216 2500/Qtl 3,15,540 Qtls 2. P. P. Bags 76761 pcs 13/pc 9,97,893 3. P. P. Rolls 691 mts 210/mt 1,45,110 18 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. 4. Gwar 330.19 Qtls 7500/Qtl 24,76,425 5. Barley 2998.60 1400/Qtl 41,98,040 Qtls 6. Dhaniya 289 Qtls 7300/Qtl 21,09,700 7. Gwar Gum 76.38 Qtls 6200/Qtl 4,73,556 TOTAL 1,07,16,264 In course of assessment proceedings, assessee filed detailed explanation in respect of excess/shortage of various items of stock and claimed that set off of the short stock be allowed against the excess stock found. The AO, however, rejected the same and determined the excess stock at Rs.1,84,49,912/- and shortage of the stock at Rs.92,57,721/-. Thereafter he made addition for excess stock of Rs.1,84,49,912/- and profit earned on short stock @ 5.5% at Rs.5,09,175/- totalling to Rs.1,89,59,087/-.
We observe that Ld. CIT(A) held that in respect of excess stock of channa of Rs.85,69,875/-, the assessee has already shown excess stock to the extent of 1.31% in the regular books. The excess stock determined by the AO on the date of search is 1141.65 Qtls. which is 0.597%. This excess stock percentage is less than 1.31% declared by the assessee. Therefore, addition to the extent of Rs.85,69,875/- is deleted. In respect of excess stock of Rs.22,38,800/- in channa dal, the difference is due to purchase of channa dal in loose and sale in PP bags including weight of PP bags. The assessee has claimed weight of PP bags at 300 gms but no evidence of actual weight is filed. Therefore, it would be reasonable if weight of PP bags 19 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. is considered at 200 gms. On this basis excess stock to the extent of 153.52 qtls. (76,761*0.200) is explained. Accordingly, addition of Rs.12,28,176/- (153.52*8000) is deleted. In respect of set-off of sale proceeds of short stock, there is no dispute as to the fact that stock to the extent of Rs.92,57,721/- was found short which has been presumed by the AO as sold in the market and earned profit of Rs.5,09,175/-. Thus, up to the date of survey assessee was having funds to the extent of R.97,66,896/- (92,57,721+5,09,175). The normal presumption is that such amount received on sale of short stock remained invested in excess stock. Therefore, set off of Rs.97,66,896/- is allowed to the assessee. Accordingly, excess stock after considering the defect in working of excess stock works out to Rs.86,51,861/- (1,84,49,912-85,69,875-12,28,176). As against this the realization from short stock found is Rs.97,66,896/- which is much more than excess stock of Rs.86,51,861/-. Hence, addition made by the AO at Rs.1,89,59,087/- is restricted to the profit of Rs.5,09,175/-, being profit earned on sale of alleged short stock.
We noticed that in the process of converting the gram into dal, steam is used to break Chana in two pieces to convert the same in Dal. Due to this weight of Chana eventually increases as it soaks some water in it. It 20 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. emerges every year and regularly excess stock/ gain is declared by the assessee in the books of accounts as evident from the following table:-
S. No. A.Y. Excess/(Shortage) % of (in Qtls) excess/ gain 1 2014-15 6191 3.29% 2 2015-16 11882 4.73% 3 2016-17 8333 4.10% 4 2017-18 2505 1.31% During the year also the assessee has shown excess of 2505 Qtls on processing of 1,91,167 Qtls gram which gives ratio of excess at 1.31%. Thus, this excess is required to be considered in working out the excess stock found at the time of survey. In this case up to the date of survey, the assessee has processed 91106 Quintals of Chana. On this processing the normal increase in weight by applying the percentage of 1.31% comes to 1193.49 Quintals which is more than the excess stock of 1142.65 qtl. determined at the time of search/survey. Hence, there is no excess stock of chana. The excess stock found is due to natural process of manufacturing and already considered by the assessee in the books of accounts.
We observe that in the stock register, the weight of Chana Dal received is entered on bare weight whereas sale is entered including weight of PP bags as sales are made including the weight of PP bags. Further the physical stock found was counted including PP bags. This resulted into 21 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. excess stock of Chana Dal of 254.41 Qtl. on one hand and shortage of PP bags of 76,761 pcs on the other hand. This fact was explained to AO but he denied the claim of assessee by holding that the weight written on the bag of dal is net weight and not gross weight. This is incorrect. In fact, assessee sold the dal inclusive of the weight of PP Bag which is evident from the kanta parchi & sale bill wherein the total weight of dal sold is equivalent to the weight mentioned in the kanta parchi. Hence, credit to the extent of weight of PP bags included in Chana Dal should be given against the excess Chana Dal found. The weight of PP bags is 300 gms and therefore, the weight of PP bags found short works out to 230.28 qtl (76761 * 0.300) whereas excess stock of chana dal found is 254.41 qtl. leaving a minor difference. However, the Ld. CIT(A) though accepted the contention of assessee took the weight of PP bags at 200 gms per bag and thus, held that excess stock of channa dal to the extent of 153.52 qtl. (76761*0.200) is explained.
We noticed that in respect of short stock Rs.92,57,721/- determined by the AO, he held that the same is sold in the market on which assessee earned profit of Rs.5,09,175/- for which addition is made. Once this finding is given and upheld by Ld. CIT(A), the assessee has availability of funds to the extent of Rs.97,66,896/- (92,57,721 + 5,09,175). In search neither such cash was found nor any evidence was brought on record by the AO that 22 ITA 45/Jodh/2019 ACIT Vs Smt. Alpana Gupta. such cash was utilised in investment in any other asset. Therefore, the amount available on sale of short stock needs to be considered as utilized in the excess stock found. After considering the discrepancy explained in Para 1 above, the excess stock works out at Rs.86,51,861/- (1,84,49,912- 85,69,875-12,28,176) whereas the sale value of short stock is Rs.97,66,896/-. Therefore, the Ld. CIT(A) has rightly allowed the set off of realisation of short stock against the excess stock found. The AO has not allowed such set off only for the reason that set off of deficit stock of Gwar or Barley or Dhaniya or Gwar Gum cannot be set off against the excess stock of Chana or Chana Dal or other item. This finding of AO is not correct as when certain business stock is found short and some stock is found in excess, the set off of the realisation of short stock needs to be allowed against the value of excess stock. In view of the above facts and circumstances, we do not find any reason to interfere in the order of the ld. CIT(A) qua this issue, accordingly, we uphold the same.