UTTAM SUGAR MILLS LTD.,NEW DELHI vs. DCIT, CENTRAL CIRCLE, GHAZIABAD

The present appeal has been filed by the assessee against the order of ld. CIT(A)-IV, Kanpur dated 20.02.2017.

Following grounds have been raised by the assessee:

The assessee-company is a Public Limited Company, engaged in the business of manufacturing sugar & other allied products.

A search action u/s 132 of the Income Tax Act, 1961 was conducted on the assessee company on 07.04.2010 and subsequently, an order dated 31.03.2013 u/s 153A of the Act was passed assessing the business loss at Rs.49,75,58,607/- against the returned loss of Rs. 52,65,55,831/-.

The issues sustained by the ld. CIT(A) and contested before us are as under:

The AO made an addition of Rs.2,65,46,540/- on account of difference between books of accounts and physical Stock of Sugar at different units. It was argued that there was no ‘actual difference’ in stock but only a discrepancy as Production on the day of search could not be entered in books which were seized.

The pertinent facts as per the revenue are as under:

During assessment proceedings and during the appellate stage, the assessee explained that there was no actual difference in stock and clarified that production on 07.04.2010 could not be entered in the books, as the books were seized by the search team, which is also evident from the copies of the Panchnama and other records.

The production of sugar, which is a continuous and requires multiple simultaneous processes leads to regular inflow of sugar, and the entry in the books is done for a day as a single entry.

In the instant case, the said entry of sugar production on 07.04.2010 could not be done, due to the seizure of books by the department, whereas the stock was taken on the morning of 08.04.2010 leading to this discrepancy. The said circumstance caused to the assessee by the action of the Department which was considered.

When all the facts & circumstances and evidences are taken on record and duly considered, it is clear that there was no ‘actual’ difference in stock but merely a discrepancy, which naturally and inevitably ought to occur when stock of a day of search when compared to opening stock of a day before. During the search, no other document was found, which could justify the difference of stock. Whereas, the purchase of raw material, its utilization and even the sales have been duly examined and no discrepancy has been found. It is pertinent to note that 5336 Qtl. & 3746 Qtl. which was allegedly extra at Libberheri & Barkatpur, respectively, is only 0.98% is 0.76% of the total sugar found during physical search, in the respective units. Even if it is assumed without admitting that the assessee- company had somehow been crushing & producing unaccounted sugar, the same would not have been in such minimal quantity, which is less than a day’s production. Furthermore, during search neither any incriminating evidence, nor any other document was found which could justify such an allegation. We have also gone through the annual production and find that the production on the day of search has not been taken into account owing to the search operation conducted at the premises. The amount and the quantum of sugar are in tune with average daily production. In view of the entirety of the facts narrated above, we hold that no addition is called for on account of difference in the stock of sugar.

The AO made addition on account of difference in the stock of molasses [(AO Page 11 , CIT(A) Page 130] Stock (in Libberheri, Barkatpur, Khaikeri, Shermau Qtls.) Roorkee Bijnore Muzaffarngar As per Books 175,172 2,12,440 45,049 34,189 As per 1,75,711 2,14,444 45,586 34,300 Physical Verification Alleged 538 2004 536 110 Difference (0.31%) (0.94%) (1.1%) (0.32%)

Molasses stored in a tank, is measured by taking a dip and a slight deviation is scientifically possible while taking the dip, due to bubbling/foaming effect on account of the Chemical Reaction. The product in question is ‘molasses’ which was found to be in excess at the aforesaid 4 units of the assessee- company is a highly volatile chemical which changes its shape, weight, and texture when in different temperature. When heated, while production would tend to show more quantity and would become more fluid, however, when kept cool, would compress into a thick jelly like substance. It is to be noted that while taking the stock in April, the weather was hot and the product under production and there is strong possibility of chemical reaction resulting in foaming in the molasses, which cannot be ruled out. The said fact of the discrepancy arising due to chemical reaction was even confirmed by the Chief Engineer at the time of search itself (PB 84) which could not be disputed. Molasses is kept under the control of the excise department and can be removed only under the supervision of the Excise Inspector who is stationed at the factory. Daily production records (RG-1) pertaining to daily production of molasses as on 07.04.2010, the date of search have also been taken into consideration. Therefore, there is no chance of excess production of Molasses or sugar, as is being alleged. Hence, we hold that no addition on account of difference in molasses is called for.

The AO made addition on account of the difference between cash as per the books and physical cash found at different premises of the assessee-company {(AO Pg. 14, 15, 16, CIT(A) Pg 20)}.

Before us, it was submitted that certain vouchers pertaining to cash transactions undertaken on 06.04.2010 (day prior to search) were not updated in the cash book which led to the difference in cash found and the books.

The said fact of the vouchers not being updated in the cash book was even confirmed by an employee of the assessee- corporation, Sh. Mahesh Patel, at the time of recording of his statement u/s 132(4) itself (Pg. 158 PB). However, the same was not considered while making the assessment. The assessee before the AO and ld. CIT(A) submitted a reconciliation justifying that there was no ‘actual difference’.

Cash as per books was Rs. 13,12,924.69/- whereas cash found was Rs. 23,29,284/-. The difference of Rs. 10,16,360/-. The reconciliation statement is as under:

Cash in books amounted to Rs, 5,45,648/-, whereas, physical cash found aggregated to Rs. 4,51,320/- and a Deficit of Rs. 94,328/- was added to the income of the assessee. The reconciliation statement is as under:

Cash as per books amounted to Rs. 2,89,700/- and physical cash aggregating to Rs. 4,89,000/- was found. The difference of Rs. 1,99,700/- was added to the income. The reconciliation statement is as under:

We have perused the reconciliation statements along with the details in the paper book. All these amounts are pertaining to expenses and transactions entered a day before the search which could not be updated as on the date of search. On going through the entire details, we find that the amounts to be reconciled except the amount of Rs.10,45,508/- received back from Sh. Kant, Libberheri plant against the imprest amount. The need and purpose of giving the imprest amount and the reason of receiving back the amount needs to be examined by the AO. Hence, the matter back to the file of the AO for limited purpose of examining the genuineness lending and receiving back of Rs.10,45,508/- from Sh. Kant.

The ground no. 1 pertaining to press mud of Rs. 30,966/- being a very minor amount has been choosen to be left for the revenue by the ld. AR. Hence, not adjudicated.

In the result, the appeal of the assessee is partly allowed for statistical purpose. Order Pronounced in the Open Court on 27/06/2022.