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Income Tax Appellate Tribunal, ‘’C’’ BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’C’’ BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1193/AHD/2014 �नधा�रण वष�/Asstt. Year: 2009-2010 D.C.I.T, Gopala Polyplast Ltd., Circle-4, Vs. ½, Akansha Apartments, Ahmedabad. Sola Road, Ghatlodiya, Ahmedbad. PAN: AABCG1282C
(Applicant) (Respondent) : Revenue by Shri L.P. Jain, Sr.D.R Assessee by : Shri A.L. Thakkar, A.R सुनवाई क� तार�ख/Date of Hearing : 04/03/2019 घोषणा क� तार�ख /Date of Pronouncement: 27/05/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax,(Appeals)- VIII, Ahmedabad [Ld.CIT(A) in short], dated 10/01/2014 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 16/12/2011 relevant to Assessment Year (AY) 2009-10.
The Revenue has raised the following grounds of appeal:
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The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.1,16,65,245/- made on account of alleged suppression of closing stock, without properly appreciating the facts of the cas and the material brought on record. 2. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.4,14,60,245/- made on account of inflated current liability in the books of accounts, without properly appreciating the facts of the case and the material brought on record. 3. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs,3,08,000/- made on account of cessation of liability u/s41(l) of the IT. Act., without properly appreciating the facts of the case and the material brought on record. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to hax/e upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and th~t of the Assessing Officer may be restored to the above extent.
The issue raised by the Revenue in ground no 1 is that the Ld. CIT (A) erred in deleting the addition made by the AO amounting to Rs. 1,16,65,245/- on account of suppression of closing stock
Briefly stated facts are that the assessee is a company and engaged in the business of manufacturing of HDPE/PP woven sacks & jacquard woven labels, trading of fabrics & labels. The assessee in the year under consideration has shown closing stock in its balance sheet ending on 31-03- 2009 amounting to Rs. 9,49,65,860/- whereas it has shown stock in the stock statement furnished to the bank amounting to Rs. 10,34,45,277/-. Thus the difference of Rs. 84,79,417.00 was found as discussed above.
2.1 Accordingly, the AO issued a notice to the assessee for its explanation about the difference in stock amounting to Rs. 84,79,417/- as discussed above.
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The assessee in response to the notice submitted as under: 1) The AO didn’t provide the stock statement collected form the on which he has relied in pointing out the difference in the impugned stock.
2) In most of the item, the difference was due to the valuation of the stock. In certain case, the stock has been valued based on last purchase bill. However, the statutory auditor took the value of the stock for finalizing the accounts as per accounting standard/ guideline issued by the ICAI.
3) The difference in the value of a stock is representing only 8.90% of the total value of the stock.
4) The stock statements to the banks have to be furnished within 15 days of the succeeding month, and therefore at that point of time, the value of the stock was furnished to the bank on an estimate basis.
5) The list of items showing the difference in the value of closing stock between the books and the banks were furnished. (Such item wise list is available on page no 3 of AO order.)
6) The assessee also filed the list of the items where the difference in the quantity noticed as detailed under: i) Liner- This stock was lying with the outside parties amounting to Rs 363296/-. This stock was not included in the stock statement furnished to the bank, but the same was included in the closing stock shown in the books of accounts. ii) Pg Granules (silva)- and master batch - This stock amounting to Rs. 25,97,610/- and Rs. 224,918/- was lying at silsva, and complete information was not available with the assessee. Thus
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the same stock was not included in the stock statement furnished to the bank, but the same was included in the closing stock shown in the books. iii) The company (assessee) was showing higher stock in the books than the stock declared in the stock statement.
2.2 However, the AO rejected the contention of the assessee by observing as under: 1) The assessee has not submitted any evidence to prove that the stock submitted to the bank included the stock received up to 15-04-2009. As per letter by the assessee to the bank on 13-04-2009, the details of stock statement and book debts was as on 31-03-2009.
2) The assessee admitted in his submission that the stock of liner, PP Granules and masterbatch are not included in the stock statement given to the bank amounting to Rs. 3,63,296/- and Rs. 25,97, 610/- and 2,24,918 respectively.
3) If these amounts are not included in the stock statement submitted to the bank, the difference in the amount will increase by Rs. 31,85,824/-. In view of the above, the AO worked the value of the difference amounting to Rs. 1,16,65,245/- and added to the total income of the assessee on account of suppression of stock.
The aggrieved assessee preferred an appeal before the Ld.CIT (A). The assessee before the Ld.CIT (A) submitted as under:
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1) It never submitted to the AO that the stock shown in the stock statement furnished to the bank includes the purchases up to 15-04- 2009.
2) Regard the stock lying at silisva unit; it was submitted that some error occurred while collecting the information for the valuation of stock lying at silisva unit. But the stock statement has to be furnished within 15 days from the closing of the month to the bank. Therefore it was not possible to furnish the accurate value of the stock to the bank.
3) The assessee further submitted that the stock lying with other unit was already included in the stock shown in the balance sheet. However, the AO presumed that the assessee had made an unexplained investment in the books of account amounting to Rs. 31,85,824/- on account stock not included in the stock statement furnished to the bank.
4) The AO has not disputed that the stock difference is not on account of quantity difference.
5) The books of accounts of the assessee are subject to audit and excise duty. The AO has not pointed out any defects in the books of accounts, i.e., purchase, sale, etc.
6) AO has reached his conclusion for suppression of the stock without rejecting the books of accounts.
7) In the subsequent year, the AO accepted the opening stock, which was closing stock in the year under consideration.
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8) Bank authority did not physically verify the stock, and AO also did not make an inquiry from the bank about the physical verification of the stock, whether it was carried out. 3.1 The Ld. CIT(A) after considering the submission allowed the ground of the appeal of the assessee by observing as under:
1) Once the stock is shown in the books of the account of the assessee. The AO cannot make an addition on account of unexplained investment. Therefore the ld. CIT-A deleted the addition made by the AO for Rs. 31,85,824/-.
2) The AO has not pointed out any specific defect in the explanation given by the assessee during the assessment proceedings. As such the AO has rejected the submission of the assessee. 3.2 In view of the above, the ld. CIT-A accordingly directed the AO to delete the addition of Rs. 1,16,65,245/- made by him.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
The learned DR before us vehemently supported the order of the AO.
On the contrary, the learned AR before us filed a paper book running from pages 1 to 260 and reiterated the submissions as made before the learned CIT (A). The learned AR before us vehemently supported the order of the learned CIT (A).
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We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to the difference in the value of closing stock shown in the books of accounts as on 31st March 2009 viz a viz value of the stock furnished to the bank as on 31st March 2009. The sole basis of making the impugned addition was the stock statement furnished to the bank. As such the AO has not disputed the purchases and sales declared by the assessee in its books of accounts which were duly admitted in the assessment proceedings. Similarly, we note that the books of accounts of the assessee were subject to excise and VAT department, an audit under Companies and Income Tax Act and no discrepancy of whatsoever was pointed out by the AO during the assessment proceedings.
6.1 The stock shown by the assessee in its books of accounts is the result of purchases and sales made during the year under consideration. As such, we are of the view that the value of the closing stock cannot be disturbed without pointing out any defect in purchases and sales.
6.2 We also find it important to refer to the judgment of Hon’ble Gujarat High Court in case of CIT Vs. Arrow Exim Pvt Ltd. reported in 230 CTR 293 wherein it was held as under: “Where addition was made on account of excess stock as there was discrepancy between stock as per books of account and that shown in the statement given in bank allegedly to obtain higher credit facilities but the Tribunal deleted the addition: Held that, the Tribunal had accepted the explanation given by the assessee and in that context had stated that when the books of account or the accounting system had been found to be genuine supported by vouchers, etc. the addition was not justified. It was required to be mentioned that the stocks were hypothecated and not pledged, which was explained by the assessee and, therefore, in order to avail higher credit facilities the statement was given, but the stock was with the assessee. Thus, the deletion of addition was justified.”
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6.3 The facts of the case on hand are identical to the facts of the case, as discussed above. In the present case also, there was no whisper about any defect/infirmity in the books of accounts of the assessee by the AO. Therefore we are of the considered opinion that no addition on account of such difference to the total income of the assessee is warranted. Hence we uphold the finding of the learned CIT-A. Thus the ground of appeal of the Revenue is dismissed.
The 2nd issue raised by the Revenue is that the Ld. CIT (A) erred in deleting the addition made by the AO for Rs. 4,14,60,245/- on account of inflated current liabilities in the books of account.
During assessment proceeding, the AO noticed that the assessee had shown sundry creditors amounting to Rs. 38,60,000/- in the statement furnished to the bank whereas the assessee has shown sundry creditors in its balance sheet at Rs. 5,54,56,040/- only. Thus the assessee has shown excessive sundry creditors amounting to Rs. 4,88,49,006/- in the books of accounts.
7.1 On the question, the assessee submitted that in the balance sheet in schedule 11, current liabilities & provisions shows an amount of Rs. 5,54,56,040/- which includes sundry creditors, advance from customers, statutory liabilities, creditors for capital goods, other liabilities, provision of expenses, provision for taxes.
7.2 However, the AO rejected the contention of the assessee by observing that on verification of schedule 11 of current liabilities, it is
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found that sundry creditor shown is of Rs. 2,44,11,803/- and other liabilities of Rs 2,09,08,451/- only. There was no reconciliation statement of the current liabilities shown in the books and statement furnished to the bank was filed.
Therefore it is clear that the assessee inflated the books of account by current liabilities of Rs. 4,14,60,254/- only. Thus the AO made the addition to the total income of the assessee.
The aggrieved assessee preferred an appeal before the Ld. CIT (A). The assessee before the Ld.CIT (A) submitted as under:
1) All the details of the current liabilities were furnished in schedule 11 of current liabilities and provisions of the financial statements.
2) All the details relating to purchasing, sundry creditors were already furnished during the assessment proceedings.
3) The AO had also conducted inquiries from the creditors by issuing notice u/s 133(6) of the Act and no discrepancy was noted by him.
4) The creditors shown in the statement furnished with the bank was to avail more credit facility from the bank. The creditors were shown in the round figure and on estimate basis without any name of the creditors in the statement furnished with the bank. 9. The Ld.CIT (A) after considering the submission of the assessee directed to AO to delete the addition made by him by observing as under:
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i. It is clear that the statement furnished with the bank was only to secure more credit facility and the creditors were furnished on estimate basis.
ii. The profit has been calculated based on the entries made in the books of account on which tax payable by the assessee. If the assessee disclosed the fewer creditors to the bank, it would not make any difference as the inquiries have also revealed that the creditors were existing.
iii. The finding of the AO that the assessee inflated its books of account by showing more value of sundry creditors without any basis. In view of the above, the CIT accordingly directed the AO to delete the addition of Rs. 4,14,60,245 made by him.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
The learned DR before us vehemently supported the order of the AO.
On the contrary, the learned AR before us reiterated the submissions as made before the learned CIT (A). The learned AR before us vehemently supported the order of the learned CIT (A).
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We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to the difference in the value of sundry creditors shown in the books of accounts as on 31st March 2009 viz a viz furnished to the bank as on 31st March 2009. The sole basis of making the impugned addition was the statement furnished to the bank. As such the AO has not disputed the purchases declared by the assessee in its books of accounts which were duly admitted in the assessment proceedings.
12.1 The creditors shown by the assessee in its books of accounts is arising out of the purchases made during the year under consideration. As such, we are of the view that the amount of sundry creditors cannot be disturbed without pointing out any defect in purchases.
12.2 We also note that the assessee has shown current liabilities and provisions amounting to ₹ 5,54,56,040.00 in its balance sheet as on 31 March 2009. The relevant details of the current liabilities and the provisions are extracted below:
SCHEDULE 11: CURRENT LIABILITIES AND PROVISIONS Sundry Creditors 24,411,803 14,277.032 Advance receved from 746,223 1,231,565 Cutomers Statutory Liabilites 872,863 1,566,321 Creditors for Capital 5,769,666 2,038,977 Goods Other Liabilities 20,908,451 17,640,040 Provision for Expenses 2,338,034 1,477,865 Provision for Tax 409,000 580,000 55,456,040 38,811,800
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12.3 The AO in respect of the above items of the current liabilities has not pointed out any defect during the assessment proceedings. In our considered view the AO before making any reliance on the statement furnished to the bank was to point out the defects/infirmities in the current liabilities and the provisions shown by the assessee in its balance sheet. We also note that the learned CIT (A) has given a finding that the creditors shown by the assessee in its books of accounts exist in the books of accounts. The learned DR for the Revenue has not disputed this finding of the learned CIT (A). In view of the above, we do not find any reason to disturb the finding of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed.
The issue raised by the Revenue in the ground no. 3 is that the Ld. CIT (A) erred in deleting the addition made by the AO on account of the cession of liability u/s 41(1) of the Act amounting to Rs. 3,08,000/- only.
The AO during the assessment proceedings noticed that the assessee has not entered into a transaction with certain sundry creditors in the last three years. The details of the creditors stand as under: 1) Shivani travels 1,58,000/- 2) Desai tejbhai 1,50,000/- 13.1 These parties also did not contact for payment. Furthermore, the time limit to file suit has also expired.
13.2 Thus the AO was of the view that these liabilities only exist in the books of account of the assessee, but the assessee is not required to pay the same.
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13.3 However, the assessee submitted that in the case of Shivani travels the amount has been paid and filed the copy of the account.
13.4 The assessee in case of Desai tejbhai submitted that there are some differences in the amount which is in the process of reconciliation.
13.5 The assessee also submitted that the above amount had not been written off in the books of accounts.
13.6 However, the AO rejected the contention of the assessee by observing that the assessee has not furnished the date of payment made to Shivani travels and also failed to furnish the ledger account. Thus it is clear that the assessee has not made payment to these parties till the date.
13.7 Accordingly, the AO added the amount of Rs. 3,08,000/- to the total income of the assessee u/s 41(1) of the Act.
The aggrieved assessee preferred an appeal to the Ld. CIT(A).
The assessee before the Ld.CIT (A) submitted that the provision of section 41(1) comes into play in case of cessation of liability in respect of a deduction claimed while computing the income. In the present case, there is no cessation of liability within the scope of section 41(1) of the Act. The AO brought nothing on record suggesting that the assessee has written off the balance of these parties.
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14.1 The Ld. CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing that the AO has not given any finding regarding the cessation of liabilities. As such, the addition made by the AO cannot be sustained merely on the ground that the liabilities were old.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
The learned DR before us vehemently supported the order of the AO.
On the contrary, the learned AR before us reiterated the submissions as made before the learned CIT (A). The learned AR before us vehemently supported the order of the learned CIT (A).
We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the liabilities as discussed above were not written off in the books of accounts of the assessee. Accordingly, in our considered view, the same cannot be treated as income under the provisions of section 41(1) of the Act on account of the cessation of liabilities.
18.1 Regarding this we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of CIT versus Babul Products Private Ltd reported in 96 Taxmann.com 82 wherein it was held as under: “3. Now so far as proposed question no.(b) is concerned, the same is squarely covered against the revenue in view of the decision of the Hon'ble Supreme Court in the case of Commissioner v. Mahindra & Mahindra Ltd. [2018] 93 taxmann.com
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32/255 Taxman 305. The factual matrix, which came to be considered by the learned Tribunal is that the learned Tribunal while deleting the addition made under Section 41(1) of the Income Tax Act on account of cessation of the liability, namely, the assessee had not written off the liability in the books of accounts, and therefore, the liability with respect to debtors is not ceased is concerned, considering the aforesaid factual matrix and when in the books of accounts the assessee carried forward and continued the liability and has not written off, no error has been committed by the learned Tribunal in deleting the addition of Rs.54,24,294/- made by the learned Assessing Officer under Section 41(1) of the Income Tax Act on account of cessation of liability.”
18.2 The facts of the case on hand are identical to the facts of the case as discussed above. In the present case also, the liabilities were not written off by the assessee in its books of accounts. Therefore we are of the considered opinion that no addition on account of the cessation of liabilities to the total income of the assessee is warranted. Hence we uphold the finding of the learned CIT-A. Thus the ground of appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 27/05/2019 at Ahmedabad.
-Sd- -Sd- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/05/2019 Manish