NAVYUG PHARMACHEM PVT. LTD.,BHAVNAGAR vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, BHAVNAGAR

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ITA 1218/AHD/2017Status: DisposedITAT Ahmedabad18 February 2019AY 2010-116 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal deleted the additions for cash flow difference and cash shortage, finding the assessee's explanations and supporting documents satisfactory. However, a part of the addition for stock difference was sustained due to unexplained discrepancies.

What were the facts?

The assessee, Navyug Pharmachem Pvt. Ltd., appealed against the CIT(A)'s order for AY 2010-11. The Assessing Officer made several additions, including those for cash flow difference, cash shortage, and stock difference.

What were the issues?

Whether additions made on account of cash flow difference, cash shortage, and stock difference are justified. The validity of statements recorded during survey proceedings was also a key consideration.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH

Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED

For Appellant: Shri Anil Kshatriya, AR

PER MAHAVIR PRASAD, JUDICIAL MEMBER

1.

This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-6, Ahmedabad dated 28.02.2017 pertaining to A.Y. 2010-11 and following grounds have been taken:

ITA No. 1218/Ahd/2017 2 . A.Y. 2010-11 1. On facts as well as in the circumstances of the case of the appellant, the impugned order passed by the Ld. CIT(A) is bad in law and therefore, it may kindly be quashed. 2. On facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT(A) has erred in sustaining disallowance of Sundry expenses to the extent of 10% i.e. Rs.23,000/- on account of car vehicle repairing, Rs.1,700/- on account of scooter repairing, Rs.10,000/- on account of petrol, diesel and maintenance expenses, Rs.11,250/- on account of travelling expenses and Rs.7,000/- on account of telephone expenses, when there is no justification in confirming such adhoc expenses being a case of company assessee in view of decision of jurisdictional High Court in the case of Sayaji Iron & Engg. Co. Vs. CIT 253 ITR 339(Guj.). The same may be deleted. 3. On facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT(A) has erred in sustaining disallowance of Rs.33,288/- on account of difference in bank balance, when there is no justification in confirming such disallowance. The same may be deleted. 4. On facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT(A) has erred in sustaining disallowance of Rs.10,800/- on account of depreciation on factory shed, when there is no justification in confirming such disallowance. The same may be deleted. 5. On facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT(A) has erred in sustaining disallowance of Rs.33,58,214/- on account of difference in cash flow u/s 68 of the Act, when there is no justification in confirming such disallowance. The same may be deleted. 6. On facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT(A) has erred in sustaining disallowance of Rs.4,39,034/- on account of cash shortage, when there is no justification in confirming such disallowance. The same may be deleted. 7. On the facts and circumstances of the case, it is humanly impossible to physically prepared the inventory of related items of stock in the time available during the survey proceedings as on 19/09/2009 i.e. before 2.00 A.M. In such an eventuality, no reliance can be placed on such inventory so prepared by sitting on an arm-chair and it may kindly be held so. 8. On facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT(A) has erred in sustaining disallowance of Rs.64,25,896/- on account of stock difference, when there is no justification in confirming such disallowance. The same may be deleted. 9. On facts and in law as well as in the circumstances of the case of the appellant, the Ld. CIT(A) has erred in sustaining disallowance of Rs.94,000/- on account of unexplained repair charges, when there is no justification in confirming such disallowance. The same may be deleted.

ITA No. 1218/Ahd/2017 3 . A.Y. 2010-11 2. Out of nine grounds, ground nos. 1,2,3,4 & 9 have not pressed by the assessee on account of smallness of tax effect.

3.

Briefly facts of the case are that the appellant is a domestic company and is engaged in the business in manufacturing of bulk drugs, pharmaceuticals and fine chemicals. The appellant maintains regular books of accounts which are duly audited both under the Company's Act as well as u/s 44AB of the Act.

4.

For the A.Y.2010-11, the appellant submitted its voluntary return of income on 15/10/2010, electronically declaring therein total income of Rs.20,52,760/-. The Return of Income having been selected for scrutiny, a notice u/s 143(2) was issued on 19/09/2011. Thereafter, the A.O. has finalized the regular assessment u/s 143(3) of the Act on a total income of Rs.l,58,18,081/-. While doing so, A.O. made addition totaling to Rs. 1,37,65,321/- on account of 19 various counts.

5.

Being aggrieved, appellant challenged the impugned assessment order and ld. CIT(A) granted partly relief to the appellant.

6.

Now we come to ground no. 5 relating to addition of Rs. 33,58,214/- on account of difference in cash flow.

7.

As per ld. A.O., there was a deviation of cash of Rs. 33,58,214/- between outflow inflow and outflow and assessee gave his reply in details but that could not satisfied the lower authorities. Hence, they made the addition.

ITA No. 1218/Ahd/2017 4 . A.Y. 2010-11 8. We have gone through the relevant record and impugned record. We can see, that assessee has supplied the computer generated statements and it was historically derived from the figures from profit and loss account and balance sheet which are very much available on record in the form of audit report u/s. 44AB of the Act, the same is at page 143 & 144 of the paper book. Since the audited books of accounts were not rejected and the book results stand accepted and also the alleged discrepancy stand duly reconciled. Therefore, we have no hesitation in deleting the addition made of Rs. 33,58,214/-. Thus this ground of appeal is allowed.

9.

Now we come to ground relating to confirming the disallowance of Rs. 4,39,034/- on account of cash shortage by the ld. CIT(A).

10.

Ld. A.O. has discussed the issue in Para 21 of the assessment order. As per A.O. there was a difference of cash of Rs. 4,39,034/- found at the business premises of the assessee. However, the assessee stated some of the amount was lying at the residence of the Director. As per impugned order Statement of Harkantbhai P. Vyas Accountant of the assessee company was recorded and same is at page 192 to 194 of the paper book and he stated in reply of question no. 15 that cash book (Navychem Organics) was written up to 17/09/2009 which revealed closing cash balance of Rs. 2,14,322/- and as per prevailing system it is kept at the residence of the same director of the company. Revenue ought to have deputed to verify the statement of the Accountant but department did not deputed anyone so in these circumstances of the department cannot be accepted. Thus, this ground of appeal is allowed.

11.

Now we come to ground relating to sustaining disallowance of Rs. 64,25,896/- on account of stock difference by the ld. CIT(A). On this count, a statement of

ITA No. 1218/Ahd/2017 5 . A.Y. 2010-11 director was recorded where he allegedly submitted the excess value of stock as its income and same is part of paper book page no. 33 to 39 and on that basis, addition was made. Though, assessee replied in detail but his contention was not accepted by the lower authorities.

12.

As we can see, appellant was not provided a copy of alleged survey inventory nor a statement of recorded by the survey party and assessee retracted his submission by way of letter and same statement was also referred in the order of ld. CIT(A) and following stock transaction was recorded by the survey party. We just fail to understand how in a short span of time survey party made the statement after calculating and weighing the item and addition has been made solely on the accounting and weighing of the stock.

13.

Assessee cited an order of Jurisdictional High Court in the matter of K. Chokshi wherein it is mentioned that the statement was taken in the course of survey proceeding which is legally but no binding force, as assessee has also retracted the statement and assessee is subject to excise duty and excise department has not found any discrepancy in the stock of the assessee. Therefore, in these circumstances, an addition made by the department cannot sustain. Therefore, we delete the addition of Rs. 64,25,896/-.

14.

However, on referring to paper book page 309 to 311, we find that in respect of the following item, there is still remains discrepancy inasmuch as there is no quantity/value disclosed as per assessee stock record vis-à-vis stock as per survey inventory:

Item Quantity as per Quantity as per books Difference in value inventory Benzyl Benzoate 890 Kg 0 10680/-

ITA No. 1218/Ahd/2017 6 . A.Y. 2010-11 Mithai Benzoic 300 Kg 0 3000/- Liquid Bio Mass Fuel 23250 Kg 0 42,245/- 175MT Total 56,925

15.

Since assessee has not given any explanation with regard to aforesaid discrepancies in the total stock, therefore, we confirmed the addition of Rs. 56,925/-.

16.

In the result, appeal filed by the Assessee is partly allowed.

Order pronounced in Open Court on 18- 02- 2019

Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 18/02/2019 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad

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