RATAN PAPERS PVT. LTD.,JAIPUR vs. ITO, JAIPUR

PER BHAGCHAND, AM

Both these appeals are the cross appeals filed against the order of

the ld. CIT(A)-III, Jaipur dated 28-10-2016 for the Assessment Year

2012-13 raising therein following grounds of appeal.

ITA No.23/JP/2017 M/s. Ratan Papers Pvt. Ltd. vs ITO, Ward- 7(2) ,Jaipur

ITA No. 23/JP/2017 – Assessee

‘’1. On the facts and in the circumstances of the case, the ld. CIT(A) has grossly erred in confirming the action of the invocation of section 145(3) of the I.T. Act, arbitrarily. Assessee prayed that rejection of books of account by AO being without pointing out any specific defects in books and closely based on alleged so called surrender made by Shri Gaurav Jain, Director of assessee via statements recorded during survey proceedings u/s 133A, which stood retracted, thus have no evidentiary value. Assessee prayed that rejection of books by AO be held bad in law. 1.1 That the ld. CIT(A) has further erred in confirming the addition to the extent of Rs. 19,35,591/- out of addition of Rs. 51,72,923/- made by AO alleging the same as excess stock by ignoring the explanation furnished by assessee substantiating the difference between stock declared by the assessee and computed by AO on the basis of inventory prepared during survey, thus the entire addition deserves to be deleted.

ITA No.11/JP/2017 –Revenue (i) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 32,37,314/- (Rs. 23,27,679+Rs. 9,09,635) as against trading addition of Rs. 51,72,923/- (Rs. 50,01,026+1,71,897) made by the AO on account of excess stock surrendered by Director himself in his statement dated 4-08-2011 recorded during survey. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting Rs. 9,09,635/- out of total trading addition made by the AO (Rs. 50,01,026+Rs. 1,71,897) on the ground that g.p. rate of 22.64% should have been applied on the trading account prepared during survey as against the g.p. rate 18.79% applied by the survey team.

2.1 Apropos Ground No. 1 and 1.1 of the assessee and Ground No. (i)

and (ii) of the Revenue, the facts as emerges from the order of the ld.

CIT(A) are as under:-

ITA No.23/JP/2017 M/s. Ratan Papers Pvt. Ltd. vs ITO, Ward- 7(2) ,Jaipur

‘’4.3 I have carefully considered the facts of the case, finding of the AO and submission of the appellant. The AO made the addition on the basis of trading account prepared at the time of survey and surrender made by the Director. As per trading account, the stock as on the date of survey works out to Rs. 5,78,921/- as against physical stock of Rs. 55,79,947/- leaving a difference of Rs. 50,01,026/-. Further addition of Rs. 1,71,879/- was also made by AO on basis of separate statement as per reply to Question No. 35. In appellate proceedings, the ld.AR argued that there are various defects in trading / P&L account prepared at the time of survey proceedings. Major defect pointed out by A/R are:-

Value of stock ascertained by the I.T. Officials during the course of survey Rs. 5,78,921/- Add:- Difference in opening stock (Rs. 69,67,131- Rs. 26,39,452) Rs. 23,27,679/- Add: Purchases considered by short amount by survey team Rs. 81,08,657 – Rs. 79,62,913) Rs. 1,46,044/- Add: Gross Profit difference due to lower g.p. rate taken by the Survey Team (22.64% - 18.79%) Rs. 9,09,635/- Add: Invoice value of goods (stock) which were physically received In the factory premises but the accounting entry of these Purchase invoices were pending as on date of survey (Rs. 14,61,869+Rs. 4,62,508 – Rs. 8,15,914) Rs. 11,08,463/- Add: Direct expenses not considered by the I.T. Officials Rs. 11,48,367/- Less: Exchange rate difference entry not accounted for as on the Date of survey Rs. 4,04,113/-

On perusal of the assessment order and A/R submission, I find that the contention of A/R in respect of difference in opening stock by Rs. 23,27,679/- and difference in gross profit due to lower g.p. rate taken by Rs. 9,09,635/- appears to be correct. The survey team took opening stock at Rs. 46,39,452/- though audited accounts shows opening stock at Rs. 69,67,131/-. Thus the opening stock was considered short at the time of survey by Rs. 23,27,679/- which is fully verifiable from audited accounts and same is therefore, accepted.

In respect of g.p. rate difference, it is seen that survey team prepared trading account by applying g.p. rate of 18.79% whereas correct average g.p. rate of assessee for last three years works out at 22.64% resulting in difference of Rs. 9,09,635/-. This is duly verifiable from audited accounts and thus contention of appellant is accepted.

ITA No.23/JP/2017 M/s. Ratan Papers Pvt. Ltd. vs ITO, Ward- 7(2) ,Jaipur

In respect of other claims made by appellant, same appears to be an afterthought and not supported by proper evidence therefore, same are rejected. In the result, appellant gets relief of Rs. 32,37,314/- (2327679+909635) and balance addition is confirmed. ‘’

During the course of hearing, the ld. DR supported the order of the 2.2

AO.

2.3 On the other hand, the ld.AR of the assessee submitted that the ld.

CIT(A) has erred in confirming the action of the AO in invoking the

provisions of section 145(3) of the Act and also erred in confirming the

addition of Rs. 19,35,591/- out of addition of Rs. 51,72,923/- made by the

AO.

2.4 We have heard the rival contentions and perused the materials

available on record. Brief facts of the case are that assessee is a private

limited company engaged in manufacturing of handmade paper products

and handicrafts items. A survey u/s 133A of the Act was carried out at the

premises of the assessee company and other associate business concerns

on 4-08-2011. During the course of survey operations, statement of Shri

Gaurav Jain, Director of assessee company and various other employees

were recorded wherein a surrender of income of Rs. 51,72,923/- was

obtained from him on account of alleged excess stock found during

ITA No.23/JP/2017 M/s. Ratan Papers Pvt. Ltd. vs ITO, Ward- 7(2) ,Jaipur

survey. Thereafter vide affidavit dated 14-09-2011, Shri Gaurav Jain had

made retraction. The return of income was filed declaring total income at

Rs. 24,14,770/-. Assessment was completed by the AO wherein

provisions of sec 145(3) were invoked and additions of Rs. 51,72,923/-

were made being the difference in stock as per trading account prepared

on the date of survey and that physically found. The additions were made

on the basis of discrepancies found in survey and statement recorded.

The relevant para as to making the addition of Rs. 50,01,026/-and Rs.

1,71,897/- by the AO is as under:-

‘’the assessee through its Director Shri Gaurav Jain surrendered the excess stock of Rs. 50,01,026/- as on 04-08-2011 as per answer of question no. 25 of the statements recorded during the course of survey proceedings. The assessee's director Shri Gaurav Jain again surrendered the stock of Rs. 1,71,897/- as per answer of question no. 35 of the statements. The assessee's director stated in his statements that the raw material was sent for job work which was extra stock from theabove stock of Rs. 50,01,026/- already surrendered for taxation under the Income Tax Act, 1961 but the assessee in its reply said that the stock of Rs. 1,71,897/- was also mixed up while the director of the assessee Shri Gaurav Jain surrendered separately as per answer of question no. 35 of the statements. Considering the facts of the case, the assessee does not maintain the books of accounts and other relevant documents properly and the same are hereby rejected by invoking the provisions of section 145(3) of the IncomeTax Act, 1961 . Therefore,

ITA No.23/JP/2017 M/s. Ratan Papers Pvt. Ltd. vs ITO, Ward- 7(2) ,Jaipur

the excess stock of Rs. 50,.01,026/- and Rs. 1,71,897/-surrendered during the course of survey proceedings u/s 133A of the Income Tax Act, 1961.’’

In first appeal, the ld. CIT(A) has partly allowed the relief of Rs.

32,37,314/-. The AO has invoked the provisions of section 145(3) of the

I.T. Act, 1961 and made the addition on account of excess stock. The ld.

CIT(A) after considering the reconciliation had accepted the contention

in part. The difference on account of opening stock and G.P. rate

difference were allowed resulting into the deletion of addition to be extent

of Rs. 32,37,314/- and for the remaining amount of Rs. 19,35,591/-, it

was observed by ld. CIT(A) that the same is an afterthought. After going

through the factual details filed and considering the pleadings of both

sides, we hold the ld. CIT(A) has considered all genuine pleadings and

reconciliation in right perspective and allowed part relief. The other

grounds of reconciliation are bald assertion not supported by any

independent and positive evidence. These are simply afterthought which

have no weightage in the eyes of law.It is undisputed fact that the books

of accounts of the assessee were incomplete as on the date of survey,

therefore the same cannot be accepted as such. In our considered view,

the provisions of section 145(3) of the Act were rightly invoked by the 6

ITA No.23/JP/2017 M/s. Ratan Papers Pvt. Ltd. vs ITO, Ward- 7(2) ,Jaipur

AO. Further, the details with evidences filed by assessee were considered by the ld. CIT(A) and partly accepted. The genuine claims of the assessee as made in reconciliation were accepted and those which were afterthought and unsupported by any positive evidence were rejected. Under these circumstances, in our considered view the part addition so sustained by ld. CIT(A) was justified. 3.0 In the result, the appeals of the assessee as well as of the Revenue are dismissed. Order pronounced in the open Court on 27 -02-2018. Sd/- Sd/- ¼ fot; iky jko ½ ¼HkkxpUn½ (Vijay Pal Rao) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member

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