M/S STEEL CITY FOOD PRODUCTS PVT LTD.,JAMSHEDPUR vs. ACIT, CIRCLE-3, JAMSHEDPUR

First, we shall take up the appeal in ITA No. 183/Ran/2015 for the A.Y 2007-08 by the assessee. ITA No. 183/Ran/2015 for the A.Y 2007-08 3. At the time of hearing before us the ld.AR submits that the major issue involved in this appeal as raised by the assessee is regarding the unexplained stock of Rs. 27,07,995/-.He further submits that the details of stock is available at page 3 of the assessment order. The CIT-A held that stock in process was not verifiable and, therefore, confirmed the addition made by the AO. The ld.AR argued that the CIT-A was wrong in holding the same when the entire details of stock are verifiable from the books of account of the assessee and that there was no difference in the quantitative details of stock recorded in the stock register and as physically verified at the time of stock verification on the day of survey. The AO made such addition only on the basis of a statement of one director, Shri Pawan Kumar, wherein he allegedly admitted to pay the tax thereon on unexplained stock. The ld. AR further argued that there was no adverse remark of the AO in his remand report dt. 14th October, 2011, available on record on the issue of stock verification, and in support of his contention, referred to pages- 2 & 3 of the said report.

On the other hand, the ld. DR relied on the impugned order of the CIT-A.

Heard rival submissions and perused the record. It is noticed that the reconciliation statement of stock was submitted on 12-02- 2017 i.e the date of survey operation u/s. 133A of the Act by the assessee along with original records before the AO. We find that the valuation of stock as offered by the assessee was estimated on the basis of market value and the said director made no statement admitting to pay tax thereon on unexplained stock. We find that the issue in hand was dealt in the assessment proceedings in detail by the AO. There is no difference between the quantitative details in the stock register and the physical stock taken. Every stock in process is documented. It clearly shows that the assessee has offered proper explanation to the alleged stock verification. We further find support from the said remand report that there is not even a whisper about of the company agreeing to pay tax on alleged stock. Relevant portion is reproduced herein below for better appraisal:- “ d. The point at issue is the addition on account of unexplained stock amounting to Rs.27,07,995/-. On the basis of evidences borne on record, it is inferred that a reconciliation statement of stock as on 12-02-2017 i.e the date of survey, was submitted by the assessee on 19-11-09. The assessee had produced on the said date original records in furtherance of his assertions before the Assessing Authority. The assessee has averred that the valuation of stock was on the basis of estimated market values. The valuation in the books of accounts of the assessee is on the basis of historical costs. It is further asserted that the calculations should have, rightly, been on the basis of quantities only. The submitted detailed calculations in this regard. This fact is also evidenced on the assessment records vide entries on 16.12.2009 and 17.12.2009. It is further seen from the statement under oath, recorded by the authorized officer on 12.02.2007 vide question no.11, that when queried about the difference in stock, the assessee had, in fact, replied that he shall submit a reconciliation statement in future. There is not even a whisper about his agreement to pay tax thereon. “

In view of above, we are of the view that the CIT-A was not justified in confirming the view of the AO in making the addition of Rs.27,07,995/- on account of unexplained stock. Therefore, the order of the CIT-A on this issue is set aside and the addition deleted. Thus, the effective ground raised by the assessee in this appeal is allowed.

The appeal of assessee in ITA No. 183/Ran/2016 for the A.Y 2007-08 is allowed.

Now, we shall take up the appeal in ITA No. 29/Ran/2016 for the A.Y 2007-08 by the revenue. ITA No. 29/Ran/2016 for the A.Y 2007-08

Ground no.1 is relating to deletion of addition made on account of unaccounted purchase and sale.

The AO made the addition on account of unaccounted purchase and sale basing on the statement allegedly given by director, Shri Pawan Kumar in respect of trading division. By examining the date- wise details and taking into consideration the peak value, the AO added the said two additions.

The CIT-A examined the photocopies of impounded material submitted by the assessee and held that the AO made said addition without there being any basis, and in respect of trading division. He held that there is a trading division in existence, which was disallowed in the return of income. Considering the submissions of the assessee, the CIT-A deleted the impugned additions of Rs.3,56,87,536/- and Rs.2,02,21,178/- made on account of unaccounted sale/purchase.

The ld. DR relied on the order of the AO.

The ld.AR also argued that the CIT-A was right in holding the same. The AO made such addition only on the basis of a statement of one director, Shri Pawan Kumar recorded at the time of survey, wherein he had allegedly admitted to pay the tax thereon on unaccounted sales. The AO made the impugned additions with respect to peak purchase and peak sales respectively. The ld. AR 4 ITA Nos.183/Ran/15 29/Ran/16 & CO No. 21/Ran/17

Heard rival submissions and perused the record. We find that the CIT-A considering the copies of the impounded material of purchase and sale and the said remand report deleted the impugned additions. We find that the assessee already submitted a detailed reconciliation of purchase and sales along with bills, vouchers and books of account. The assessee had offered specific explanation and supporting material and documentary evidences. Thus, the assessee has offered proper explanation regarding the impugned issue. In support of the contention, the assessee has also placed its reliance on the decision of the Hon’ble Supreme Court in the cases CIT (Central) Vs. Daulatram Rawatmull reported in 53 ITR 574 as well as M/s. Agarwal Motors Vs. ACT reported in 68 ITD 407. We find that the AO examined the books of account as available before him and made additions only on the statement said to have been given by the director to pay tax thereon on unaccounted purchase and sale. We find that the issue in hand was dealt in the assessment proceedings in detail by the AO as well as in the remand proceedings. Relevant portion of remand report of the AO is reproduced herein below for better appraisal:- “a. The point at issue is the additions made by the Assessing Authority with respect to peak purchase and peak sales respectively. The additions on account of unaccounted purchase is Rs.3,83,800/- and on account of unaccounted sale is Rs.10,71,009/-. The rationals for making these additions is embodied in the body of the assessment order. There is no other basis of working of the same as borne on record. The assessee’ s contention is that the additions made by the assessing authority are based on estimates and presumptions. It is, therefore, not reasonable and is arbitrary. It is evident from record that the assessee had, in fact, submitted details of purchase above 5 Lakhs from various parties on 13.10.2009. On 19.11.2009, the assessee submitted a detailed reconciliation of purchase and sales which was subjected to verification by the Assessing Authority. It is further evident from record that the assessee submitted Bills, vouchers and books of account with particular relevance to the impounded documents. The assessee had offered specific explanation and supporting material documentary evidences. The assessee had offered specific explanation and supporting material evidences. These are the facts, which craves for adjudication before your kindself. The assessee places reliance on the decisions of the Hon’ble Supreme Court in the case of CIT(Central), Calcutta Vs. Daulatram Rawatmull, 53 ITR 574, as well as M/s. Agarwal Motors Vs. ACIT (1999) 68 ITD 407.

In view of above, we are of the view that the order of the CIT-A on this issue is justified. Thus, ground no. 1 relating to unaccounted purchase and sale raised by the revenue in the appeal is dismissed.

Ground no. 2 is relating to deletion of addition made u/s. 40A(3).

During the assessment proceedings the AO found that the assessee made cash payments to the tune of Rs.68,78,892/- against the provision prescribed u/s. 40A(3) of the Act. The AO also found that the assessee on its own disallowed 20% of Rs.16,07,007/- and added the same to its return of income. The AO considering the submissions of assessee added an amount of Rs.10,54,377/- i.e 20% of balance amount of Rs.52,71,885/- for violation of provisions of section 40A(3) of the Act.

The ld. CIT-A has deleted the addition by observing that the AO did not consider the material facts before him nor rebutted the assessee’s claim and held that made addition u/s.40A(3) to the tune of Rs.10,54,377/-, which is unfounded and unreasonable.

The ld. DR relied on the order of the AO.

The ld.AR supported the order of CIT-A. He also argued that the assessee deals in agricultural items. The payments of Rs. 52,71,885/- were effected to various parties on bank holidays i.e. 26th January and Sunday etc. But, the AO held that said payments are covered under exception to Rule 6DD(k) in remand proceedings and referred to page 2 of the said remand report. The relevant portion of which is reproduced herein below:- “ The assessee’s argument in this regard, is the fact that the assessee deals in agricultural items in the course of its day-to-day business activities. There were payments of more than 20,000/- to various transporters and suppliers. The assessee concedes that there was violation of the provisions of Section 40A(3) and had, therefore, consequently, made an addition of 20% of Rs.16,07,007/- to the taxable income for the assessment year under reference. This was done voluntarily. The assessing authority made disallowance u/s. 40A(3) for a sum of Rs.10,54,377/- being 20% of Rs. 6 ITA Nos.183/Ran/15 29/Ran/16 & CO No. 21/Ran/17

In view of above, we are of the view that the CIT-A was justified in deleting the addition. The AO was not correct in making the impugned addition. Therefore, the order of the CIT-A on this issue is upheld. Thus, ground no. 3 relating to disallowance u/s. 40A(3) of the Act raised by the revenue in the appeal is dismissed.

Ground no.3 is relating to deletion of addition on account of unexplained cash.

For non reconciliation of cash transaction by the assessee the AO made this addition. During the survey operation u/s. 133A, the Managing Director of the assessee, in his statement, could not explain the same and agreed to pay tax thereon. Thus, the AO added an amount of Rs. 4,28,902/-to the total income of the assessee. The CIT-A deleted the impugned addition on being satisfied that the discrepancy in cash balance represents cash sales from 10-02-07 to 11-02-07, and amounts realized from its debtors.

The ld.DR relied on the order of the AO. On the other hand the ld.AR relied on the order of the CIT-A and said remand report.

Heard rival submissions and perused the record. We find that the assessee submitted the details regarding the discrepancy found at the time of survey. We find that, for non reconciliation of cash transaction by the assessee, the AO made this addition. We find that 7 ITA Nos.183/Ran/15 29/Ran/16 & CO No. 21/Ran/17

In view of the above, we find no infirmity in the impugned order of the CIT-A. Thus, ground no. 3 relating to unexplained cash raised by the revenue in the appeal is dismissed.

Ground no. 4 is relating to deletion of addition on account of unexplained stock.

We find that this issue is similar and identical to ground no. 1 of assessee’s appeal in ITA No. 183/Ran/16, Which we have already discussed in detail as above and disposed of the same in favour of assessee by setting aside the order of the CIT-A. Therefore, following the same view as taken in ITA No. 183/Ran/2015 for the A.Y 2007- 08, this ground of the revenue’s appeal is dismissed by upholding the

Ground no. 5 is relating to deletion of addition made on account of unexplained money of Rs. 13,47,507/- made u/s. 69A of the Act.

The AO during the course of assessment proceedings found numerous entries of fund influx of Rs.13,47,507/-. For non explanation, the AO added the same to the total income of assessee being unexplained money u/s.69A of the Act.

The CIT-A considering the submissions of assessee and the remand report found satisfied that the assessee submitted details on 09.07.09, 13.10.09, 19.11.09, 07.12.09, 11.12.09, 17.12.09 and 24.12.09 and deleted the said addition. We find support from the remand report, which is reproduced herein below:-

In view of above, we are of the view that the CIT-A was justified in deleting the same. The order of the CIT-A on this issue is hereby upheld. Thus, ground no. 5 raised by the revenue in the appeal in respect of unexplained money u/s. 69A of the Act is dismissed.

The appeal of revenue in ITA No. 29/Ran/2016 or the A.Y 2007- 08 is dismissed.

C.O No. 21/Ran/2017 arising out of ITA No. 29/Ran/2016 for the A.Y 2007-08- by the assessee. 9 ITA Nos.183/Ran/15 29/Ran/16 & CO No. 21/Ran/17

In the result, the appeal of the assessee in ITA No. 183/Ran/2015 for the A.Y 2007-08 is allowed and that of the revenue’s appeal in ITA No.29/Ran/2016 for the A.Y 2007-08 and C.O (No. 21/Ran/2017) of the assessee in ITA No. 29/Ran/2016 for the A.Y 2007-08 are dismissed.