D.C.I.T.,CIRCLE-14(2), KOLKATA vs. PLASTO ELECTRONICS (P) LTD., KOLKATA

The revenue has raised following grounds of appeal:

Facts in brief are that during the assessment proceedings the AO issued notice u/s 133(6) of the Act to eight parties which were duly replied by these parties. The case of the assessee was selected for limited scrutiny on various issues including the one in respect of large share premium by the assessee. The assessee has received Rs. 1,56,84,400/- from these eight parties on various dates. According to the AO, the assessee has failed to prove the identity, creditworthiness of the investors and genuineness of the transactions and accordingly a show cause notice was issued as to why the same should not be treated unexplained cash credit u/s 68 of the Act. Further the AO has issued show cause notice to the assessee in respect of share application money received from Sabya Sachin Ghuwalewala HUF of Rs. 59,50,000/- and accordingly the show cause was given to the assessee as to why the same should not be treated as unexplained cash credit u/s 68 of the Act. The assessee replied the show cause notice furnishing various information such as PAN, Addresses, confirmations and also proofs of identity, creditworthiness of the parties and further stating that these parties are mostly directors or their relatives and not outside parties. It was submitted that no money has been received from unknown sources. However, the AO rejected the contentions of the assessee and treated this amount as unexplained cash credit as the assessee has failed to prove the identity, creditworthiness of the investors and genuineness of the transactions for the reason that these were circuitous rotation of funds by the assessee to these parties. The AO observed that the assessee has repaid money to these parties and then money was received back from these parties by way

In the appellate proceedings the Ld. CIT(A) deleted the addition by observing that the assessee has proved the identity and creditworthiness of the parties/ investors and also the genuineness of the transactions by filing various documents in the form of PANs, ITRs, bank statements and confirmations etc. The Ld. CIT(A) also noted that in response to notices issued u/s 133(6) of the Act, all the investors have replied and filed the details as called for by the AO which are part of the assessment records by passing a detailed order.

After hearing the rival parties and perusing the material on record, we find that in this case, the assessee has some outstanding loans to various parties as discussed by the AO in the assessment order and also dealt with by the Ld. CIT(A) in the appellate order which were repaid by the assessee during the year and thereafter the said money was given back to the assessee by way of share application money for allotment of shares at a premium. It was argued before us that the said conversion of unsecured loans into the share capital was necessitated for business and commercial considerations. There were two ways of doing that. First one is to convert the unsecured loans into share application straight away and second alternative was to return and repay the unsecured loans and again bring back that money into the assessee company in the form of share capital. It was argued by the Ld. A.R. that the assessee has followed the second method. The Ld. A.R. submitted before us that it was not in the case of any outside party investing in the assessee company or funds coming from unknown sources/investors not known to the assessee company but all the investors were either directors or their close relatives therefore the order of AO doubting the transactions of share capital just on the ground that the loans were first returned and then investments were brought back to the assessee company is wrong. The Ld. A.R. submitted before us that the Ld. CIT(A) has correctly appreciated the facts of the case and given a detailed findings on all the three ingredients of Section 68 of the Act and allowed the appeal by following various judicial decisions. The Ld. D.R. ,on the other

Having gone through the facts on record and order cited below we find that the assessee has returned the unsecured loans outstanding to various parties who happened to be the directors of the assessee company or their close relatives and thereafter the money so repaid was brought back in the form of share application in the assessee company converting the same into the share capital and share premium. We note that the assessee has filed all the documents/evidences relating to these investors in the form of names, addresses, ITRs, PANs and confirmation etc. before the AO which were duly matching with the documents filed by these investors before the AO in response to notices issued to these parties by the AO u/s 133(6) of the Act. In our opinion, the order of Ld. CIT(A) has dealt with each and every aspect of the issue in great depth and thus passed a very speaking and reasoned order while deleting the addition. We therefore inclined to uphold the same on this issue by dismissing the ground no. 1 of the revenue. Ground no. 1 of the revenue is dismissed.

The issue in ground no. 2 in the revenue appeal and grounds raised in the cross appeal of the assessee is qua the deletion/confirmation of addition on account of stocks as found by survey team during the course of survey. The revenue has challenged the deletion of stock to the extent of Rs. 23,85,981/- out of total addition of Rs. 61,85,981/- made by the AO u/s 69 of the Act whereas the assessee has challenged the part confirmation of addition to the tune of Rs. 38,00,000/- by the Ld. CIT(A).

Facts in brief are that the survey u/s 133 of the Act was conducted on 15.10.2014 during which the survey team has inventoried the stock which came to Rs. 2,93,70,252/- however the stock maintained by the assessee worked out at Rs. 2,31,84,271/- resulting into a difference of Rs. 61,85,981/-. The statement was recorded of one of the directors Shri Sabya Sachin Ghuwalewala during survey and he stated that the explanation with respect of discrepancy in stock would be explained later on. On that basis during the course of assessment proceedings, the AO issued show cause notice on the assessee as to why the excess of stocks of Rs. 61,85,981/- should not be added into the income of the assessee. The Ld. Counsel for the assessee submitted before the AO that there were factual infirmities and discrepancies in the stock taking done by the survey team at the time survey. The Ld. Counsel pointed out that in some cases double entries were taken, in some instances wrong quantities were taken and rate applied by the survey team were also wrong. The assessee filed reconciliation statement during assessment proceedings which is reproduced as under for the sake of convenience:

In the appellate proceeding the Ld. CIT(A) partly allowed the appeal of the assessee by observing as under:

The Ld. D.R. submitted before us that the Ld. CIT(A) has wrongly deleted the addition on account of stock discrepancies noticed by the survey team to the tune of Rs. 23,85,981/- as the survey team has taken the inventory during the course of survey and found that the assessee had excess to the tune of Rs. 61,85,981/-. The Ld. D.R. prayed before the bench that the addition as deleted by the Ld. CIT(A) may kindly restored. The Ld. D.R. has also pointed out that before the Ld. CIT(A) the assessee’s counsel has admitted the stock difference of Rs. 34,45,162/- whereas the assessee has challenged the part confirmation of addition on account of excess stock found during

The Ld. A.R. on the other hand strongly controverted the arguments of the Ld. D.R. by submitting that the stocks were duly reconciled by the assessee copy of which is placed at page 255 to 257 of the PB. The Ld. A.R. drew our attention to the fact that even in the inventory taken by the survey team the stock finished goods of Rs. 36,80,834.34 was left to be considered in the stock whereas several other wrong entries/double entries or application of sale rate in place of purchase rate . The Ld. A.R. submitted that the discrepancies in the stock were only to the tune of Rs. 3,81,063.09/- and therefore the same may kindly be affirmed in place of Rs. 38,00,000/- as sustained by the Ld. CIT(A).

After hearing the rival contentions and perusing the facts on record including the reconciliation statement filed by the assessee reconciling the stock as taken by the survey team and as per the books of the assessee before the AO and the Ld. CIT(A), we note that there were several infirmities/mistakes committed by the survey team while doing stock taking physically. From the perusal of reconciliation statement , it is apparent that the assessee has explained the stock differences minutely. It shows that the survey team even has omitted the stock to the extent of Rs. 36,80,834.34 whole the calculating excess stocks by committing various mistakes such as double accounting of stocks, wrong application of rate and various other reasons. Non of the authorities below has pointed out as to how the stock reconciled by the assessee is not correct. We, therefore, are inclined to accept the assessee’s contention that the difference in stock inventory is only to the tune of Rs. 3,81,063.09/-. Accordingly we modify the order of the Ld. CIT(A) on this issue and direct the AO to add Rs. 3,81,063.09 . Consequently, the ground no. 2 of the revenue is dismissed and the assessee’s appeal is partly allowed.