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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
ORDER Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of the ld. CIT(A)-24, New Delhi dated 27.10.2016.
Following grounds have been raised by the assessee: “The CIT(A) erred in law and on facts in confirming the addition of Rs.73,015/- on account of gross profit on difference in the value of raw material stocks as per books and physical stock found during the course of search ignoring the facts, submissions and evidences placed on record to prove that there was no discrepancy in the said tow figures. Thus the addition so made should be deleted.
2. Without prejudice to the first ground of appeal, the CIT(A) erred in law and on facts in not allowing telescoping set off against shortage of raw material of Rs.5,61,648/- to the extent of excess finished goods of Rs.1,98,030/- found during course of search ignoring the facts, submissions and evidences placed on record. Necessary directions to allow such set off should be given.
2 Aggarwal Cables (P) Ltd. 3. Without prejudice to the first ground of appeal, the CIT(A) erred in law and on facts in not allowing set-off of undisclosed sales of Rs.1,17,630/- made in the preceding year against the shortage of raw material found during the course of search ignoring the facts, submissions and evidences placed on record. Necessary directions to allow such set off should be given.”
3. The relevant Facts pertaining to the adjudication are that a search and seizure operation was carried out on the “Kent” group of cases on 27.04.2012. A survey u/s 133A was carried out at the business premises of the assessee in conjunction with the search. During the course of survey at the business premises of the assessee, the physical inventory of the stock was taken. The total value of the raw material stock on that date on Rs. 13,35,140/- whereas as per the trading account prepared on date of the survey as the closing stock of raw material as per books was Rs. 18,96,788/-. Thus there was a shortfall of Rs. 5,61,648/- on account of raw material. After considering the submissions of the appellant on this matter, the A.O. made an addition of Rs. 5,61,648/- being the shortfall of raw material stock was held to be sold by the assessee outside books of account. Further, the AO has also observed that there was an excess stock of finished goods, to the tune of Rs. 1,98,030/-. The excess stock on account of finished goods was added as being investment made out of unaccounted sources.
Heard the arguments of both the parties and perused the material available on record.
We find that the raw material inventoried and the finished goods consist of similar material that is copper, coils and GI wires. The assessee is into manufacturing of cables and wires wherein the copper material is converted into cables and 3 Aggarwal Cables (P) Ltd. wrapped around by the GI wires which is not a very complex manufacturing process.
The relevant derivations from the survey are as under: 1. Shortage of raw material – Rs.5,61,648/- 2. Excess of finished goods – Rs.1,98,030/-
Since, the finished goods and the raw material are intrinsically linked to each other it would be prudent to accord benefit of excess finished goods to the shortage of the raw material. No separate addition on account of excess finished goods is warranted.
As the consequence, the gross profit determined by the ld. CIT (A) at the rate of 13% on the amount of Rs.5,61,648/- of Rs.73,015/- stands confirmed. Set off of undisclosed sale of earlier year of Rs.1,17,630/- is not required to be considered at this juncture as the benefit on account of excess finished goods has already been granted.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 05/05/2020.