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Income Tax Appellate Tribunal, ‘’ A’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-4, Ahmedabad, dated 07/10/2015 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2010-11.
The assessee has raised the following grounds of appeal:
1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erred in upholding the addition of Rs. 33,50,310/-being gross profit on deficit of stock without appreciating the disclosure of Rs. 2 crores made for the year under consideration vide letter addressed to ADIT(investigation), Mehsana covering the discrepancy pertaining to alleged stock deficiency.
2. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in upholding the addition without appreciating the fact that the alleged excess stock as per the books of account found during the course of survey was either sold subsequently or was lying as the part of closing stock on 31st March, 2010 and further the Assessing Officer has not disputed the quantity of such closing stock as shown in the Financial Statements and the Tax Audit Report issued by the independent auditor, meaning thereby, there is no unaccounted sale as per the books of accounts. 2.1 In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has failed to appreciate that the books of accounts have been regularly audited by the independent Auditors and in their opinion the appellant has maintained the proper books of account as required by the law and are in conformity with the Accounting Standards generally accepted in India, and therefore Ld. CIT(A) was not justified in upholding the addition made by the Assessing Officer who has not rejected such books of accounts u/s. 145(3) of the Income Tax Act, 1961. 2.2 In law and in the facts and circumstances of the appellant's case, the Id. CIT(A) has erred in upholding the addition without appreciating the fact that no such addition can be made in the view of the decision of Hon'ble Tribunal in the case of ACIT Vs. Mercury Metals (P) Ltd, 90TTJ 156. From the perusal of the aforesaid facts, it can be very well inferred that •the said addition on account of the deficit in stock found during the course of survey accordingly sustained by the Ld. CIT(A) is futile & infructuous, therefore, eventually deserves to be deleted.
3. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
The only effective ground of appeal raised by the assessee is that the learned CIT (A) erred in confirming the addition made by the AO for Rs. 33,50,310/- representing the gross profit on the deficit of stock.
The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of manufacturing of cold process castor oil and other byproducts. There was a survey operation under section 133A of the Act on the premises of the assessee and its associate namely Banpal Agrotech Private Ltd. Dated 23rd July 2009. In the course of survey operation, a deficit of stock for Rs. 5,58,38,500/- was found and the assessee agreed to make an offer of the gross profit amounting to Rs. 33,50,310/- to tax on the assumption that such deficit of the stock has been sold outside the books of accounts.
4.1 Besides the above, the assessee has also agreed to offer an income of Rs. 2 crores on behalf of its group to cover up the other transactions. The assessee in the return of income has disclosed the income of Rs. 2 crores but it did not offer the income of Rs. 33,50,310/- being gross profit on the unaccounted sales. It was explained by the assessee that the amount of disclosure of Rs. 2 crores includes the element of profit embedded in the unaccounted sales, deficit in stock and other transactions. Thus the assessee contended that there was no need to make any separate addition for the amount of profit embedded in such unaccounted sales.
4.2 However, the AO disagreed with the contention of the assessee on the reasoning that the amount offered by the assessee as income of Rs. 2 crores is independent and distinct from the amount of gross profit which was agreed to offer to tax on account of unaccounted sales. As per the AO, if it is assumed that the proceeds of unaccounted sales has been utilized for the impugned cash transactions of Rs. 2 crores, then how the assessee is effecting the purchases. If that be so, then it is inferred that the assessee has made purchases from the accounted sources and made the sales which was not recorded in the books of accounts. In such a situation, there will be huge crunch of cash for the proper functioning of the business. In the case of unaccounted sales, it is assumed that the assessee has made unaccounted purchases out of the proceeds of unaccounted sales. Thus the AO rejected the contention of the assessee and confirmed the addition of Rs. 33,50,310/- by adding to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT-A
The assessee before the learned CIT (A) submitted that the amount of income of Rs. 2 crores which was offered to tax was based on the peak application. The source of such application was the unaccounted sales only. Accordingly, the benefit of telescoping against such disclosure of Rs. 2 crores for the amount of gross profit embedded in the unaccounted sales should be given.
6.1 At the time of survey, there was not found any unaccounted assets except the noting and jottings which were representing the transactions of unaccounted sales. Accordingly, the income of Rs. 2 crores was offered to cover up such deficiencies i.e. unaccounted sales, deficit of stock and other cash transactions. It was also submitted by the assessee that the director in the statement recorded at the time of survey has categorically submitted that the disclosure of Rs. 2 crores includes stock discrepancy, unaccounted sales and other miscellaneous deficiencies. Thus as per the assessee no separate addition is warranted.
6.2 However, the learned CIT (A) rejected the contention of the assessee by observing that the assessee itself has admitted in the statement to offer such amount of gross profit to tax which was not retracted. Accordingly there was no reason for the assessee for not offering such amount of gross profit in the income tax return.
6.3 As per the learned CIT (A) the disclosure of Rs. 2 crores was representing the addition pertaining to the peak transactions of Rs. 3,30,88,569/- in assessment year 2006-07, 2007-08 and 2009-10. Accordingly the contention of the assessee that the amount of gross profit has already been covered up in the disclosure made for Rs. 2 crores is not acceptable.
The learned CIT(A) also observed as under: The Appellant has also raised additional pleas that excess stock found during the course of survey is already considered in subsequent sale or part of closing stock hence no addition pertaining to gross profit on above referred deficit stock can be made. This argument of Appellant cannot be accepted on the ground that there was specific discrepancy found during
the course of survey and same was admitted by Director of Appellant. The deficiency in stock has to be considered on specific date and subsequent transactions cannot have effect that there was no discrepancy in stock unless Appellant produces material and cognent evidences to substantiate its claim. The Appellant has made general statement and not proved that closing stock as on 31st March, 2010 or sales made subsequent to survey are part of excess stock found during the course of survey. Considering the fact discussed herein above, addition of Rs.33,50,310/- made by Assessing Officer for deficit of stock is confirmed. This ground of appeal as well as both the additional grounds No.2 & 3 of appeal are dismissed.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 64 and contended that the disclosure made for Rs. 2 crores includes the element of profit embedded in the unaccounted sale. Therefore there cannot be any separate addition for the gross profit embedded therein.
On the contrary, the learned DR before us vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we find that the assessee has made a disclosure of Rs. 2 crores during the survey operation conducted at the premises of the assessee under section 133-A of the Act. As per the assessee such disclosure was made to cover up the transactions of unaccounted sales, deficit of stock and other cash transactions. Accordingly, it was contended that there cannot be any separate addition to the total income of the assessee for Rs. 33,50,310/- representing the gross profit on the unaccounted sales.
11.1 The limited controversy that arises before us for adjudication whether the disclosure made by the assessee during the survey operation for an amount of Rs. 2 crores includes the amount of gross profit on the unaccounted sales. Both the authorities below have given concurrent finding that addition of Rs. 2 crores is distinct and independent to the amount of gross profit of Rs. 33,50,310/- on the unaccounted sales which was also agreed by the assessee during the survey operation. Admittedly, the appeal before us has been filed by the assessee and therefore the onus lies upon the assessee to establish that the amount of gross profit of Rs. 33,50,310/- is part and parcel of the disclosure made by the assessee for Rs. 2 crores based on the documentary evidence. At the time of hearing, a question was posed to the learned AR to draw our attention on the documents to demonstrate the cash transactions based on which the disclosure of Rs. 2 crores was made. The purpose of verifying such documents was to see whether it contains any transactions of the unaccounted sales. However, the assessee failed to produce the same before us. In other words, the assessee has not discharged its onus by producing the primary documents in support of its contention. The primary onus lies on the person who asserts the preposition and not on the person who denies.
11.2 Moving further, the learned AR at the time of hearing drew our attention on the letter dated NIL written by the director of the company to justify that the disclosure of Rs. 2 crores includes the transactions of the unaccounted sales. The copy of the letter is placed on pages 38 to 44 of the paper book. We have gone through the letter furnished by the director of the assessee company. In such letter, we note that there was the discussion and admission of the unaccounted sales. Likewise, the addition of Rs. 2 crores which was offered to tax in the letter, the language of the same reads as under: In addition to the above, to the best of my recollection, as stated hereinabove earlier, as I was not present during the course of survey I am not aware as to what records were found from the various business premises of the group. However, it was during the course of the statement some seized material by way of a Kuchcha noting and jotting was shown to me and was stated by the officers to have been found from our premises and my explanation was sought for. I had at that time itself stated that the same did not £ belong to the group. In order not to raise any further issue on this subject and further to buy peace and avoid long drawn litigation in this connection as, we may not be able to get confirmations to the fullest satisfaction of the Department in connection with the seized material I, as Chairman and Managing Director of the group companies hereby state that the peak which may be worked out on the basis of such seized material which can be considered as applications and accordingly such peak is being offered to tax. In this connection, a rough working has been carried out with reference to such materials and the peak which works cut to around Rs.2.00 crores is accordingly being offered to tax to buy peace and avoid long drawn litigation for the circumstances narrated hereinabove.
As will be appreciated from the above and as stated hereinabove, vide this communication I, as Chairman and Managing Director of the group companies accordingly offer a sum of Rs.2.00 crores as the aggregate income of the group to tax covering all the details and discrepancies referred to hereinabove being the higher of the various alternatives referred to hereinabove. The income offered to tax is largely referable to the accounting year relevant to A.Y. 2010-11 and necessary tax on such income offered shall be duly paid after detailed working has been done.
11.3 From the impugned letter, it is revealed that it starts with the words “in addition to the above”. These words suggest that the additions of Rs. 2 crores has been made by the assessee besides the disclosure of Rs. 33,50,310/- only. Moreover, we find that the assessee failed to provide the primary documents to appreciate whether the cash transactions is inclusive of unaccounted sales. Therefore, we are not inclined to concur with the arguments of the learned counsel for the assessee. Hence, in the given facts and circumstances, particularly in the absence of the primary documents, we are not inclined to interfere in the finding of the authorities below. Hence the ground of appeal of the assessee is hereby dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 23/03/2022 at Ahmedabad.