M/S. STAR WIRE (INDIA) LIMITED,,NEW DELHI vs. ACIT, NEW DELHI

The assessee is aggrieved by levy of penalty of Rs. 1,35,960/- on account of difference in the stock found during the course of survey conducted at the business premises of the assessee.

The facts in brief are that qua the issue involved are that, during the course of search operation conducted at the business premises of the assessee, inventory of stock was prepared wherein it was found that the total stock as per books of accounts was found was at Rs. 1,93,34,313/-, whereas on physical verification as per inventory prepared by the survey team, the total value of the stock found was Rs. 2,03,82,632/-, thus, excess stock of Rs. 10,48,319/- was determined. In the statement of the Director recorded during the course of survey operation, it was explained that reason of difference in stock was due to manner in which quantification of steel items was done and by adopting the market rate. Further in the course of assessment proceedings the reason for difference was also explained that value adopted for valuation by the search team was not correct as it was not based on cost price. However, the search team has inventorised the stock of the assessee company consisting of 728.8 M.T. and applied the average rate of sale. Ld. AO held that assessee has failed to substantiate the said difference and added back the amount of Rs. 10,48,319/-. In the quantum appeal before Ld. CIT (A), the said disallowance was reduced on the ground that, only with regard to 16 M.T., assessee could not give proper explanation and hence difference was worked out to Rs. 4 lacs by the Ld. CIT (A). Based on the fact that addition of Rs. 4 lacs has been sustained, Ld. AO has levied the penalty of Rs. 1,35,960/-.

Ld. CIT(A) too has confirmed the said penalty on the ground that Ld. CIT(A) in the quantum proceedings has quantified the excess stock of Rs. 4 lacs and therefore, assessee is liable for the penalty u/s 271(1)(c) for concealment of income as detected during the survey.

Before us, Ld. Counsel for the assessee, first of all submitted that the addition on account of difference in the stock has been reduced substantially by the Ld. CIT (A) and the difference is only with regard to 16 M.T. This difference is also for the reason that the value adopted by the survey team by applying the average rate was not correct. He further pointed out that manufacturing of steel are subject to Central Excise laws and all the necessary stock register was prepared as per the Excise requirement. As per the register maintained, the weight, value of the stock and the rate was duly given which showed that assessee had a stock of the value of Rs. 1,93,34,313/-. The value adopted by the survey team was partly based on purchase voucher and partly based at the market rate. He also pointed out certain items mentioned at serial Nos. 2, 3 and 7 of the inventory list which have been valued at rate of Rs. 28,000/- per M.T. was actually within the range of Rs. 21,400/- per M.T. Further, the search team has prepared the list of stock on lump sum basis and therefore, such a minor difference cannot be the subject matter of penalty. For instance, he pointed out that the search team has found a bundle of 69 billets and one of the billets was weighed and after applying the multiple of 69, the weight was computed and adopted for all the bundles and in this process in excess weight of 16 M.T. was arrived at. There is no allegation that purchases have been found to be unrecorded or stock found are not supported by any purchase voucher. Thus, the only difference is on account of method for computing the excess stock by the search team. Hence, he submitted that no penalty should be levied.

On the other hand, Ld. DR strongly relied upon the order of Ld. CIT (A) and submitted that there was specific detection of excess stock which fact has been confirmed and hence it tantamount to concealing of income, therefore, penalty has rightly been levied.

We have heard the rival submission and perused the relevant material referred to before us. The assessee company was engaged in the business of converting steel scrap into ingots of spring steel/allow steel and liquid metal for costing division. During the search operation carried out in the business premises, inventory of stock was prepared and it was found that there was a difference in the stock recorded in the books of accounts which was at Rs.1,93,34,313/- and the actual stock found at the site was Rs. 2,03,82,636/-. This difference of Rs. 10.48 lacs has been reduced by the Ld. CIT (A) in the quantum proceedings to Rs. 4 lacs. It is not in dispute that stock is excisable product for which assessee has to maintain stock register under the Excise Act which are duly monitored from time to time. Though in the quantum proceedings addition has been confirmed on account of excess stock, however, in the penalty proceedings before the AO as well as before the Ld. CIT(A), it was submitted that, firstly, the value adopted by the search party was partly based on the purchase vouchers and partly based at the market rate and it was also pointed out that for certain items the value was taken on higher side as against the purchase value; secondly, the list of stock was prepared by the search team on lump sum basis, because the survey team found a bundle of 69 billets and one of the billets was weighed and depending upon the weight of billets the multiple of weight of 69 was applied for all the bundles; and lastly, there is no allegation by the survey team or by the AO that the purchases were unrecorded or stock found were not found supported by the purchase vouchers. These explanations have not been rebutted either by the AO or by the Ld. CIT (A) with proper material fact. In the penalty proceedings, the penalty has been levied and confirmed purely on the ground that an amount of Rs. 4 lacs has been confirmed by the Ld. CIT (A). If in the penalty proceedings it has been pointed out that the survey team has valued