SANDEE IMPEX,NEW DELHI vs. ACIT CIRCLE-29(1), NEW DELHI
Income Tax Appellate Tribunal, DELHI BENCH: ‘G’: NEW DELHI
Before: SHRI ANUBHAV SHARMA
PER MANISH AGARWAL, AM:
This appeal is preferred by the Assessee against the order of Commissioner of Income- Tax (Appeals)- 25, New Delhi, (hereinafter referred to as ‘Ld. CIT(A)’) in appeal no. 25/10137/19-20 dated
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02.2020. The assessee has challenged the appellate order on the following grounds of appeal: “1. On the facts and circumstances of the case, the order passed by the Ld. Commissioner of Income Tax (Appeals) (CIT(A)] is bad both in the eye of law and on facts. 2(i) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the action of AO who made addition amounting to Rs. 43,88,755/- on account of difference of stock valuation given to bank for credit facility. (ii) That the Ld. CIT(A) has erred both on facts and in law in rejecting the explanation and evidences brought on record by the assessee 3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the 10% adhoc disallowance on account of i. Telephone expenses. ii. Staff welfare expenses, iii. Office maintenance expenses, iv. IV. Diwali expenses, and v. V Business promotion expenses.
(ii) That the Ld. CIT(A) has erred both on facts and in law in rejecting the explanation and evidences brought on record by the assessee.
4. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making the above said addition rejecting the explanation and evidences filed by the assessee to explain the difference in stock.
5. That the appellant craves lead to add, amend or alter any of the grounds of appeal.”
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Ground no. 1 is general in nature. 3. Ground nos. 2 to 2.1 and 4 are in relation to the addition of Rs. 43,88,755/- made by the Assessing Officer on account of difference between the physical stock and the stock position submitted to the bank, which were held as unexplained stock by the AO. In the first appeal, the Ld. CIT(A) confirmed the addition. Thus, the present appeal has been filed before us on this issue. 3.1 During the course of hearing, the Ld. AR submitted that a survey u/s 133A of the Act was carried out at the business premises of the assessee on 17.03.2015, during which the details of the stock submitted before the bank was found and impounded. As per the said statement, the value of the closing stock submitted to the bank as on 31.01.2015 was Rs. 1,47,96,000/-, and after considering the purchases made thereafter, between the period from 01.02.2015 to 17.03.2015, and the cost of goods sold during this period, the AO worked out the existence of excess stock of Rs. 43,88,755/- being the difference between stock position as on date of survey as computed by AO and the value of stock physically found.
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2 During the course of survey, the stock of the physically verified which was valued at Rs. 60,87,362/-. The Ld. AR submitted that the stock statement submitted to the bank should not be taken as sacrosanct, as normally the stock value provided to the bank shows inflated prices of stocks in order to avail larger bank limits. The assessee has maintained regular books of account, including stocks register, and therefore, the stock valuation as per the books of account need to be considered as against the stock valuation given to the bank. It was further submitted that the managing partner, during the course of survey, admitted in his statement recorded on oath the stock found in excess as unexplained. However, such statement was retracted vide letter dated 01.12.2017 filed on 04.12.2017. She further placed reliance on the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Dhingra Metal Works (2010) 328 ITR 384 (Del.), wherein the Hon’ble court has held that if the assessee has been able to explain the difference in stock during the course of survey, the AO could not have made the addition solely on the basis of statements of the assessee recorded during the course of survey. She further placed reliance on the judgment of the Hon’ble Gujrat
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1,08,29,830/- and submits that due the inflation in the value of stock given to the bank, there was no difference between the stock as per books and physical stock actually found during the survey.
Therefore, no addition is required to be made, and she, therefore, prayed for the deletion of the addition so made.
4. On the other hand, the Ld. Sr. DR supported the order of the lower authorities and submitted that during the course of the survey, the stock physically verified was valued at Rs. 60,87,362/-, as against which the stocks statement submitted to the bank contained the corresponding value as on 31.01.2015 at Rs.
1,47,96,000/- and corresponding value of stock value as per books of account was Rs. 1,08,29,830/-. He further submitted that the ITA No.- 1830/Del/2020
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AO, while computing the stock as on the date of survey, has been fair enough in allowing the adjustments with regard to the purchases as well as the cost of goods sold during the period from 01.02.2015 to 17.03.2015 and assessee has not been able to controvert such findings of AO. Therefore, the addition made by the AO is correct, and he prayed accordingly.
5. We have heard the rival submissions and perused the material available on record. In the instant case, we find that the addition is solely based on the valuation of stock submitted to the bank as on 31.01.2015, according to which the stock was valued at Rs.
1,47,96,000/- as against the stock as per the books of account at Rs. 10,829,830/-. The AO has allowed an adjustment on account of purchases made during the period from 01.02.2015 to 17.03.2015 of Rs. 5,43,085/- and further allowed a reduction on account of the cost of goods sold during this period at Rs.
48,62,968/-, to arrive at the stock as on the date of the survey at Rs. 1,04,76,117/-. The stock as per the physical verification conducted as on the date of survey was of Rs. 60,87,362/-.
Therefore, the AO made an addition of Rs. 4348758/-, being the ITA No.- 1830/Del/2020
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difference between the stock submitted to bank and the stock found during the course of the survey. When the assessee is maintaining regular books of account and day-to-day stock register is maintained, and no discrepancies were pointed out in such stock records, nor the books of accounts have been doubted. The AO, under these circumstances, should have been considered the stock as on 31.01.2015 as per the books of accounts and not as per the valuation given to the banker, which normally inflated for the reasons that in order to avail the larger bank credits. The Hon’ble
Gujarat High Court in the case of Avi Polymers Limited (supra) also held that no addition could be made on account of difference between the stocks as per the books and the stocks statements submitted to the bank. Therefore, we are of the view that, for computing the stocks position as per the books of accounts as on the date of survey, the AO should have taken into consideration the stocks as per the books of accounts as on 31.01.2015, as against the stocks as per the statement submitted before the bank.
6. Now, coming to the amount of addition, if the value of the stock as per the books of account as on 31.01.2015 is replaced, and ITA No.- 1830/Del/2020
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further adjustments for purchases and the cost of goods sold during the period from 01.02.2015 and 17.03.2015 are made, the stock as on 17.03.2015 would be of Rs. 6509947/-, which is calculated as under:
If the stocks as per the physical valuation of Rs. 60,87,362/- is reduced, the difference comes to Rs. 422585, which is less than 10% of the stock physically found and valued by survey authorities. This difference could be for the reason that the valuation at the time of survey was based on an estimate value stated / informed by the assessee without referring to the bills and vouchers, in this regard. Therefore, such difference is nothing but due to such Value of stock as per books as on 31.01.2015 10829830/- Add: Purchases during 01.02.2015 to 17.03.2015 543085/-
Total
11372915/-
Less: Cost of Fabric and raw material in respect of sales made during
01.02.2015 to 17.03.2015 @ 50% of Rs. 97,25,936/-
4862968/-
Stock as on 17.03.2015
6509947/-
Less:
stock as per physical verification as on 17.03.15
6087362/-
Difference in stock
422585/-
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estimation. In view of these facts, we find that the stock of the assessee as on the date of survey was in parity with the stock physically found and, therefore, no addition is required to be made, and accordingly, the assessee will get the relief of Rs. 43,88,755/-.
7.1 As the result, these grounds of assessee’s appeal are allowed.
8. Ground no. 3 is relation to disallowance of Rs. 2,63,163/- made on account of various expenses @ 10% for possible personal purposes. In this regard from the perusal of the assessment order, we find that while making the disallowance, the AO, on the assumption and presumption, has observed that the possibility of utilising of these expenses for personal purposes cannot be denied.
The Ld. CIT(A) concurred with the findings of the AO without going into the merits. After going through the orders of the lower authorities, we find that no single instant of personal use were pointed out by the AO and only on whims and fancies, the disallowance were made. Looking to these facts, we are of the view that no disallowance can be made in the present case of the assessee, more particularly, when there was a survey carried out in the case of the assessee, and revenue has failed to bring any ITA No.- 1830/Del/2020
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evidence of personal use gathered as a result of survey. As the result, ground of assessee’s appeal is allowed.
9. In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 21.02.2025 (ANUBHAV SHARMA)
ACCOUNTANT MEMBER
Dated: 21/02/2025. Pooja/-