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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Shri S.S. Viswanethra Ravi, JM]
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-XXX, Kolkata [in short the ld CIT(A)] in Appeal No. 345/CIT(A)-XXX/Cir-48/2010-11 dated 20.12.2012 against the order passed by the DCIT, Circle-48, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 27.12.2010 for the Assessment Year 2008-09.
M/s G.M. Dalui & Sons A.Yr.2008-09 2. The only issue involved in this appeal is as to whether the ld. CIT(A) was justified in confirming the addition of Rs. 23,54,000/- made towards discrepancy in stock in the facts and circumstances of the case.
The brief facts of this appeal is that the assessee is a partnership firm, engaged in the business of manufacturing and trading of corks and valves. The assessee firm filed its return of income for assessment year 2008-09 on 30.09.2008 declaring total income of Rs. 16,11,620/-. The assessee firm was taken over by M/s G.M Dalui & Sons Pvt. Ltd. vide memorandum dated 11.03.2008 on ‘as is where is basis’. In other words, the existing partnership firm i.e. G.M Dalui & Sons with all its assets and liabilities became vested with the assets and liabilities of G. M. Dalui & Sons w.e.f. 01.04.2008. The assessment was framed in the hands of assessee firm for the transactions up to 31.03.2008. Similarly, the Appellate order was passed by the ld. CIT(A) in the name of G.M. Dalui & Sons (firm). The assessee had filed revised form 36 before us in the name of G.M Dalui & Sons Pvt. Ltd. (formerly G.M. Dalui & Sons). Hence we are proceeding to dispose off this appeal by mentioning the name of the assessee as G.M. Dalui & Sons Pvt. Ltd (formerly G.M Dalui & Sons) as successor to firm.
A survey u/s 133A of the Act was conducted at the business premises of the assessee on 22.02.2008. During the survey, on physical verification of stock of goods, it was found that 202 pieces of various sizes and makes valued at Rs. 23,54,000/- in excess. The daily stock account showed production undertaken up to 14.02.2008 at 13,461 pieces of various sizes and makes like sluice valves, butterfly valves, air valves etc. The physical stock of semi finished goods numbering to 202 pieces valued at Rs. 23,54,000/- was found in excess than the book stock. When confronted in this regard at the time of survey, the assessee, represented by its partner Shri Nirmal Kr. Dalui, did not offer any comment for the stock discrepancy but had volunteered to pay Rs. 7,00,000/- as taxes for which he issued three cheques encashable by 31.03.2008. During 2
M/s G.M. Dalui & Sons A.Yr.2008-09 the course of assessment proceedings, the ld. AO asked the assessee to explain this discrepancy in stock . The assessee explained 202 pieces was not complete set of valves but those are components required to make full set of valves and it comes under C.I. casting and G.M. Casting and these were not semi finished goods but were treated as raw material. The assessee therefore argued that the view taken by the survey team was not correct. It was argued that the tax paid in the sum of Rs. 7,00,000/- towards advance tax was in respect of regular income of the assessee. It was also argued that the assessee had taken into account the stock discrepancy in its final audited accounts filed for the year ended 31.03.2008 . It was argued that since the closing stock as on 31.03.2008 was valued basis on physical stock as on 31.03.2008 there is no need for making any separate addition towards excess stock in the sum of Rs. 23,54,000/- found at the time of survey. The ld. AO observed that the assessee did not furnish any supporting evidences in support of its contentions. Accordingly, he proceeded to treat the excess physical stock found in respect of 202 pieces valued at 23,54,000/- as unrecorded stock by the assessee and added the same to the total income of the assessee. The ld. CIT(A) upheld the action of the ld. AO. Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions. We find that the effective plea taken by the ld. AR was that the excess stock found in the sum of Rs. 23,54,000/- on the date of survey was duly considered by the assessee in the audited accounts prepared as on 31.03.2008 inasmuch as the closing stock as on 31.03.2008 was valued by the assessee based on physical stock verification thereon. He argued that the books produced by the assessee comprising of statutory registers, cash books, ledger and stock register were not rejected by the ld. AO. He argued that there was no discrepancy found by the ld. AO with regard to cash, sundry creditors, sundry debtors etc. of the assessee. He further argued that the assessee firm was taken over by a private limited company M/s G.M. Dalui & Sons Pvt Ltd with effect from 01.04.2008 on ‘as is where is basis’ and that the said private 3
M/s G.M. Dalui & Sons A.Yr.2008-09 limited company had taken over the entire assets and liabilities of the assessee firm which admittedly included the physical stocks found as on 31.03.2008. The ld. AR argued that the said private limited company did not find any discrepancy in the takeover of assets of the assessee firm. In this regard, he has placed on record the balance sheet of G.M Dalui & Sons. Pvt. Ltd. as on 31.03.2009 which squarely reflected the stocks transferred from assessee firm in the relevant schedules annexed to the audited financial statements. We have gone through the audited balance sheet of the assessee firm as on 31.03.2008 wherein closing stock of raw material, the semi finished goods and miscellaneous stores as on 31.03.2008 were reflected at Rs. 40374510.51/-. We find from the balance sheet as on 31.03.2009 of M/s G.M Dalui & Co. Pvt. Ltd, the opening stock as on 01.04.2008 of raw materials and semi finished goods and other stores transferred from assessee firm was also reflected only at Rs. 40374510.51/-. This goes to prove that the closing stock as appearing in the assessee firm books as on 31.03.2008 at Rs. 40374510.51/- was considered as opening stock as on 01.04.2008 in the books of the private limited company. Hence any addition made in the hands of the assessee firm towards the excess closing stock in the sum of Rs. 23,54,000/-, automatically would have an impact in the opening stock of the private limited company as on 01.04.2008 for the very same sum. At the time of hearing, we directed the ld. AR to prove with some cogent evidences in support of his arguments that closing stock as on 31.03.2008 was valued based on physical verification of stocks in the hands of assessee firm as on 31.03.2008. In this regard, the Bench directed the ld. AR to furnish the physical stock verification report together with its valuation thereon to drive home the point that the excess stock of 202 pieces found in the course of survey had been duly considered for the purpose of closing stock value by the assessee firm as on 31.3.2008. The ld. AR expressed his inability to furnish the said stock physical verification report in view of the huge lapse of time as the issue pertains to assessment year 2008-09. However he made an alternative plea later that let this addition towards closing stock be sustained in the hands of the assessee firm for assessment year 2008-09 4
M/s G.M. Dalui & Sons A.Yr.2008-09 and let there be a direction to the ld. AO to give corresponding credit by increasing the value of opening stock as on 01.04.2008 in the hands of the private limited company. We find lot of force in this alternative plea of the ld. AR as admittedly the private limited company had become the successor to the assessee firm with effect from 01.04.2008. Hence any addition towards closing stock made in the assessee firm would automatically impact in the hands of successor private limited company as it is not in dispute that the entire assets and liabilities of the assessee firm were taken over by the private limited company on ‘as is where is basis’. In view of the aforesaid observations, we hold that the addition made in the sum of Rs. 23,54,000/- towards closing stock is required to be sustained in the hands of the assessee firm in assessment year 2008-09 and correspondingly the ld. AO is directed to increase the opening stock as on 01.04.2008 in the hands of the private limited company. Accordingly, grounds raised by the assessee is dismissed subject to direction contained hereinabove.
In the result, the appeal of the assessee is dismissed subject to direction contained hereinabove.
Order pronounced in the Court on 05.09.2018