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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM & DR. A.L.SAINI, AM
19, BiplabiAnukul Ch. Street, Kolkata 3, Govt. Place (West), Kolkata – – 72. 1. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AACFV 4761 H (Assessee) .. (Revenue) Assesseeby :Shri Manish Tiwari, FCA. Revenue by : Shri S. Dasgupta, Addl. CIT(DR). सुनवाईक�तार�ख/ Date of Hearing : 29/05/2018 घोषणाक�तार�ख/Date of Pronouncement : 27/07/2018 आदेश / O R D E R Per Dr. A. L. Saini: The captioned Cross-Appeals filed by the Revenue and Assessee, pertaining to Assessment Year 2011-12, are directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-XXXVI, Kolkata,which in turn arise out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 29.03.2014.
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12
Since these cross appeals filed by the Revenue and Assessee, pertains to same assessee, identical issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
The grievances raised by the Revenue (in for Assessment Year 2011-12are as follows:
“In the instant case, A.O. in course of assessment included Rs.49,88,155/- on account of undervaluation of closing stock and Rs.3,39,55,396/- on account of overstated S/Creditors and Advance from parties in computing the total income of the assessee. Aggrieved by the order of assessing Officer, the assessee preferred an appeal before the Ld CIT(A)-XXXVI, Kolkata. Ld. CIT(A) called for the remand report from the A.O. on both issues and the erstwhile A.O. confirmed the additions in a remand report. On the basis of said remand report CIT(A) has confirmed the additions of Rs. Rs.49,88,155/- on account of undervaluation of closing stock. On the other ground, Ld. CIT(A) has observed that the differences of S/Creditors and advance from parties between the accounts impounded during survey and the return filed by the assessee are only Rs.2,28,193/- and Rs.2,20,000/-respectively. Accordingly, he confirmed the addition of Rs. 4,48,000/- granted relief of Rs. 3,35,07,396/-.”
The grievances raised by the assessee in Assessment Year 2011-12 are as follows:
“1. That on the facts and in the circumstances of the case, the Ld. C.I.T.(Appeals) is wrong and unjustified in confirming the action of Assessing Officer who made an addition of Rs.49,88,155/- towards undervaluation of closing stock.
2. That on the facts and in the circumstances of the case, the Ld. C.I.T.(Appeals) has erred in holding that liability towards sundry creditors and advance from parties was overstated by aggregate figure of Rs.4,48,000/- and thereby sustaining addition to that extent.
3. That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal.”
Ground No.1 raised by the Revenue and Ground No.1 raised by the assessee relate to undervaluation of closing stock amounting to Rs.49,88,155/-.
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12
The brief facts qua the issue are that a survey operation u/s 133A(1) of the I.T. Act, 1961, was conducted in the business premises of the assessee on 13.11..2013. During the course of survey operation the Central Processing Unit (CPU) of the computer installed in the said business premises was impounded. Within seven days of concluding the survey operation, the assessee had applied for the copy of accounts maintained in the referred CPU which was accepted and the assessee was allowed to take the entire extracts of accounts maintained in the impounded CPU. The assessee did not make any objection of the computerized accounts. Thereafter, the Ld AO made a comparison chart of some of the main components of Profit & Loss account for the A.Y 2011-12, between the e-filed return and that of the computerized accounts of the computer installed in the business premises of the assessee as follows:
As per e-filing return As per computerized accounts maintained in the installed computer in the business premises Opening Stock 5,67,55,216.81 5,61,55,105.46 Purchase 17,08,25,280.09 17,08,25,280.09 Sales 20,63,44,082.25 20,63,44,082.25 Interest on Income Tax 59,250.00 59,250.00 Refund Contractor charges 1,50,000.00 1,50,000.00 Coolie & Cartage 53.425.00 53,425.00 Labour Charges 77,000.00 77,000.00 Supervision Charges 50,110.00 50,110.00 Transport Charges 6,01,901.00 6.00,911.00 Commission 1,50,000.00 1,50,000.00 Interest on bank loan 23,98,027.97 23,98,027.97 Interest on loan 27,37,838.00 27,37,838.00 Electricity Charges 1,62,720.00 1,62,720.00 Partner’s remuneration 2,40,000.00 2,40,000.00 Closing Stock 2,97,78,896.93 3,47,67,051.85 The assessing officer compared the differences in valuation of a fewitems of closing stock which were physically countable easily between the e-filed return and that of the computerized accounts of the computer installed in the business premises of the assessee, which are as follows: Page | 3
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12 Sl. Particulars As per e-filing return As per computerized No. accounts maintained in the installed computer in the business premises 1. Diesel Generator Set 5,77,793.00 10,77,793.00 2. Electric Motor 59,25,231.00 93,33,914.28 3. Machinery & Spare parts 8,00,026.88 8,14,714.67 4. Engine 2,35,410.00 4,55,917.19 5. Oil Filter Machine 8,81,260.00 18,81,260.00 6. Plant & Machinery 48,80,181.60 58,80,181.60 7. Starter 45,921.00 2,42,159.48 8. Transformer 2,22,450.00 27,84,883.34 After going through the above mentioned chart, the ld AO noted that it is easily understandable that the assessee had intentionally understated the valuation of closing stock in order to understate the profit component and that the assessee maintains two sets of accounts; one for submission before the department and the other one that represents the true picture of transactions.
The assessing officer noted that as per clause (i) of subsection (1) of section 292C where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 or survey under section 133A, it may, in any proceeding under this Act, be presumed, that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person.
Therefore, the difference of closing stock valuation of Rs.49,88,155/- [Rs.3,47,67,051/- - Rs.2,97,78,896] was added back to the total income of the assessee.
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) without any success. The ld CIT(A) observed that it was admitted by Managing Partner of the firm that no stock register was maintained. In order words the closing stock was shown on estimation. The plea taken by assessee that the difference between closing stock was done due to migration from one generation of Tally package to another has Page | 4
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12 been conclusively rebutted by A.O by pointing out that there was no difference in any other item as seen from the impounded computerized document and the figures appearing in e-filed return, other than closing stock. Further the A.O has elaborated the fact in his order that the closing stock difference was due to the fact that different valuation has been given to various items consisting the closing stock namely, Diesel Generator Set, Electric Motor etc. in the computerized a/c found during survey and the one filed in the e-filed return. Thus, it was clear that the assessee had maintained correct valuation for his own record and shown lesser valuation while filing return to reduce profit and therefore ld CIT(A) confirmed the addition made by Assessing Officer to the tune of Rs.49,88,155/-.
Aggrieved by the order of the ld. CIT(A), the Assessee, as well as Revenue both arein appeals before us.
The ld. Counsel for the assessee begins by pointing out that the ldA.O had no concrete material/evidence on record to prove that the assessee had undervalued its closing stock which was physically verified and estimation made. The assessee was migrating the data from tally 6 to tally 9 and in this process of migration most of the stock were data lost and irrelevant data crept in the software, hence the difference between the physical stock and computerized stock occurred. The assessee has in his possession, the complete details of stock vide Paper book page 48 to 51. Therefore, the closing stock shown by the assessee in its profit and loss account and balance sheet to the tune of Rs. 2,97,78,896/- should be taken as correct value of closing stock.
On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that a major portion of the assessee`s business consist of purchasing scrap materials from different parties and organizations and sale them to different parties and in most of scrap purchases Page | 5
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12 through auction stock remains in the place of those parties from whom scrap materials are purchased for a considerable period after the auction. We are told by ldCounsel that in the assessee`s line of business to maintain day to day stock register is difficult, for the simple reason that the assessee purchases an entire lot from the auction wherein it is not practically feasible to quantify specific items lying at the various customer's sites, the scrap of which have been purchased. We do not agree with the counsel`s view that in the assessee`s line of businessto maintain day to day stock register is difficult. On what basis the assessee has shown amount in the profit and loss account, if the assessee is not maintaining stock register. We note that if the maintenance of stock register is not possible quantitative wise, it can be maintained lot-wise or amount-wise.
We note that a survey u/s. 133A(1) of the I.T. Act, 1961, was conducted in the business premises of M/s. Vishnu Engineering Corporation located at 19, BiplabiAnukul Chandra St., Kolkata – 700072, on 13.11.2013. During the survey operation the assessee's books of accounts which were maintained in the computer installed in the business premises had been examined. The print out of the computerized books of accounts maintained in the computer installed in the referred business premises were taken and the same was duly signed by Sri Vishnu Narayan Guptu, the Managing partner of the assessee firm.The stock valuation of the computerized maintained accounts for the assessment year 2011-12 completely contradicts with the stock valuation as shown in the e-filed return of the assessee for the assessment year 2011-12. As per the Profit & Loss account and Balance Sheet which was filed along with the e-filed return of theassessee for the assessment year 2011-12, the assessee had valued its 'Closing Stock' at Rs.2,97,78,896/- whereas the computerized accounts maintained by the assessee in the computer installed in the business premises shown at Rs.3,47,67,051/-, hence the stock difference determined by the survey team was to the tune of Rs. 49,88,155 (Rs.3,47,67,051- Rs.2,97,78,896).
We note that the said difference is admittedly between the figures available in assessee`s computer and figure mentioned in the profit and loss account of the Page | 6
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12 assessee for the year ending 31st March 2011.We also note that during the course of Survey from the computerized account extracted from the computer, it was seen that closing stock as on the end of the year had been suppressed by Rs.49,88,155/-. The plea taken by assessee that the difference between closing stock was due to migration from one generation of Tally package to anothergeneration (Computer).Therefore, we are of the view that a reconciliation statement may be submitted by the assessee to reconcile the numbers written in the profit and loss account and the numbers written in the computer on the date of survey explaining the data lost during migration of Tally package.
Considering entirety of the facts and circumstances of the case and the material on record, we direct the assessee to submit reconciliation statement before the ld AO, showing reconciliation between stock shown in the profit and loss account and stock shown in computer and we also direct the ld AO to examine the reconciliation and adjudicate the issue in accordance with law, therefore, we allow this issue raised by the assesseein ground No. 1 in and ground No.1 raised by the Revenue in ITA No. 36/Kol/2016, for statistical purposes.
Ground No.2 raised by the assessee which relates liability towards sundry creditors and advance from parties was overstated by aggregate value of Rs.4,48,000/- thereby sustaining addition to that extent. The Revenue is in cross- appeal on this issue in ITA No.36/Kol/2015.
The brief facts qua the issue are that during the assessment proceedings the ld AO noted that amount of liabilities shown in the Balance Sheet was different in the computer account extracts of the computer installed in the business premises of the assessee. The details are given below:
Sl. Particulars As per e-filing As per Difference No. return computerized accounts Page | 7
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12 maintained in the installed computer in the business premises 1. Sundry creditor 2,31,74,249.76 1,60,09,643.64 71,64,606.12 2. Advance from 4,71,53,892.50 2,03,63,102.30 2,67,90,790.20 parties 3. VAT expenses 13,05,818.00 13,05,818.00 Nil 4. Prov. For Fringe 15,726.00 15,726.00 Nil Benefit The assessee was asked to explain the abovementioned overstated Sundry Creditors and Advance from Party for the year ended on 31.03.2011. In response, the assessee submitted that the excess claim of Liabilities shown in Sundry creditors to the tune of Rs.71 lakhs and Advance from parties to the tune of Rs.2.67 crores is not correct. This is because the AO referred a net figure which the package shows after adjustments of debit balances and, credit balances of the group head referred, being the standard procedure of the package/accounting software. The Advance from Parties figure has been excessively claimed by Rs.267.90 lakhs; after taking into account the Grouping of Sundry debtors a total debit balance of Rs.402.50 lakhs along with total credit balance of Rs.265.71 lakhs.The credit balance in Sundry Debtors account also represents Advance from parties. The Credit balance of Rs.265.71 lakhs has been added with the total figure of Advance from parties. This Credit balance of Rs.265.71 lakhs has been added with the total figure of Advance from parties making it to Rs.469.34 lakhs before audit and final entries. Subsequently after finalization and audit the figure arrived at was Rs.471.53 lakhs.
However, the assessing officer rejected the claim of the assessee made addition on account of overstated liability to the tune of Rs.3,39,55,396/- [i.e., Rs.71,64,606 + Rs.2,67,90,790], 15 Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has restricted the disallowance to the extent of Rs.4,48,000/. Aggrieved by the order of the ld. Page | 8
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12 CIT(A), the Revenue as well as assessee is in appeal before us.The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
On the other hand, ld Counsel for the assessee submitted that assessee has submitted reconciliation of various credit balances therefore, the addition restricted by ld CIT(A) to the tune of Rs. 4,48,000/- should also be deleted.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that sundry debtors consist of Credit balance when advance from customers is received, normally to whom credit sales is made. The nomenclature of debtors is given when the transaction is of sales. Therefore, there are two ledgers of Sundry debtors which is being maintained by the assessee. Sundry Creditors consists of Normal trading in scrap purchase which is a credit purchase. We note that when purchase is through auction, thenthe assessee makes advances,but the purchases are kept under nomenclature of sundry creditors in accounting package, therefore there are two ledgers of Sundry creditors appearing in assessee`s books.
We note that A.O. had called for the books of account and other details. Further as a result of survey the accounts maintained in tally was found showing two ledgers of Sundry debtors indicating advance from customers and credit sales. Similarly,two ledgers of sundry creditors were maintained containing advance payment for purchase and credit purchase. We note that assessee has himself pointed out the difference in the appellate proceedings, stating that if the total debit balance and credit balance is added up, the only difference as appearing in the accounts impounded during Survey and as filed in the return of income is difference in Sundry creditor of Rs.2,28,193/- and Rs.2,20,000/- on account of Advance from parties. Therefore, addition made on account of overstated of liability was restricted by ld CIT(A) to the tune of Rs Rs.4,48,000/- ( Rounded off amount) ( Rs.2,28,193 + Rs.2,20,000).Before us, the ld Counsel filed paper book
M/s. Vishnu Engg. Corporation & ITA No.87/Kol/2015 Assessment Year: 2011-12 to explain the said difference, but we note that said difference, could not be explained properly. So far, this issue is concerned, Ld. Counsel failed to controvert the findings of ld CIT(A).Moreover, during the appellate proceedings, the assessee had himself admitted before the ld CIT(A) about the said difference that these differences would exist. That being so we decline to interfere in the order of ld CIT(A), his order on this issue is hereby confirmed and ground No.2 raised by the assessee is dismissed and ground No. 2 raised by the Revenue is also dismissed.
In the result, assessee`s appeal and Revenue`s appeal are partly allowed for statistical purposes. Order is pronounced in the open court on 27.07.2018.