ACIT, CIRCLE-2, DURGAPUR, DURGAPUR vs. JAYANTA KUMAR SARKAR, DURGAPUR

Date of Hearing : 14.05.2018 Date of Pronouncement : 25 .05.2018 ORDER Per M.Balaganesh, AM

Jayanta Kumar Sarkar A.Yr.2012-13 3. The brief facts of this issue is that the assessee is an individual and proprietor of Kalpana Service Station engaged in the business of retail outlet of MS & HSD, reseller of lubricants etc. The assessee is also having income from herbal business and income from railway/air e-ticket business and income from other sources. During the year under appeal the assessee also had income from short term capital gain. In the course of assessment proceedings, the ld. AO observed that the assessee had kept mortgage of his personal property situated at RA-67, Market Street, Sec-2B, Bidhannagar, Durgapur- 713212 as a collateral security for obtaining loan from the bank in respect of his proprietary business. The ld. AO observed that his house property is not disclosed in the asset side of the balance sheet of the assessee’s proprietary concern. The assessee submitted that he is an ex-military man air force and the subject mentioned land was allotted to him by ADDA on 23.08.1976 nearly 37 years back for Rs 15,785/-. The construction thereon was carried out by him out of his salary savings, retirement benefits and LIC loans in the earlier years. Since, he was deriving salary income at the time of purchase of this property, there was no need to maintain his balance sheet. He further submitted that this property was given as collateral security for availing working capital facility from the bank when the retail outlet MS & HSD business was started by him after his retirement. Accordingly, he pleaded that the value of the said asset cannot be treated as undisclosed asset in his hands. The ld. AO however did not heed to these contentions of the assessee and observed that the valuer of the bank had valued the subject mentioned land and building at Rs. 33,68,000/- and the same was added as undisclosed investment made by the assessee by the ld. AO in the assessment.

3.1. The Ld. CIT(A) observed that the assessee had purchased this land before 37 years and he had carried on the construction thereon long back. He observed that in respect of old properties the same cannot be taxed based on market value of the property. He further observed that even if the subject mentioned property which was purchased long

Jayanta Kumar Sarkar A.Yr.2012-13 back is brought into the balance sheet of the proprietary concern of the assessee, the same would only go to correspondingly increase the capital account of the assessee. He observed that this house property was not part of the business and hence there is no need to show the same in the balance sheet of the proprietary concern of the assessee. Accordingly, he deleted the addition made in the sum of Rs. 33,68,000/-. Aggrieved the revenue is in appeal before us on the following grounds:

1. In the facts and circumstances of the case, the Ld. CIT(Appeals), Durgapur has erred in deleting addition of Rs. 33,68,000/- despite this asset being found to be unaccounted due to not being recorded in books of the assessee and being used in the business by wrongly holding that the house property is not related to business and does not make any effect on balance sheet.

2. In the facts and circumstances of the case, the Ld. CIT(Appeals), Durgapur has erred in deleing addition of Rs. 33,68,000/- when the assessee is unable to offer any explanation regarding the source.

Jayanta Kumar Sarkar A.Yr.2012-13 5. The next ground to be decided in this appeal is as to whether the Ld. CIT(A) was justified in restricting addition towards closing stock to Rs. 87,915/- as against 8,79,156/-, in the facts and circumstances of the case.

Based on this, the ld. AO observed that the assessee had shown more closing stock in the stock statement submitted to the bank on 31.03.2012 when compared to the value shown in the balance sheet. The assessee replied that the stock statement is prepared by the staff of the petrol pump and signed by the proprietor for submission to the bank which is not audited. Further the closing stock statement reflected in the balance sheet is prepared from the books of accounts maintained on day to day basis after considering the normal loss of fuel due to evaporation and handling etc. It was also explained that the normal loss due to evaporation etc are not considered in the stock statement submitted to the bank. Hence logically the value shown to the bank would always be higher than the value reflected in the balance sheet of the assessee. The ld. AO observed that there is absolutely no difference in the quantity of closing stock shown by the assessee in its closing stock as per book statement vis-à-vis the closing stock submitted 4

Jayanta Kumar Sarkar A.Yr.2012-13 to the bank except due to loss claimed by the assessee due to evaporation and handling etc. The ld. AO did not agree to the explanations given by the assessee and accordingly proceeded to add the value of Rs. 8,79,156/- to the closing stock treating the same as undisclosed stock and completed the assessment.

6.1. The Ld. CIT(A) observed that the evaporation loss is an industrial phenomenon which cannot be denied. Certain percentage of loss is allowable at standard rate by the oil supply companies. He observed that the ld. AO himself had pointed out in his assessment order that in the earlier year, the stock was submitted with the workings of loss. Accordingly, he accepted the argument of the assessee that the closing stock submitted to the bank was without considering the evaporation loss, whereas the closing stock submitted in the balance sheet is after considering evaporation loss. With regard to observations made by the ld. AO that loss should not be claimed on percentage basis rather it should be actual, the Ld. CIT(A) observed that the ld. AO had not produced any material on record as how the losses were claimed on percentage basis and how they were not actual. Accordingly, he concluded that the evaporation loss and such other normal loss is to be allowed to the assessee. He observed that the assessee has made total claim as under:

The Ld. CIT(A) observed in his order as under:

Jayanta Kumar Sarkar A.Yr.2012-13 “Considering the aforesaid facts and the observation of the AO out of total claim of evaporation loss which has more excessively claimed in case of HSD-Premium on 4.36% and in MS-Ordinary at 1.03% & 1.07% which has resulted into claim of loss of Rs. 8,79,156/-, which has been disallowed by the AO. Keeping in view of the aforesaid facts the disallowance is restricted to 10% of the evaporation loss which comes to Rs. 87,915/- and the remaining portion of the addition of Rs. 7,91,241/- (Rs. 8,79,156/- minus Rs. 87,915/-) is hereby deleted. Hence this ground of appeal is partly allowed.”

Aggrieved the revenue is in appeal before us on the following ground:

3. In the facts and circumstances of the case, the Ld. CIT(Appeals)-Durgapur has erred in restricting addition to Rs. 87,915/- out of Rs. 8,79,156/- made on account of difference in stock found between the stock statement submitted to bank and what is recorded in books of accounts by wrongly holding that the difference was due to not considering evaporation loss while submitting statement before bank ignoring the fact that necessary adjustment for loss was made by the assessee on actual basis by passing a journal entry while CIT(A) has calculated loss on percentage basis which cannot be taken as correct.

Jayanta Kumar Sarkar A.Yr.2012-13

9.1. The Ld. CIT(A) observed that these gifts were given by the assessee to have more sales and attract more customers. Accordingly held that this expenditure are for purpose of business of the assessee and deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following ground:

4. In the facts and circumstances of the case, the Ld. CIT(Appeals)-Durgapur has erred in deleting addition of Rs. 1,87,784/- claimed to be incurred on advertising and publicity expenditure when in the case of petroleum products advertisement and publicity expenditure is looked after by organization (PSU) whose products the assessee is selling and such expenditure has not been found to be incurred wholly and exclusively for the purpose of business.

Jayanta Kumar Sarkar A.Yr.2012-13 supporting documents. In petrol pump business, there is no necessity of incurrence of this expenditure and accordingly we are not inclined to accept the view of the ld. CITA in this regard. We find that the Ld. CIT(A) had merely accepted the explanation offered by the assessee without resorting to verification of supporting evidences thereon. Hence we hold that the ld. AO had rightly made this disallowance of Rs. 1,87,784/- in the assessment. Accordingly ground no. 4 raised by the revenue is allowed.

Order pronounced in the Court on 25 .05.2018