ESSDEE CEMENTS PVT. LTD., ,KOLKATA vs. ITO, WARD - 3(1), KOLKATA , KOLKATA

order : April 13th , 2018 O R D E R Per J. Sudhakar Reddy :- This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-22, Kolkata (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 29/09/2017, for the Assessment Year 2010-11, on the following grounds of appeal:- “(a) That under the facts & circumstances of the case, Ld. CIT(A) erred in confirming the addition of Rs.11,38,035/- being short cash balance found during the survey at factory premises (remote location) in compare to books of accounts, therefore addition so made on the alleged ground of unexplained expenditure is bad in law & liable to be deleted. (b) That under the facts & circumstances of the case, ld. CIT(A) erred in confirming the addition of Rs.7,81,294/- made by the AO on account of difference in stock of Raw materials & unfinished goods found at the time of survey at factory premises though in fact stocks were taken by survey team evidently on eye estimate basis on round figure without proper measurement. Stock of Raw materials were kept in open at factory premises stacked in heap/mound, therefore addition was without any basis, unjustified, vague, unlawful and liable to be annulled.

2. After hearing rival submissions, I hold as follows:-

3. Ground No. 1, is against the addition of Rs.11,38,035/-. During the course of survey, the revenue authorities detected the shortage of cash in the premises of the assessee. When the cash balance in the books was Rs.11,87,190/-, the actual cash balance was only Rs.49,155/-. The difference was added on the ground that the assessee incurred expenditure outside the books of account. When the assessee has not claimed any expenditure, the question of disallowance of the same as having been incurred out the books of account, cannot be sustained. Even otherwise, I find that the assesse has explained the difference as noted by the Assessing Officer at para 7 page 4 of his order. I do not agree with the Assessing Officer that the explanation is not acceptable. Hence, this addition is deleted.

4. The second ground of appeal is on discrepancy of stock. The survey team estimated the stock and arrived at certain differences. Raw material like Slag, Clinker, Gypsum, which were lying in the open at the factory premises and which were loosely stacked in a heap/mound, was visually measured by the survey team. The assessee explained before the Assessing Officer as well as the ld. CIT(A) that there was no proper measurement or method of measurement during the course of survey and this is clear from the facts that round figures of stock was arrived at. The assessee contended that physical stock figures were rounded off and difference arrived at. The ld. CIT(A), rejected the plea of the assessee by holding that the Directors were present when the stock was taken and that the assessee has not disputed the valuation. In my view, it is wrong on the part of the ld. CIT(A) to come to a conclusion that the assessee has not disputed the valuation. Visual estimation of stocks such as Clinker, Slag and Gypsum which are loosely stacked in heaps and mounds cannot be the basis of making an addition. For physical verification of such stocks, assistance of technical persons should be taken. In the case on hand, the entire exercise was done on adhoc manner and addition made. Such addition cannot be sustained. Hence I delete the addition and allow Ground No. 2 of the assessee.

Assessment Year: 2010-11 Esdee Cements Pvt. Ltd