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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-18, Chennai in ITA No.187/2021-22/CIT(A)-18 dated 06.03.2023. The assessment was framed by the Deputy Commissioner of Income Tax, Central Circle 3(3), Chennai for the assessment year 2018-19 u/s.143(3) of the
- 2 - ITA No.633/Chny/2023 Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 16.09.2021.
The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the addition made by AO of unexplained stock / investment u/s.69A of the Act for an amount of Rs.74,85,808/-.
Brief facts are that the assessee is an individual and carrying on the business of hardware, paints, cements, electrical motors, etc., under name and style of M/s. K Subramaniam Hardwares. A survey u/s.133A of the Act was carried out on the business premises of the assessee on 02.03.2018 and physical inventory of stock of more than 400 items was taken at Rs.3,51,03,677/-. The AO has taken the value of stock as on 31.03.2017 as per rough stock book at Rs.2,76,17,869/-. Therefore, the AO made addition being difference in physical stock taken on 02.03.2018 and value of stock recorded in the stock register i.e., rough stock book as on 31.03.2017 and made addition of differential amount at Rs.74,85,808/-. The AO noted that apart from the physical stock found in the business premises of the assessee on the date of survey on 02.03.2018 at Rs.3,51,03,677/-, the stock declared to the bank
- 3 - ITA No.633/Chny/2023 for loan / hypothecation was also at Rs.3,31,30,340/- as on 28.02.2018. According to AO, the assessee submitted statement of stock after the date of survey for the purpose of creating a document / record as an afterthought on 03.03.2018 and hence, the AO has not accepted the stock declared to the bank and noted that the assessee is not maintaining any regular stock register / inventory and hence, he added the differential amount being stock as on 31.03.2017 at Rs.2,76,17,869/- and the physical stock inventory taken as on the date of survey i.e., 02.03.2018 i.e., Rs.2,76,17,869/- thereby the differential amount at Rs.74,85,808/- was added as unexplained stock / investment u/s.69A of the Act. Aggrieved, assessee preferred appeal before CIT(A).
The CIT(A) confirmed the addition despite the fact that assessee contested the addition that the details of stock statement given to the bank as on 31.03.2017 and 31.03.2018 and also stock statement given as on 28.02.2018 amounting to Rs.3,31,30,340/-, but the CIT(A) noted that the AO has clearly observed in his assessment order that the inventory of stock taken by the assessee at the rate of stock taken at the same price as the one adopted by the assessee in the rough stock book recorded by him as on 02.03.2018. According to him, the difference in value of stock is due
- 4 - ITA No.633/Chny/2023 to difference in quantity of item and not because of valuation of stock at selling price. Accordingly, he confirmed the addition by observing in para 9.1.4 of his order. Aggrieved, assessee came in appeal before us.
Before us, the ld.counsel for the assessee filed petition under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963 for admission of additional evidence that he has submitted the comparative quantity-wise and quality-wise detail i.e., price of each item. The ld.counsel for the assessee filed these details supported with evidences in its petition consisting of 207 pages. The ld.counsel stated that these evidences are vital and it should be admitted for the reason that the assessee is an individual carrying hardware business. A survey was conducted in the business premises of the assessee and stock valuation was done. Based on the valuation, the Assessing Officer while completing the assessment made an addition of Rs.74,85,808/- on the ground that the value of the actual stock available at the premise is much more than the stock declared by the Appellant and as such the excess value of the stock was brought to tax. In this regard, the ld.counsel submitted that assessee has used the basis of cost to value the stock. However, the survey party while valuing the stock has reckoned sale price and/ or
- 5 - ITA No.633/Chny/2023 ad hoc pricing and arrived at excessive value for the value of closing stock. Aggrieved against the impugned assessment order the assessee filed an appeal u/s.246A before the CIT(A) and raised this contention that the valuation of stock done by the survey party was incorrect. However, the CIT(A) dismissed the assessee’s appeal. Aggrieved by the same, the assessee is in appeal before the Tribunal. In this connection, the ld.counsel stated that the assessee wishes to submit the copy of purchase bills for certain items forming part of the stock along with a tabular statement capturing the price difference in stock value and the resultant excess value reckoned during the course of assessment as additional evidence in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. The ld.counsel for the assessee states that irreparable loss would be caused to the assessee, if this additional evidence is not taken on record. He most humbly prays that the evidence enclosed may be taken on record, in the interest of justice. The ld.counsel therefore prayed that the additional evidence filed, which goes to the very root of the matter may be admitted and the issue in appeal may kindly be decided after considering the additional evidence and thereby render justice. The ld.counsel for the assessee further stated the reasons for non-furnishing of these evidences either before the AO or before the first appellate authority that the assessee was suffering
- 6 - ITA No.633/Chny/2023 from renal infection and due to its complication, he was not in a position to produce necessary invoices for position of stock from various vendors. He stated that due to this illness during the year 2023, one kidney of the assessee has been removed. Due to that, he could not attend either the litigation before the Department or even his business. Apart from the above reason, the assessee’s financial position also deteriorated and for this, he filed the detailed accounts where his sale has come down drastically. These evidences are also collated by his son who is collating all the information and furnishing the necessary evidences with this petition. Hence, the ld.counsel requested that these evidences be admitted and opportunity of hearing may be provided by this Tribunal.
When these evidences were confronted to ld.CIT-DR, he stated that in case, these evidences are admitted due to the reasons stated above, the matter has to be restored back to the file of the AO for verification of these papers or even Tribunal can call for remand report from the AO and can adjudicate at this level also.
We have heard rival contentions and gone through facts and circumstances of the assessee. We noted that the AO has simpliciter taken inventory of physical stock taken during the course of survey
- 7 - ITA No.633/Chny/2023 on 02.03.2018 at Rs.3,51,03,677/- and accordingly, he took differential amount of Rs.74,85,808/- being difference as per the physical stock taken on the date of survey and value of stock as per rough stock book as on 31.03.2007 at Rs.2,76,17,869/-. This cannot be basis for taking the difference as on 31.03.2017 and as on the date of survey i.e., 02.03.2018. In our view, the value as per books of accounts or rough stock book as on 02.03.2018 should have been taken. Now, the assessee has filed complete evidences i.e., sale and purchase vouchers as on 31.03.2017 as per books of accounts is available at Rs.2,76,17,869/-. The assessee will compute the book value of stock as on 02.03.2018 after incorporating the rough stock value as on 31.03.2017 adding the same to sales / purchases and additing and subtracting to the sales and purchases to this rough stock and will determine the value of stock as on 02.03.2018. The value after taking as per book value as on 02.03.2018 then the AO will determine what is the difference. The assessee also need evidence to the fact that there is any difference with regard to quantity-wise stock details as per the rough stock book as on 02.03.2018. The AO will collect all the information and will give opportunity to the assessee to explain the same. The AO will also consider the additional evidences filed before us which will be filed before him at the time of hearing. In term of the above,
- 8 - ITA No.633/Chny/2023 we set aside the order of AO and that of the CIT(A) and restore this issue back to the file of the AO for reconsideration in entirety. This issue of the assessee is allowed for statistical purposes.
As regards to next three issues i.e., disallowance of salary and wages expense by invoking the provisions of section 40A(3) of the Act, disallowance of interest expenses by invoking the provisions of section 40(a)(ia) of the Act and adhoc estimated disallowance of business expenses at 50% which was restricted by CIT(A) at 20%. For these, the assessee has raised following grounds: “The CIT(A) erred in confirming disallowance the genuine salary expenses of Rs.21,12,000 under section 40A(3) of the Income Tax Act.
The CIT(A) erred in confirming the disallowance of Rs.513155 u/s 40a(ia) on interest paid to reputed genuine Financial Institutions.
The CIT(A) erred in partially confirming Rs.2,47,971 being the estimated disallowance of various expenses such as staff welfare, telephone, electricity etc.”
We have heard rival contentions on these above three issues and gone through facts and circumstances of the case. We noted that the assessee in regard to these also made submissions that the assessee has to furnish certain information which assessee has already collated and hence, he requested that these three issues may also be remanded back to the file of the AO to enable the
- 9 - ITA No.633/Chny/2023 assessee to file evidence to substantiate his claim. We have gone through the assessment order and the order of CIT(A). We noted that the assessee should file evidences in respect of disallowance of salary expenses by invoking the provisions of section 40A(3) of the Act and disallowance of interest expenses u/s.40(a)(ia) of the Act needs verification. Hence, we set aside the order of the AO and that of the CIT(A) on these two issues and remand these two matters back to the file of the AO for fresh adjudication.
Coming to partially confirming a sum of Rs.2,47,971/- being estimated disallowance of business expenses, we noted that the CIT(A) has restricted the disallowance at 20% on the possibility of same personal expenses by observing in para 9.4.3 as under:- “9.4.3 I have considered the reasons given by the AO for making the disallowance. Though the AO says that most of the expenses were incurred in cash, he was not able to pin point as to which of the expenses were incurred in cash. The telephone charges and electricity charges are paid to the Governmental authorities and therefore they would not have been paid by cash and such expenses cannot at all be doubted unless some fictitious amounts were included under the said head. The disallowance of expenditure at 50% is very high for the remarks made in the assessment order. The appellant had submitted comparative figures of the expenses claimed with earlier year’s expenses. I am therefore of the view that in order to meet the ends of justice, it would be enough to restrict the disallowance to 20% as the possibility for some personal expenses cannot be ruled out and partly allow the grounds. I therefore sustain the disallowance to the extent of Rs.2,47,971 and delete the balance disallowance of Rs.3,71,957 and partly allow the grounds raised.”
- 10 - ITA No.633/Chny/2023 The CIT(A) has restricted the disallowance at 20% as against disallowance made by AO at 50%. The total expenditure of business expenses was to the tune of Rs.12,39,855/- out of which, the AO disallowed 50% at Rs.6,19,928/- for the reason that the assessee is unable to substantiate the claim by filing satisfactory documentary evidence and in order to cover up 50% was disallowed. The CIT(A) restricted the disallowance at 20%. In our view, the order of CIT(A) is quite reasonable and hence, this issue of assessee’s appeal is dismissed.
In the result, the appeal filed by the assessee is partly-allowed for statistical purposes.
Order pronounced in the open court at the time of hearing on 10th April, 2024 at Chennai.
Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 10th April, 2024 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� /CIT 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF.