SHRI KAMAL SINGH BARDIA,KOLKATA vs. JCIT, RG-35, KOLKATA, KOLKATA

The only ground is to be decided as to whether the CIT-A justified in confirming the addition made by the AO on account of difference between physical stock and as per the books to an extent of Rs.5 lakhs in the facts and circumstances of the case.

The assessee is individual and engaged in the business of trading in engineering goods. A survey was conducted on 17-03-2011. The survey team found that the value of goods to an extent of Rs.20,37,313/- was excess in physical inventory than the entries made in the books. In explanation, the assessee submitted that that there was no difference between physical stock and stock shown in the books as on 31-03-2011. The AO considered the value of excess stock as sold out of books and the gross profit thereon @ 5.46% to an extent of Rs.1,11,237/- together with 1 Kamal Singh Bardia the difference in valuation of stock (Rs.20,37,313 + Rs.1,11,237) added to the total income of the assessee.

Before the CIT-A the assessee contended that the survey team did not take any physical inventory of stock and the difference as found by the AO was only from the print out taken from the computer of assessee. The CIT-A taking into consideration the submissions of assessee found that some errors have been crept in physical inventory. Accordingly, he restricted the addition to Rs.5,00,000/-. Relevant portion of which is reproduced herein below:- 3.2 In the submission in the course of appeal, the A.R has claimed that no physical inventory was taken and the so-called stock statement valuing the stock at Rs.4,55,55,869/- was claimed to have been down-loaded from the appellant's computer. It is claimed that as the number of items were more than one lakh pieces it was practically impossible to count and verify the stock within 12 hours. It is thus claimed that the valuation taken by the department and that appearing in the Stock Register are almost the same. The Books of Accounts are claimed to have been submitted for Inspection in the course of Survey and regular assessment and no defects is claimed to have been detected or pointed out by the officials. In the course of examination of the Survey folder a copy of the Balance Sheet as on 16th March, 2011 was seen where Closing Stock is shown at Rs.4,32,70,445/-, explanation for which was sought by me from the A.R who filed a written submission dated 10.06.2015. In the said submission it has been claimed that the differences arose only because of non- inclusion of VAT in the stock value shown in the Balance Sheet as on 16.03.2011 whereas the stock statement or inventory as valued includes the VAT which is said to be varying from 4% to 13.5%. It has thus been claimed by the A.R. that the Balance Sheet figure for the interim period upto the date of survey and that by the survey officials almost match with the stock value contained in the appellant's computer and taken as actual physical value by the survey officials. 3.3 It is however, seen that the so-called difference and excess of about Rs.20,00,000/- over the value in the stock summary as noted in question no.7 of the statement of the appellant taken in the survey course remains apparently unexplained. In the submission in the appeal course, the A.R. has claimed that Rs.4,55,55,869/- is the value which the appellant himself has shown in his computer and which is or should have been taken as the book value of the stock. In other words, it is the claim of the A.R that the book figure and the physical value of stocks are almost matching. 3.4 After examination of the assessment folder, survey folder and the submission of the appellant it appears that there is difficulty in associating to books of accounts the stock value taken in question no.7 at Rs. 4,35, 18,556/- which has all along been taken as book value by the survey Officer and the A.O and with respect to which the stock value of Rs. 4,55,55,869/ - has been compared, to compute the alleged excess stock value Rs.20,31,313/-. In the question no.7 the value of Rs. 4,35, 18,556/ - is shown as one in stock summary maintained in the compute: Moreover, the physical value taken in the said question no.7 at Rs.4,55,55,869/- is almost the same value appearing in the stock statement taken off from the appellant's computer and running into 52 pages. From the order sheet it does appear that the A.O and the A.R in the assessment stage has proceeded towards reconciliation or verification of Physical Stock verses Book Stock. It is rather surprising as to how and why the appellant through his A. R has failed to offer any clear explanation to the A.O. There is difficulty in accepting the appellant's claim that Rs. 4,35, 18,556/ - is not the book stock value. But from the reading of the question no.7 it appears that the question refers to some stock summary maintained in the computer and this definitely does not conclusively indicate the book stock value. But the appellant's reply to the said question 7 and the A.R's explanation vide the letter dated 17.02.14 do clearly indicate appellant's inability to explain it in unambiguous terms. But the A.O's decision in para-3 of his order is too cryptic. From the nature of the answer to question no.7 of the appellant statement it appears that the Survey Officer was satisfied with the offer of tax payment of Rs.3,00,000/- by way of Advance Tax in respect of the mismatch as pointed out. From the return it appears that till date of survey no Advance Tax was paid by the appellant. 2 Kamal Singh Bardia

The ld. AR submits before us that the assessee is engaged in the business of trading of engineering goods and it is very difficult to count each and every item for valuation of closing stock. The ld.AR of the assessee also reiterated his submissions that the survey team did not count all the items on the date of survey. They only downloaded the printed matter from the assessee’s computer. He also submits that the CIT-A did not consider the submissions as made by the assessee in proper perspective and observed that the CIT-A was incorrect as no explanation was offered before him by the assessee. The ld.AR further submits that the CIT-A restricted the addition to Rs. 5 lakhs without there being any basis and in support of his contentions relied on the decision of Hon’ble Supreme Court in the case of Chainrup Sampatram. vs Commissioner Of Income-Tax, West Bengal reported in 24 ITR 481 (SC).

On the other hand, the ld.DR relied on the order of the AO. He also submitted that the survey team inventorised the physical stock as found on 17-03-2011 i.e the date of survey and found difference in stock between physical stock and stock shown as per books.

Heard rival submissions and perused the material available on record. We find that the ld.AR of the assessee has reiterated his submissions as made before the CIT-A as well as before us stating that there was no difference between physical stock and stock as per the entries made in the books. In fact, there was no physical inventory made by the survey team on 17-03-2011. It is also noticed that before the CIT- 3 Kamal Singh Bardia A the assessee stated that it was very difficult to count each and every item in the premise as the item involves around 1,00,000 pieces. Therefore, the submissions of the ld.AR with regard to that the survey team down loaded the stock details from assessee’s computer and relying on which then found the said difference between physical stock and stock as per books being appears to be true. We find that the CIT-A examined the survey folder and the balance sheet standing as on 16-03-2011, wherein he found the stock of Rs.4,32,70,445/-. In an explanation as sought by the CIT-A, the assessee filing his written submission stated that the difference arose for non inclusion the amount of Vat in the stock value as on the date 16-03-2011 i.e prior to survey. However, this said explanation was not accepted by the CIT-A. He observed that the difference remained unexplained during the course of appellate proceedings. He also observed that there was reconciliation and verification of physical stock as per books in the assessment proceedings. He also observed that on examination of summary maintained in the computer does not indicate the fair value of book stock. It is also noticed that the assessee paid advance tax of Rs.3,00,000/- as against retuned income of Rs.15,00,000/-. It is pertinent to note that the CIT-A observed that no material was on record to suggest that there was excess physical stock over the book stock and opined that 5% of error can be allowed on the gross value to stock. We further find that the order of the CIT-A is unjustified having found 5% error, which can also be allowed in such magnitude of physical stock. He restricted the disallowance/addition to Rs.5 lakhs on the basis of estimation. As the addition in the instant case has been made on the basis of estimate and without bringing any tangible material on record, we are inclined to reverse the same. In view of this, the appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 19 -04-2017