M/S NORTHERN SERVICES & SUPPLY,UTTAR DINAJPUR vs. D.C.I.T.,CIRCLE-2, JALPAIGURI, JALPAIGURI

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘C’, KOLKATA (Before Shri N.V.Vasudevan, J.M. &Dr.A.L.Saini, A.M.)

ITA No. 2642/Kol/2013: Asstt. Year : 2010-2011 M/s Northern Services & Supply Vs Deputy Commissioner of Co. (P) Ltd.,Goalpara, P.O. Income Tax, Circle-2 Debinagar, Raigunj. Dist. Uttar Jalpaiguri, Pin-735101 Dinajpur Pin- 733123 PAN:AABCN8371K (APPELLANT) (RESPONDENT)

Assessee by: Shri Subash Agarwal Department by: Shri Rajat Kr. JCIT, Sr.DR

Date of Hearing : 11.08.2016 Date of Pronouncement : 19-08-2016

ORDER Per Dr. A.L.Saini, A.M.: The captioned appeal filed by the Assessee pertaining to assessment year 2010-11, is directed against the order passed by the Ld. Commissioner of Income- Tax (Appeals), Jalpaiguri in appeal No.26/RNJ/CIT(A)/JAL/2013-14, dated 24/04/203, which in turn arises out of an order passed by the DCIT,Circle-2, Jalpaiguri, ( Hereinafter referred to Assessing Officer(AO)), under section 143(3) of the Income Tax Act, 1961 (in short, `the Act`) dated 25/03/2013.

(termed as processing charges). The assessee also reported income from truck plying, subsidy received and interest on FDR. The assessee filed its return of income electronically on 24.09.2010 declaring a net total income of Rs. 20,37,283/-. The Return of Income of the assessee was processed by the Department U/s 143(1) of the I.T. Act,1961 on 02/06/2011. In this case, a survey U/s 133A of the I.T. Act, 1961 was conducted on 17.03.2010 at the two Factory premises of the assessee company at Durgapur, P.O.-Bhupalpur,Dist- Uttar Dinajpur and at the office premise. During the course of survey operation u/s 133A of the I.T. Act,1961, the physical verification of stock was taken under the assistance of the assessee`s Director or his employee and the stock was valued at Rs.99,51,645/- whereas as per stock register maintained up to 12.03.2010, the closing stock was valued at Rs.82,29,185/- So, there was excess stock valued at Rs.17,22,460/-. The assessee accepted the discrepancy in stock for which a disclosure of Rs.20,00,000/- was made by the assessee after the survey. But, as per return of income, as filed by the assessee, income was not as per the disclosure made by the assessee in course of survey operation, so the case was selected for scrutiny U/s 143(3) of the Act. In the scrutiny assessment the Assessing Officer made certain additions on account of unaccounted stock, depreciation and mistakes in finished goods stock. The Assessing Officer completed assessment U/s 143(3) of the Act on dated 25.03.2013.

The facts of this issue are stated in brief.In this case, a survey U/s 133A of the I.T. Act, 1961 was conducted on 17.03.2010 at the two Factory premises of the assessee company at Durgapur, P.O.-Bhupalpur, Dist- Uttar Dinajpur and at the office premise. During the course of survey operation u/s 133A of the I.T. Act,1961, the physical verification of stock was taken under the assistance of the assessee`s Director or his employee and the stock was valued at Rs.99,51,645/- whereas as per stock register maintained up to 12.03.2010, the closing stock was valued at Rs.82,29,185/- So, there was excess stock valued at Rs.17,22,460/-. The assessee accepted the discrepancy in stock for which a disclosure of Rs.20,00,000/- was made by the assessee after the survey.

The Ld. Assessing Officer (vide para 9.6 of his assessment order) held that the assessee at the time of recording statement on 17.03.2010 pointed out that there was stock of M/s Qualix and M/s Pabitra Feeds, but the assessee failed to quantify the details and value of such stock belongs to other parties. Therefore, the Assessing officer out of excess stock worth Rs. 17,22,460/-, the stock worth Rs. 11,58,852/- belonged to M/s Qualix and M/s Pabitra Feeds, received from processing charges has been considered as an accounted stock and balance Rs.5,63,608/- [17,22,460-11,58,852] has been considered as an unaccounted stock (Vide para 9.6 of AO Order),observing the followings:

“9.6 Now, marshalling all major facts (i) The survey team had detected excess stock in course of survey, assessee admitted the fact.(ii). The survey team taken the stock with assistance of the assessee, so assesseecan not blame on the survey team that the survey team intentionally had exaggerate the value of stock. (iii) The assessee at the time of recording statements ( Answer to Question No.14) on 17.03.2010 pointed out that there was stock of M/s Qualix and M/s Pabittra Feeds, but the assessee failed to quantify the

details and value of such stock belongs to other parties. Later on 19.03.2010, the assessee did not raise the same point but only disclosed a sum of Rs.20,00,000/- (iv). On 19.03.2010, when the assessee was in possession of all books of account as inventorised by survey team never mentioned that the purchase considered by survey team was wrong to take purchase figure at Rs. 4,54,79,563/- the said figure would have to be Rs.4,60,73,602/- (v) The assessee after three years came with an re- conciliation that as per entries dated 16.03.2010, the figure was Rs.4,60,73,602/-, so the manipulation of books can not be ruled out. (vi) Theassessee failed to explain the other points regarding production,Sale price, Consumption of power, by consuming same power production was lesser by 30.65% (vii) Shortage of closing stock by 0.5 Ton though there was no audit note on this point. So, considering all above fact it would be just and proper that the excess stock as on date 17.03.2010 was valued at Rs.5,63,608/- as detected by the Income Tax Officials.” Aggrieved from the addition of Rs. 5,63,608/- on account of unaccounted stock, the assessee filed an appeal before the Ld. CIT (A), Jalpaiguri, who has confirmed the action of the assessing officer, observing the followings:

“5. Conclusion- I have gone through the written submission. The assessee has not submitted any factual inaccuracy in the assessment order. The order of AO is confirmed.” Not being satisfied with the order of the Ld.CIT (A), the assessee is in further appeal before us.

4.1. Before us, the Ld. AR for the assessee has submitted that the survey was conducted by Income tax Authorities on dated 17.03.2010 but entries in the stock register was completed by the assessee up to 12.03.2010. Therefore, the stock register was yet to be updated for 5 days ( i.e. 12.03.2010 to 17.03.2010). After making the entries in stock register for 5 days the discrepancies in the stock register would be rectified. That is, when the assessee entered the five days transactions in stock register, he did not find any discrepancies. The Assessing

officer (vide para 3 of his assessment order) has himself agreed that survey was conducted on 17.03.2010 whereas the stock register was maintained by the assessee up to 12.03.2010. The Assessing Officer did not make the reconciliation for 5 days entries in stock register to judge the discrepancies, therefore, it is a guess work done by the Assessing Officer. The Ld. AR for the assessee argued that no any defect in books of accounts was pointed out by the AO and books of accounts were not rejected by AO. Even statement recorded during the survey U/s 133A(3)(iii) has no evidentiary value and addition can not be made on the sole basis of that statement. Instruction No. 286/2/2003 (Inv) dt. 10.03.2003, issued by CBDT also says that no addition can be made merely on the basis of statement of the assessee. Considering the above instruction of CBDT, the Mumbai bench of ITAT in ADIT Vs. L.A Panday, ITA No. 4417 to 4420/M/97 dt.31.05.2004 had deleted the additionsmade merly on the basis of assessee`s statement.

4.2. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand of the Assessing Officer which we have already noted in earlier paras and is not being repeated for the sake of brevity.

4.3 Having heard the rival submissions, we are of the view that there is merit in the submissions of the Ld. AR for the assessee, since the propositions canvassed by Ld AR is supported by the fact that stock register was maintained by the assessee up to 12.03.2010 when the search was conducted on 17.03.2010. The Assessing Officer ought to make the reconciliation for 5 days transactions to work out the discrepancies. He further submitted that addition can not be made merely based on the statement of the assessee.Therefore, in view of the factual aspects discussed above, we are of the view that the addition made by the Assessing officer on account of unaccounted stock Rs.5,63,608/- was purely a guess work and should

be deleted. Accordingly, we direct the Ld. CIT(A) to delete the addition of Rs.5,63,608/-

4.4 In the result, the appeal filed by the assessee is allowed.

The facts relating to the issue are stated in brief. The Ld. Assessing officer in para 10.1 of his assessment order observed that: “The assessee is owner of a truck. On examination, it is found that in addition to giving the truck on hire the assessee might has also been using trucks for own business. The assessee has not been maintaining proper details about the trucks, percentage of its use for own business and use it for giving for hire. So, it is difficult on the part on the undersigned to calculate the actual net profit from the truck plying. On examination, it is found that the assessee has reported an income of Rs. 59,335/- from truck plying (net after expenses). As, the assessee is also using the truck for own business, so the assessee`s actual earning from truck is not reflected in the income from truck head.”

Assessing Officer, accordingly has computed presumptive income of one truck @ 5000/- per Month, so the net income from truck computed at Rs. 60000/- [Rs.5000 x 12]. The assessee has claimed depreciation on said truck at Rs. 1,11,319/- the same has been disallowed by the Assessing Officer, as, the income from trucks have been computed on presumptive basis, so depreciation as claimed deemed to have been allowed and to be disallowed at the time of computation of income, therefore, the total disallowance worked out by the AO was at ( Rs.60000 + Rs. 1,11,319)Rs. 1,71,319/-

Aggrieved from the order of the Assessing Officer, the Assessee filed an appeal before the CIT(A) Jalpaiguri, who has also confirmed the action of the Assessing Officer. Not being satisfied from the order of the CIT(A), the assessee is in further appeal before us.

5.1 The Ld. AR for the assessee has submitted that Ld. Assessing Officer has himself held ( Vide para 10.1 of Assessment Order) that truck was being used by the assessee for own business purpose, therefore, the depreciation of Rs. 1,11,319/- should be allowed. Ld. AR further submitted that the Assessing Officer has himself contradicted in computing the truck income as per section 44AE of the Act based on presumptive income scheme.

5.2 Ld. Departmental Representative (DR) has primarily reiterated the stand taken by the Assessing Officer which we have already noted in earlier para and is not being repeated for the sake of brevity.

5.3 Having heard the rival submissions, we are of the view that there is merit in the submissions of the Ld. AR for the assessee, as the propositions convassed by him are supported by the facts cited above. The Assessee keeps one truck for his business purpose and in rare cases it was rented by the assessee to outsiders. It is not the business of the assessee to keep the truck for plying. The Ld. AR argued that the truck wasgiven for hiring when it was free and the income from so hiring should be treated as business income based on materiality concept.

In view of the factual aspects discussed above, we are of the view that the assessee under consideration has one truck only and the same was being used for purpose of business, hence depreciation should be allowed to the assessee and

income reported by the assessee Rs.59,335/- may be assessed under the head income from business.

5.4 In the result, appeal filed by the assessee is allowed.

Order Pronounced in the Open Court on 19-08-2016

Sd/- Sd/- (N.V.Vasudevan) (Dr. A.L.Saini) Judicial Member Accountant Member Dated: 19/08/2016 Talukdar

Copy of the order forwarded to: 1. Revenue 2 Assessee 3. The CIT-I, 4. The CIT(A)-I, 5. DR, Kolkata Benches, Kolkata