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Income Tax Appellate Tribunal, BENCH “B”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM]
ORDER
Per Shri N.V.Vasudevan, JM
This is an appeal by the Assessee against the order dated 31.10.2012 of CIT(A), Durgapur, relating to AY 2007-08.
The grounds of appeal raised by the Assessee are as follows: “1) For that the order of the Ld.CIT(A),Durgapur, is arbitrary , illegal and bad in law. 2) For that the Ld. CIT(A), Durgapur , having agreed that the A.O. has not given the basis for calculation of figures of closing stock as an 31.3.2007 should have decided the issue on merit. 3) For that the LD. CIT(A) ,Durgapur having found that the manner of determination of closing stock is conspicuous by its absence should have given definite direction with regard to addition. 4) For that the Ld. CIT(A), Durgapur exceeded his jurisdiction in remitting the entire issue to the file of the A.O. which is tantamount to set aside the order when the appeal should have been decided on merit. 5) For that the facts and circumstances of the case the order of the CIT(A), Durgapur, be modified and appellant be given the relief as prayed for. 6) For that the appellant reserves his right to add to, to amend and/ or to al tar the ground/ s taken and to adduce paper/s and document/s at the time of hearing.”
The Assessee is an individual. He carries on business of trading in Fertilizers & Pesticides. He filed return of income for AY 2007-08 on 26.3.2008 declaring total income of Rs.1,73,446/-. Later on proceedings u/s.148 of the Act were initiated against the Assessee consequent a survey conducted u/s.133A of the Income Tax Act, 1961 (Act) in the Assessee’s business premises on 26.3.2008. The Assessee by his application dated 30.5.2011 requested that the return already filed be treated as a return in response to notice u/s.148 of the Act.
As we have already noticed there was a survey carried out by the Revenue in the business premises of the Assessee on 26.3.2008. In the course of survey stock register with identification mark “SKM-48” was found which was impounded. On perusal of the stock register the AO found that the opening stock as on 1.4.2007 was shown at Rs.1,86,11,387. The closing stock as on 31.3.2007 declared in the Balance Sheet of the Assessee was only at Rs.62,85,633/-. The AO called upon the Assessee to explain the discrepancy as above. 5. The Assessee submitted before the AO that the stock register as impounded during the course of survey was never updated. The Accountant just jotted down the figures from the available papers without verifying whether the same was updated or not. This is proved from the following facts.
(1) The stock as was impounded at the time of survey was of Rs. 24,26,472.00 but the stock register as impounded was showing much higher figure which itself will prove that the stock register was never updated and can't be relied upon. (2) In stock register, the outgoings, i.e. the sale figures are not mentioned if you sum total the said figures the gross sale comes to Rs. 6,65,63,300/- without taking into account tile sale return, if any. The difference between the sales of Rs. 7,42,40,309.00 and sale figure as per stock register as mentioned about comes to Rs. 76,77,009.00. Therefore the stock register can't be relied on in any circumstances. It may be mentioned that there was similar position in A.Y 2008-09 or any other years for which books and papers were impounded... (3) The Assessee is taking Bank overdraft against hypothecation of goods. We have submitted stock which tallies with other books of accounts and no discrepancy was ever noted by the auditor or b tile Bank. Needless to say, that the Bank people also rigid to verify the stock and they never adversely commented and never recorded any excess stock in their records. The aforesaid facts coupled with regular books of accounts, verifiable purchases and sales will undoubtedly prove that we have proved our case beyond doubt. " Kr.Maji A.Y.2007-08 2
The AO however did not agree with the submissions, so made by the Assessee. The AO held that: i. The stock of the assessee was valued on the date of Survey and not as on 01.04.2007. The assessee could not reconcile his stock position vis-a-vis purchase and sale to substantiate that stock as per stock register as on 01.04.2007 was higher than the stock found at the time of survey. ii. The assesee failed to bring any evidence on record to substantiate his claim that all the purchases have been recorded but the sales have not been recorded in the impounded stock register wherein opening stock has been valued at Rs. 1,86,11,387/- Ill. The assessee also failed to substantiate his claim by producing corroborating evidence that stock as on 01.04.2007/31.03.2007 was verified by the bank authority and no adverse inference was drawn.
The AO accordingly held that the value of opening stock as on 01.04.2007 was calculated at Rs. 1,86,11,387/- on the basis of the impounded stock register ·maintained by the assessee himself, the fact that the value of the closing stock as on 31.03.2007 should be Rs.1,86,11,387/- cannot be denied or challenged. Considering the above the value of closing stock as on 31.03.2007 is taken at Rs.1,86,11,387/- instead of rs.62,85,633/- resulting in increasing the Gross Profit vis-a-vis net profit by Rs.1,23,25,754/- and the same is added to the returned income of the assessee.
On appeal by the Assessee, the CIT(A) found from the copy of the impounded stock 6. registers that no financial data has been observed over there. Only quantification of the items are seen to have been made there. He therefore posed the question as how the AO quantified the value of opening stock as on 1.4.2007. Besides, the above, the CIT(A) also found from the order u/s.143(3) passed on 31.12.2008 for the A.Yr.2006- 07 that the figure of closing stock reported by the Assessee has been more or less accepted by the A.O. In that event, the opening stock as on 01.04.2006 appears to be on line what the appellant himself has disclosed. I do not find any adverse comments in that order regarding purchase or sales. If the opening stock for this year is more or less what has been claimed by the Assessee, then the only conceivable reason for difference in closing stock could be under reporting of purchases. In that event, if the Assessee's closing stock is increased so would his purchases. The result would therefore be revenue neutral. The most important question is how the A.O. has determined the value of closing stock at the figure mentioned by him considering that such figures do not appear in the impounded stock register. He found that the assessment order was silent on this aspect. The CIT(A) was of the opinion that the A.O. has not given the basis for the calculation of figure of closing stock adopted by him. He found it odd that the A.O. has mentioned that the assessee failed to bring any evidence on record that the purchases have all been recorded, but the sales have not been recorded. The CIT(A) was of the view that the case of the Assessee was a survey case and therefore the bills for purchases as well as sales should have been available with the A.O. and necessary reconciliation should have been done with these. This is the primary evidence and no other evidence can be brought by the assessee on record. The CIT(A) also held that the reconciliation of the stock register was never done. Given the anomalies observed the CIT(A) held that the AO should have attempted to reconcile the stock register on the basis of primary evidence available with him which are the bills for sales and purchases. Without this exercise being done any addition on the issue of stock remains speculative. Having given the above findings, the CIT(A) held that the A.O. while giving effect to this order should reconcile the stock and give the Assessee consequential relief if his contention is tenable. The ground of appeal was allowed by the CIT(A) subject to the directions given above.
7. Aggrieved by the order of the CIT(A) the Assessee has preferred the present appeal before the Tribunal.
8. We have heard the rival submissions and considered the material on record. We have also had the benefit of seeing the copy of the impounded stock register. The impounded stock register contains only quantity of stock. It is not discernible from the impounded stock register as to how the value of opening stock as on 1.4.2007 at Rs.1,86,11,387/- was arrived at. As to whether the stock register found and impounded at the time of survey reflects the true position or not has to be judged on the basis of several circumstances as pointed out in the order of the CIT(A). The question as to whether the opening stock as on 1.4.2007 as reflected in the impounded stock register can be considered in AY 2007-08 for which the relevant Financial Year is 2006-07 i.e., period from 1.4.2006 to 31.3.2007 is also a pointe which was raised by the learned counsel for the Assessee in the course of arguments before us. Ideally the CIT(A) ought to have called for a remand report from the AO and decided the issue in question. In view of the provisions of Sec.251(1) of the Act, the CIT(A) has no powers to set aside an assessment and remand issues for fresh consideration by AO by virtue of the amendment by the Finance Act, 2001 w.e.f. 1.6.2001. Since the matter requires verification and adjudication by the AO, we deem it fit and proper to remand the entire issue for de novo consideration by the AO. The AO will keep in mind the observations of the CIT(A) in the impugned order as well as observations made by us. The AO will afford opportunity of being heard to the Assessee before deciding the issue.
In the result for statistical purposes the appeal is treated as allowed. Order pronounced in the court on 03.02.2016.