SATYA NARAYAN AGARWAL,MIDNAPORE vs. I.T.O WD - 1(1) ,KOLKATA, PASCHIM MEDINIPUR

Grounds No. 1, 7 & 8 raised by the assessee in this appeal are general in nature, while Ground No. 5 raised by the assessee has not been pressed by the ld. Counsel for the assessee at the time of hearing before us. ./2013 Assessment year: 2008-2009 Page 2 of 7

The main issue involved in Grounds No. 2 & 3 relates to the addition of Rs.27,81,670/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of discrepancy found in stock during the course of survey.

The assessee in the present case is an individual, who is engaged in the business of manufacturing and selling of Mustard Oil, Refined Oil, Til Oil and Dalda through two Oil Mills run under the name and style of Bhabani Oil Mill and Jai Bhabani Oil Mill. A survey under section 133A was carried out in the business premises of the assessee on 14.09.2007. Subsequent to the survey, the return of income for the year under consideration was filed by the assessee on 24.11.2009 declaring total income of Rs.3,30,150/-. During the course of survey, certain discrepancies in stock were found showing shortage in the quantity of stocks as compared to the stock reflected in the books of the assessee as on 01.09.2007 in his statement recorded during the course of survey, he could not explain the said discrepancies. Even during the course of assessment proceedings, no explanation to satisfaction of the Assessing Officer could be offered by the assessee on this aspect. The Assessing Officer, therefore, treated the shortage of stock found during the course of survey as the sales made by the assessee outside the books of accounts and the value thereof of Rs.27,81,670/- was added by him to the total income of the assessee in the assessment made under section 143(3) vide an order dated 31.12.2010.

Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and during the course of appellate proceedings before the ld. CIT(Appeals), a reconciliation was filed by the assessee showing the movements of stock of relevant items from 01.09.2007 to 14.09.2007. On the basis of the said reconciliation statement, the assessee pleaded that there was, in fact, no discrepancy in stock found during the course of survey as alleged by the Assessing Officer. This explanation offered by ./2013 Assessment year: 2008-2009 Page 3 of 7 the assessee on the basis of reconciliation statement was held to be an after-thought by the ld. CIT(Appeals) and keeping in view that the assessee in his statement recorded during the course of survey had admitted the discrepancy in stock, he confirmed the addition made by the Assessing Officer on account of shortage of stock as found during the course of survey.

We have heard the arguments of both the sides and also perused the material available on record. Ld. Counsel for the assessee has invited our attention to the relevant observations recorded by the ld. CIT(Appeals) in paragraph no. 6 of the impugned order to point out that the working filed by the assessee for the period from 01.09.2007 to 14.09.2007 reconciling the difference in the stock as found during the course of survey was accepted by the ld. CIT(Appeals) by observing that it was evident from the said details that there was, in fact, no discrepancy in stock as alleged by the Assessing Officer. However, as rightly pointed out by the ld. D.R., it was actually the submission of the assessee, which was narrated or reiterated by the ld. CIT(Appeals) in his impugned order and there was no finding or observation given by the ld. CIT(Appeals) on this aspect as sought to be contended by the ld. Counsel for the assessee. It is also noted in this regard that the reconciliation prepared and furnished by the assessee was held to be an after-thought by the ld. CIT(Appeals) and the addition made by the Assessing Officer on account of shortage of stock found during the course of survey was confirmed by him. It is, however, observed that the physical inventory of stock was prepared at the time of survey carried out on 14.09.2007, while the stock taken by the Assessing Officer to work out the shortage of stock, was as per the books of account of the assessee, which were incomplete as the same were not written for the period 01.09.2007 to 14.09.2007. The difference in stock thus was worked out by the Assessing Officer without taking into consideration the movement of stock during the period from 01.09.2007 to 14.09.2007 and in our opinion, there was thus basic infirmity in the order of the Assessing Officer, inasmuch as the Oil Mills of the assessee being in ./2013 Assessment year: 2008-2009 Page 4 of 7 operation during the said period, the movement of stock should have been taken into consideration by him. In this regard, it is also observed that although such working was stated to be filed by the assessee showing the relevant transactions for the period 01.09.2007 to 14.09.2007 before the ld. CIT(Appeals), there is no such specific mention in the order of the Assessing Officer about the said working having been filed by the assessee. Although the ld. CIT(Appeals) has brushed aside the said working by treating the same as an after-thought, we are of the view that the said working prepared and furnished by the assessee to reconcile the difference in stock as taken by the Assessing Officer of different dates, i.e. 01.09.2007 and 14.09.2007 is relevant and it should be considered and verified before making any addition on account of the alleged shortage of stock. We, therefore, consider it just and proper and in the interest of justice to set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the same to the file of the Assessing Officer for deciding the same afresh after verifying the relevant working furnished by the assessee for the period from 01.09.2007 to 14.09.2007. Grounds No. 2 & 3 of the assessee’s appeal are treated as allowed for statistical purposes.

The issue raised in Ground No. 4 relates to the addition of Rs.3,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on the basis of entries found recorded in the diary during the course of survey.

During the course of survey, a diary was found in the name of one Shri Shyam Sangha, wherein an entry of Rs.2,00,000/- was made on 20.03.2007 in respect of Indian Bank and Rs.1,00,000/- on 18.03.2007 in the name of one Shri Manindra Nath. Since no explanation whatsoever could be offered by the assessee in respect of these entries, the amount of Rs.3,00,000/- was added by the Assessing Officer to the total income of the assessee. On appeal, ld. CIT(Appeals) confirmed this addition made by the Assessing Officer after having found that there was no explanation ./2013 Assessment year: 2008-2009 Page 5 of 7 forthcoming from the assessee in respect of the two entries found recorded in the diary.

We have heard the arguments of both the sides and also perused the relevant material available on record. As rightly submitted by the ld. Counsel for the assessee, both the entries in question dated 18.03.2007 and 20.03.2007 are falling in the financial year 2006-07 relevant to the assessment year 2007-08 and, therefore, the amount reflected therein aggregating to Rs.3,00,000/- cannot be added to the total income of the assessee for the year under consideration, i.e. A.Y. 2008-09. Ld. D.R. has not been able to raise any contention to dispute this position. We, therefore, delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue holding that both the entries found recorded in the diary being dated 18.03.2007 and 20.03.2007, the addition for the same could be made only in assessment year 2007-08 and not in the year under consideration, i.e. A.Y. 2008-09. Ground No. 4 is accordingly allowed.

The issue raised in Ground No. 6 relates to the addition of Rs.2,75,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of disallowance out of various expenses.

In the Manufacturing/Trading and Profit & Loss Account, the following expenses were claimed by the assessee under the various heads:- Milling charges Rs.21,18,693/- Carrying charges Rs.1,43,072/- Carriage Rs. 85,871/- Packing charges Rs.2,21,543/- Labour charges Rs.2,50,550/- Repair & maintenance Rs. 66,154/- ./2013 Assessment year: 2008-2009 Page 6 of 7 During the course of assessment proceedings, the assessee could not produce the relevant record as well as documentary evidence in the form of bills and vouchers to support and substantiate his claim for the aforesaid expenses, despite sufficient opportunity afforded by the Assessing Officer. The Assessing Officer, therefore, treated the expenses claimed by the assessee under the various heads as not fully verifiable and the disallowance of Rs.2,75,000/- was made by him being 10% of such expenses. On appeal, ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer observing that in the absence of supporting vouchers and bills produced by the assessee, the expenses claimed were not verifiable and the disallowance of 10% made by the Assessing Officer was fair and reasonable.

At the time of hearing before us, ld. Counsel for the assessee has not been able to raise any material contention except stating that the disallowance of 10% made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of various expenses is excessive and unreasonable. We are unable to accept the contention of the ld. Counsel for the assessee. Having regard to all the facts of the case including the type of expenses claimed by the assessee, the nature of business of the assessee and the quantum of expenses, we are of the view that the disallowance of 10% made by the Assessing Officer and confirmed by the ld. CIT(Appeals) for want of supporting vouchers and bills is quite fair and reasonable. We, therefore, uphold the impugned order of ld. CIT(Appeals) on this issue and dismiss the Ground No. 6 of the appeal of assessee.