KUNJ BEHARI LAL & SONS,GWALIOR vs. I.T.O., WARD-1(1), GWALIOR

During the year, the assessee was in the business of purchase and sale of timber. A survey u/s 133A of the Income Tax Act, 1961 was carried out on 06.09.2006. During the course of survey, in the assessee’s business premises, on physical verification, closing stock of Rs.26,25,770/- was found, while as per books of account, the stock was of Rs.12,92,578/-. Thus, excess stock was found of Rs.13,33,192/-. Similarly, on physical verification, cash was found of Rs.7,03,500/-, while as per cash book, it was Rs.2,35,337/-. Thus, excess cash of Rs.4,68,163/- was found. Regarding the excess stock and cash found, total amounting to Rs.18,01,355/- (Rs.13,33,192+Rs.4,68,163/-), the assessee could not give any explanation and surrendered the same, accepting it as additional income for F.Y. 2006-07. 3. The AO, on the basis of the surrender, made addition of Rs.22,86,569/-, i.e., Rs.18,18,406/- towards excess stock found in the survey and Rs.4,68,163/- towards excess cash found in the survey. The excess stock was re-worked to Rs.18,18,406/-, as against that of 13,33,192/- as worked out by the survey team.

By virtue of the impugned order, the ld. CIT(A) has reduced the addition of Rs.18,18,406/- representing excess stock to Rs 8,415/- and that of Rs.4,68,163/-, representing excess cash, to Rs.3,51,000/-.

Apropos the excess stock of Rs.8,415/-, the ld. CIT(A) has held that ‘considering the huge stock inventory found, the difference of just Rs.8,415/- is too small a difference calling for any adverse inference because such small mistake could have been there for any reason’.

The ld. Counsel for the assessee has contended that the ld. CIT(A) has erred in not deleting the entire addition of Rs.18,18,406/- and in confirming the addition to the extent of Rs.8,415/-, particularly when he himself accepted that this difference was too small.

The ld. DR has placed strong reliance on the impugned order.

The ld. CIT(A) is not found justified in sustaining the addition to the extent of Rs.8,415/-. No reason for the alleged mistake has been specified/pointed out. Rather, the ld. CIT(A) has himself observed that such a small mistake could have occurred for any reason. This is no basis for sustaining the addition. Accordingly, this addition is deleted.

Regarding the addition of Rs.3,51,000/- towards excess cash, before the AO, the assessee submitted that as per page no 133 of the cash book, which is signed by the income tax inspector, there was cash balance of Rs. 2,35,337.43/- on 05.09.2006, but on 01.09.2006 manager Shri Girraj Agarwal had withdrawn Rs. 3,51,000/- for the purchase of goods, which is not accepted while working out the cash balance; but since no purchase could be made, Shri Girraj Agarwal, after return from Sagar, kept the money in the business premises on 05.09.2006, which, due to mental tension, he could not explain at the time of survey. The AO rejected the explanation of the assessee, though without any reasoning / observation. The ld. CIT(A), on the other hand, has observed that:

The ld. Counsel for the assessee has contended that the ld. CIT(A) has failed to appreciate that the survey was carried out on 06/09/2006 and it continued till 07/09/2006, when the statement of the Manager was recorded; that it is not a hidden fact that under how much pressure a person would be when he is grilled for almost 24 hours; that the non disclosure of cash kept in the drawer by the Manager on his return from Sagar, under these circumstances, cannot be termed unnatural; and that moreover, the returned cash of Rs. 3,51,000/- is entered in the cash book dated 06/09/2006 and cash balance taken is inclusive of this amount, which is continued till the end of year.

The ld DR, relying on the impugned order, has contended that the story of Shri Giriraj Aggarwal, Manager, having withdrawn the sum of Rs.3,51,000/- for the purchase of goods from Sagar and having kept back the same since the purchase did not materialize, was not there before the AO.

It is also not the case that after the date of the survey, i.e., 06.09.2006, the assessee had manipulated her books of account. Though the AO was of this view, the ld. CIT(A) has himself, in para 4.3.4 of the impugned order, observed that: ‘Further, accept baldly alleging, no material is brought on record by the AO to show that subsequent to the date of survey, the appellant had manipulated her books of account’. It is pertinent that in the remand report furnished before the CIT(A), the AO had made no adverse observation/remark and the ld. CIT(A) duly took this fact into consideration.

Further, it is also pertinent that whereas the ld. CIT(A) has taken part cognizance of the assessee’s books in favour of the assessee, the part of the cash book relating to the issue under consideration has not been considered and it has erroneously been observed that the amount of Rs.3,51,000/- does not stand entered in the cash book.

The ld. CIT(A) has also observed that out of the amount of Rs.3,51,000/-, no amount was spent. It is seen that in the cash book, (APB-47) an amount of Rs.1000/- out of this amount of Rs.3,51,000/- has been shown as expenditure on travel to Sagar from Jabalpur and back. The ld. CIT(A), as observed hereinabove, failed to take into consideration, much less rebutted, this entry in the cash book of the assessee and this has resulted into the observation under consideration, which is incorrect, causing prejudice to the assessee.

In view of the above, the addition of Rs.3,51,000/- is deleted.

In the result, the appeal is allowed.