2019 (9) TMI 374 - AT - Income Tax

Appeal dismissed, CIT(A) decisions upheld on stock issues & capital introduction

Assistant Commissioner of Income Tax, Circle-2, Burdwan Versus M/s. Tulasi Rice Mill

The appeal of the Revenue was dismissed, upholding the CIT(A)'s decisions on all issues. The CIT(A) found the stock-taking procedure unreliable and ... Excess stock of paddy allegedly found during the course of survey - survey u/s 133A - CIT-A deleted the addition - HELD THAT:- appreciated the same in the right perspective and keeping in view that the case of the assessee was duly supported by a certificate given by the Chartered Engineer to establish the maximum storage capacity of the godown of the assessee, he rightly held that the procedure adopted by the Survey Team for physical verification of stock was unreliable. Moreover, the ld. CIT(Appeals) also analysed the quantitative details of paddy furnished by the assessee and found on such analysis that the position of stock as on the date of survey was correctly reflected in the books of account of the assessee. He also noted that no material defect was pointed out by the Assessing Officer either in the books of account of the assessee or the stock register regularly maintained by the assessee and held that in the absence of any such defect and without rejecting the book result of the assessee, the addition made by the Assessing Officer on account of the alleged excess stock found during the course of survey was not sustainable. - Decided against revenue Addition on account of excess stock of gunny bags - CIT-A restricted the addition - HELD THAT:- After taking into consideration the opening stock, the purchases made by the assessee and the quantity of gunny bags used during the year under consideration, the stock of gunny bags available with the assessee was found to be 15,481 by the ld. CIT(Appeals). On the basis of this working, the difference in gunny bags found during the course of survey was determined at 3,479 by the ld. CIT(Appeals) and the addition made by the Assessing Officer on this issue was restricted by the ld. CIT(Appeals) to ₹ 97,412/- calculated at the rate of ₹ 28/- per gunny bag. Keeping in view all these facts and figures given by the ld. CIT(Appeals), which have remained undisputed by the ld. D.R., we find no infirmity in the impugned order of the ld. CIT(Appeals) on this issue - Decided against revenue. Addition on account of capital introduction by the partners of the assessee-firm - gifts in question given to the partners - HELD THAT:- It is observed that the gifts in question given to the partners were confirmed by the respective donors and affidavits to that effect were also filed by them. The source of funds utilized for giving such gifts was explained as the sale proceeds of gold ornaments by the concerned donors. Keeping in view the relationship between the donors and the donees CIT(Appeals) held that the gifts could be accepted as genuine if the source explained by the donors as sale of gold ornaments was established. As required the AO to make necessary enquiries with the concerned parties, who had claimed to have purchased the gold ornaments from the donors. CIT(Appeals) found that the only transaction that did not stand prove was that of the sale of gold ornaments to Hiralal & Sons. He accordingly restricted the addition of ₹ 23,89,500/- made by the Assessing Officer on this issue to ₹ 2,21,756/-. No infirmity in the impugned order of the ld. CIT(Appeals) allowing a relief of ₹ 21,67,744/- to the assessee on this issue since the source of funds for giving the gifts in the hands of the donors to that extent was duly established. - Decided against revenue. Issues Involved:1. Deletion of addition on account of excess stock of paddy.2. Restriction of addition on account of excess stock of gunny bags.3. Restriction of addition on account of capital introduction by the partners.Detailed Analysis:1. Deletion of addition on account of excess stock of paddy:The primary issue raised by the Revenue concerns the deletion of an addition of Rs. 1,86,98,218/- made by the Assessing Officer (AO) due to excess stock of paddy allegedly found during a survey. The assessee, a partnership firm running a rice mill, had discrepancies in stock as per statutory registers and physical verification. The AO rejected the assessee's explanation regarding the method of stock verification and discrepancies in the average weight of paddy bags, leading to the addition of Rs. 1,86,98,218/- to the total income.The Commissioner of Income Tax (Appeals) [CIT(A)] found the stock-taking procedure unreliable and noted that the AO did not validate it. The CIT(A) also considered the Chartered Engineer's certificate on the godown's storage capacity, which the AO did not rebut, thus establishing the maximum storage capacity. The CIT(A) relied on the books and papers impounded by the AO and the registers available with the appellant to determine the stock position. The CIT(A) concluded that the stock as on the survey date was correctly reflected in the books, and no defect was found in the registers or books of the appellant, making the survey results unreliable. Consequently, the addition on account of the difference in stock was deleted.2. Restriction of addition on account of excess stock of gunny bags:During the survey, 18,960 gunny bags were found, but no stock record was maintained by the assessee. The AO added Rs. 1,89,600/- to the total income, valuing the gunny bags at Rs. 10/- per bag. The CIT(A) found that the appellant did not contest the counting of gunny bags on tangible grounds and accepted the opening stock, purchases, and usage figures provided by the assessee. The CIT(A) determined the stock of gunny bags as 15,481 and restricted the addition to Rs. 97,412/- for the unaccounted difference of 3,479 gunny bags, valued at Rs. 28/- per bag.3. Restriction of addition on account of capital introduction by the partners:The partners of the assessee-firm introduced capital explained as gifts from their mothers, amounting to Rs. 23,89,500/-. The AO found the gifts non-genuine due to the sale proceeds of old ornaments received in cash and the donors' failure to appear for examination. The CIT(A) examined the sources of funds and verified the transactions through inquiries. The CIT(A) accepted the transactions except for the sale to Hiralal and Sons, which was not proved by the appellant. Consequently, the addition was restricted to Rs. 2,21,756/- for the unverified transaction, and the rest was deleted.Conclusion:The appeal of the Revenue was dismissed, upholding the CIT(A)'s decisions on all issues. The CIT(A)'s findings were based on detailed analysis and verification, leading to the deletion and restriction of additions made by the AO. The judgment emphasized the importance of reliable stock verification procedures and the necessity of proving the genuineness of transactions through credible evidence.