Sugar stock variance under 1% deemed natural production fluctuation, no addition warranted under Section 69C

ITAT Delhi held that no addition was warranted for alleged stock differences in sugar and molasses. The sugar variance of 0.98% and 0.76% at respective units was minimal and attributable to natural production fluctuations, with no incriminating evidence found during search. For molasses, the excess was explained by chemical volatility due to temperature changes, confirmed by the Chief Engineer. Regarding unaccounted cash, the matter was remanded to AO for limited examination of one transaction involving imprest amount, as vouchers from the day before search were not updated in books, creating apparent discrepancy.

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Issues Involved:
1. Addition on account of Press Mud.
2. Addition on account of Sugar (difference between books of account and physical verification).
3. Addition on account of Molasses (difference between books of account and physical verification).
4. Addition on account of difference in cash as per books of accounts and physical cash balance.

Issue-wise Detailed Analysis:

1. Addition on account of Press Mud:
The assessee contested the addition of Rs. 30,966/- made by the AO and upheld by the CIT(A). The assessee argued that the daily manufacturing report was not considered. However, this ground was not adjudicated as the amount was minor and left for the revenue by the assessee's representative.

2. Addition on account of Sugar:
The AO made an addition of Rs. 2,65,46,540/- due to a discrepancy between the books of accounts and the physical stock of sugar at different units. The assessee argued that there was no actual difference in stock, but a discrepancy arose because the production on the day of the search could not be entered into the books, which were seized. The Tribunal found that the discrepancy was inevitable due to the timing of the search and the seizure of the stock register. The production of sugar is continuous, and the entry in the books is done for a day as a single entry. The Tribunal held that there was no actual difference in stock but merely a discrepancy due to the search operation. Hence, no addition was called for on account of the difference in the stock of sugar.

3. Addition on account of Molasses:
The AO made an addition of Rs. 9,79,336/- due to a difference in the stock of molasses. The Tribunal noted that molasses is a highly volatile chemical that changes its shape, weight, and texture with temperature changes. The discrepancy in the stock of molasses was attributed to the foaming effect caused by chemical reactions during the hot weather in April. The Tribunal held that there was no chance of excess production of molasses or sugar and no addition was called for on account of the difference in molasses.

4. Addition on account of difference in cash:
The AO made an addition of Rs. 13,10,388/- due to the difference between the cash as per the books and the physical cash found at different premises. The assessee explained that certain vouchers pertaining to cash transactions undertaken on 06.04.2010 were not updated in the cash book, leading to the difference. The Tribunal perused the reconciliation statements and found that all amounts were reconciled except for Rs. 10,45,508/- received back from Sh. Kant against the imprest amount. The Tribunal remanded the matter to the AO for examining the genuineness of lending and receiving back Rs. 10,45,508/- from Sh. Kant.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with the Tribunal directing the AO to examine the genuineness of the imprest amount. The addition on account of sugar and molasses was deleted, while the minor amount related to press mud was left for the revenue.

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