TaxTMI 
TaxTMI 
2012 (11) TMI 501
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.... at NIL undisclosed income. The AO, after calling for detailed explanation from the assessee, with regard to inter-se discrepancies on stock quantities of Raw Materials, Work-in-Progress and finished products made an addition of Rs. 62,07,542/-, in the assessment framed as undisclosed income u/s 158BC. The additions have been made u/s 69B of the Income Tax Act. 5. The assessee is in the business of manufacturing Aroma & Specialty Chemicals at its factory premises located at Koregaon Bhima, Taluka Shirur, Distt. Pune, and exports thereon having its registered office at Bhandup (W), Mumbai. 6. In the proceedings for assessment of undisclosed income under Chapter XIVB of the I.T. Act, the assessee company made the following submissions before the AO and also reiterated the same before the CIT(A) (as per SOF before the CIT(A)), which are reproduced as under : "1. Stock of finished products, work in process and raw materials treated as undisclosed income - Rs. 62,07,542. The alleged undisclosed income of Rs. 62,07,542 is bifurcated as under: (a) Stock of Finished Products Rs. 49,60,234 (b) Stock of Work in Process Rs. 11,75,608 &nb....
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....s against 2,500 Kg. as per "list of material in process" in Annexure 'C' and that of OTBCHA is 7560 Kg. as against 2500 Kg. as per "list of material in process" in Annexure "C". What is your say for this disparity (Difference)? Ans: PTBCHA of 57,780 Kg. and OTBCHA of 7,560 Kg. is not 100% pure that can be delivered as per orders. The same is to be given minor treatment i.e. purification, blending, purging by poring Nitrogen gas etc. The difference may be for reason. During the assessment proceedings also, your appellant was asked to explain the variation between the stock found by the search party and the stock recorded in excise records. The appellant filed its explanation vide its letter dated 11.8.99. The explanation of the appellant is reproduced herein below: "The above goods are treated as finished goods for MIS purpose, but for excise records these goods are not treated as finished goods, because these goods are meant for exports against pre-shipment sample approval from the foreign parties. We send pre-shipment sample to the foreign parties for approval. If they approve the goods, the goods are shown in excise records as finished goods and dispatched to the part....
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....d its place either in raw material stock register or finished goods stock register. Since the above stock of finished goods is not reflected in either of the registers, the same is unaccounted stock and accordingly, he treated the amount of Rs. 49,60,234, being the value of finished products, as undisclosed income of the appellant under Section 69B of the I.T. Act for Assessment Year 1998-99. Your appellant submits that the value of the finished products found during the search cannot be treated as undisclosed income of your appellant in view of the definition of the undisclosed income given in Section 158B(b). The definition of undisclosed income is reproduced as under: "Undisclosed income includes any money bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property winch has not been or would not have been disclosed for the purposes of this Act." Your goodself will observe from the above definition that the undiscl....
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.... Kedarnath Jute Mfg. Co. Ltd. 82 ITR 363 has held as under: "Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of accounts be decisive or conclusive in the matter." Therefore, the stock of finished goods as on the date of search cannot be treated as undisclosed income of the appellant merely on the premise that such stock was not recorded in the excise records of the appellant. The contention of the learned DCIT that the goods must find its place either in raw material stock register or finished goods stock register cannot be accepted, because once the raw materials are issued for production, such raw materials can never find place in raw material register. In view of the above submissions, your appellant prays that the undisclosed income of Rs. 49,60,234 assessed by the learned DCIT in respect of value of finished goods as on the date of search should be deleted. Without prejudice to the above submissions, your appellant submits that the stock of finished goods found by the searc....
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....ered in the annual accounts by your appellant. The value of work in process of your appellant as on year ended on 31.3.97 and 31.3.98 was Rs. 23,51,379 and Rs. 27,99,512 respectively. During the search proceedings, the search party found work in process worth Rs. 11,75,608 in the factory premises of the appellant. The said amount of Rs. 11,75,608 has been added by the learned DCIT as undisclosed income of the appellant under section 69B of the IT Act for Assessment Year 1998-99. Reiterating the submissions made earlier as regards the stock of finished goods, your appellant submits that such stock of work in process, though not recorded in the stock register cannot be treated as undisclosed income of the appellant for the reason that such stock is properly dealt with by your appellant while preparing its accounts as on the last day of the financial year. In view of this, the learned DCIT he directed to delete Rs. 11,75,608 being the value of work in process as on the date of the search. Without prejudice to the above submissions and reiterating the submissions made earlier as regards the stock of finished goods, it is prayed that the learned DCIT be directed to allow due deduction u....
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....uced below: "Computerized print out of "stock statement" as on 1.4.97 inventorised in books and documents seized as per Annexure 'A'. As per the sheet No. 25 of Annexure 'A' value of closing stock of all goods - raw material and finished products is Rs. 1,12,15,000/-". During the assessment proceedings, your appellant was asked to explain the difference between inventory as on 31.3.97 as per the audited accounts and the value stated by the production officer in his statement. The following explanation was given by your appellant vide letter dated 11.8.1999: "The stock statement found at the time of search is only a MIS statement prepared by the Factory Manager every month to give an indication of the inventory situation. The method of stock valuation followed in financial accounts is weighted average for raw materials, packing materials and stores and spares. The rates taken in the MIS statement found at the time of search are current estimated rates to reflect approximate position of inventory. Thus, there is hound to be difference between the stock statement found at the time of search and financial accounting statement. Moreover, the difference is only 5%." The above....
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....essee. He also referred to the paper book and documents placed in support of contentions. 9. On the other hand, the DR strongly supported the orders of the revenue authorities. 10. We have heard the arguments and have also perused the papers forming part of the paper book (APB) along side the orders impugned before us. 11. We find that this is a case of search and seizure operations and orders impugned before us in order of assessment of undisclosed income u/s.158BC. According to these special provisions, the assessment of undisclosed income can be done only in the circumstance that the fact or transaction has not been entered in the books of account and not forming part of computation of income as per section 158BA(3). 12. This is a case where there are stocks found on the date of search in the quantity movement from raw material, work in progress and finished products, within the factory premises. There has been no arguments, till date either by the A.O., CIT(A) or by the DR at the time of search that there has been either excess or shortage of finished stocks which would lead to generation of undisclosed income to the assessee. There has been no argument from the rev....
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....ead to an element of income having been generated, and which could come under the purview of Chapter XIVB of the Income Tax Act. We cannot accept the orders of the revenue authorities, to be in line with Chapter XIVB, and cannot hold that income assessed, forms part of undisclosed income. We cannot sustain the arguments of the revenue authorities, on these issues. 14. Now let us analyze the issue on facts. There are three types of additions in the assessment made. The first type is on (A) stock of finished products in process and work-in-process. The second type is (B) stock of raw materials. The third type is (C) difference in valuation of stock as on 31.3.07. These are dealt with as under: (A) Stock of finished products and work in progress-Rs. 61,35,842/-. 15. The seizure party inventorised 57,780 kgs of PTBCHA valued at Rs. 39,74,108, 7560 kgs of OTBCHA valued at Rs.9,86,126 and stock in process of Rs. 11,75,608. In the course of search itself the production officer explained that stock register of furnished goods is kept for central excise purpose whereas 'material in processing' register listed 2.5 kgs each of the above two products. Further for the discrepancy in qu....
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.... (Releif Rs. 61,35,842) (B) Stock of Raw materials Rs. 71,700/- 16. Under this head quantity of 50.9 kgs of catalyst-A was inventorised and valued at 25,450/-. Assessee submitted stock register (APB 75) in support to state that catalyst A was in the stock register as 'imported catalyst'. This was not accepted. Another item was HCO at 1850 kgs valued at Rs. 46,250/. The stock entry of this item at 1120kgs was produced in support (APB 74), while accepting that there is a discrepancy of 730 kgs in this item by assessee. AO did not accept and made addition of entire amount. After considering the arguments and examining the documents placed on record, we are satisfied that the stock of catalyst A was accounted as imported catalyst at 50.9 kgs (Rs. 25,450) and stock of HCO at 1120 kgs.(Rs. 28,000). Therefore, only addition of 730kgs value of HCO was required to be confirmed. Even though assessee explanation was that the stock could be out of earlier issued for process, the same cannot be accepted in the absence of reconciliation, so to that extent the addition required to be confirmed. (C) Stock valuation as on 31.3.2007 17. An addition of Rs. 6,55,000 was made under this hea....