2014 (2) TMI 996

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....he appeal of the Assessee. Aggrieved by the order of CIT(A), Assessee and Revenue are in appeal before us. The grounds raised by the Revenue reads as under:- 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the addition of Rs. 24,27,523/- made on account of difference in stock found during the course of survey operation to Rs. 1,62,827/-. The ld. CIT(A) ought to have appreciated that the addition was made on the basis of different in stock recorded during the course of survey action. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the addition of Rs. 15,29,016/- made on account of excess shortage in stock to Rs. 1,66,671/-. The ld. CIT(A) ought to have appreciated that the shortage in stock during the year under report is 8.35% where as the same in the immediately preceding year was only 0.8% and that the Assessee could not explain the sudden increase in shortage in stock of 7.75% and hence the addition was made. 4. The grounds raised by the Assessee reads as under:- 1.1 The order passed u/s.250 on 26.03.2010 for A.Y.2003-04 by CIT(A)-IV, Baroda disposing off the app....

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....se of goods in process. Assessee was asked to reconcile the difference which AO states that Assessee was unable to reconcile but was however submitted that the difference in certain stocks like "Tobacco kandi", goods in process and "tobacco patti" was due to the reason that the stock was not considered correctly. However, according to the AO the Assessee did not bring any supporting evidence in support of its contention. He was therefore of the view that in the absence of any concrete reasoning for difference in stock, in case of excess stock, the same was acquired by the assessee out of the sources not disclosed in the books and in case of shortage of stock, the sale was not recorded in the books of accounts. He accordingly worked out the difference and made addition of Rs 24,27,523/- for the items stated in para 4 and page 3 of the order. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee granted partial relief to the Assessee by holding as under:- 2.2 I have carefully considered facts of the case and appellant's submissions. Appellant's first contention is that tobacco kandi of 7320 kg....

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....ods is accepted. Assessing Officer's other observation that sales, purchases in quantity as well as value terms were fixed only implies that the book stock did not require any adjustment. Appellant has not disputed the book stock value and this observation of Assessing Officer is therefore, not relevant to the issue at hand. After considering 38675 kg. of tobacco patti stock found physically to be semi finished goods, the difference in stock of goods in process found physically and the book stock would be 1.5 kg. only, which is insignificant requiring no addition to the income. In case of tobacco patti, the difference would be 1794 kg. excess, i.e. physical stock is more compared to the book stock, the value of which at the rate of Rs.21.5 per kg. applied by the Assessing Officer would be Rs.38571/-. In respect of tobacco kandi, appellant has adjusted 5000 kgs. of tobacco dust found in excess against the same and has worked out the shortage in kandi stock to be 21210 kg, vis-a-vis the book stock. Since tobacco dust and tobacco kandi are different outputs of the process, appellant's contention regarding adjustment of tobacco dust stock of 5000 kg. against kandi stock is not ....

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....age in stock is found at the time of survey, the entire amount of difference cannot be added to income but at the most addition could be made of the gross profit element of such difference and for which he placed reliance on the decisions in the case of ACIT vs Shri Inducto Ispat Alloys Ltd (ITA No 2784/Ahd/06 order dated 5.9.2013) and in the case of Mayur Sejpal (HUF) vs ITO (ITA No 5444/Mum/2011 order dated 11.10.2012). He further submitted that the Gross profit rate and the net profit rate for the year under appeal was 22.96% and 11.21% respectively. 9. We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the course of survey difference in physical stock as compared to the book stock was found. AO has noted that the assessee could not reconcile the difference. Before CIT(A), Assessee submitted reconciliation statement and other submissions. CIT(A) in his order has noted that the submissions made by Assessee were forwarded to the AO for examination and his comments but the AO in the remand report has not offered any comments. CIT(A) therefore after considering the submissions of the Assessee granted relief to Assessee. It....

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....ing at the quality of construction, height of the godown and that the roof was of RCC. Thus to assess the cost of construction, the matter was referred to DVO. DVO estimated the cost of construction to be at Rs 70,42,000/-(the details of which are given by A.O. on page 6 of order) as against Rs 33,39,568/- shown by the assessee in its books of accounts. A.O. therefore treated the difference between the estimated cost by DVO and the cost of construction as shown by Assessee as the undisclosed investment in the construction of godown to be from undisclosed sources and added the same to the income. Aggrieved by the order of AO Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee, remand report from AO, granted partial relief to the Assessee by holding as under:- 4.2 I have carefully considered the matter. Appellant has relied on various Court decisions that where proper books of accounts are maintained and expenditure is fully supported by vouchers, reference to valuation cell is not valid unless books of accounts are rejected and addition to income could not be made solely on the basis of report of DVO. The Rajkot Bench of ITAT i....

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....he difference with reference to declared cost of construction, i.e. Rs. 33,39,569/- is of Rs. 21,08,892/-. Addition is confirmed to the extent of Rs. 21,08,892/- and the balance is deleted. 14. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. Before us, Ld A.R. apart from reiterating the submissions made before AO and CIT(A) submitted that the Assessee maintains regular books of accounts and the same are subject to audit. He further submitted that in the present case, AO neither expressed doubts over the correctness of the books of accounts nor rejected the books of accounts but straightaway referred the matter to the DVO. He placed reliance on the decision of Hon'ble Apex Court in the case of Sargam Cinema (2010) 328 ITR 513 (SC) the decision of Punjab & Haryana High Court in the case of CIT Vs Chohan Resorts (2012) 253 CTR (P&H) 106. He further submitted that DVO had worked out year wise break up of the assessed cost of construction based on the year wise expenditure statement submitted by the Assessee. As per the working of DVO the total difference worked out to Rs. 37,03,031/- of which the difference for the year under consideration was only Rs. 10,....