TaxTMI 
TaxTMI 
2015 (11) TMI 178
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....rtex Group of Surat. A search under section 132 of the Income Tax Act was carried out at the Colourtex Group of Surat and its associated concern. The business premises of the assessee was covered under survey action under section 133A of the Income Tax Act, along with search carried out at other premises. This action was taken on 26.7.2006. The assessee has filed its return of income on 31.10.2007 declaring total income at NIL. The ld.AO has passed the assessment order under section 143(3) of the Income Tax Act. He made addition of Rs. 3,84,72,206/- on account of unexplained excess stock found during the course of survey. However, while computing the total income, it has been accepted at NIL, because, Shri Jayantilal T. Jariwala who as the head of the group, according to the AO, made a disclosure of Rs. 10 crores and set off of this addition be granted against that disclosure. Thus, the income of the assessee has ultimately been accepted at Rs.NIL, and whatever addition has been made has been adjusted against voluntary disclosure made by Shri Jayantilal Jariwala. According to the AO, as per the books of accounts, stock was 10,98,64,989 whereas on physical verification, the actual s....
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....f the assessee of such financial year..." Thus, section 69 lays down 3 conditions for treating stock discrepancies as unexplained: a. The assessee has made certain investments (Stock in this case); b. The investments are not recorded in the books of account, if any maintained; c. The explanation about the nature and source of acquisition of the investments offered by assessee is not satisfactory. In the instant case, the assessee company has made investments in stock of raw materials and finished products which have not been recorded in the books of accounts viz. the stock register etc. The assessee has failed to furnish any reasonable explanation about the discrepancy. In sum of the circumstances, the explanations furnished by the assessee are not satisfactory. Hence, all the three conditions for application of section 69 of the I. T. Act are satisfied in the instant case. In this case, the excess stock of materials to the tune of Rs. 3,84,72,206/- has not been recorded in the books of account of the assessee and the explanation offered by the assessee, in considered opinion, is not satisfactory. Therefore, value of such excess stock is liable to be added u/s.69 of the Incom....
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....is not justified and is deleted. ...... ...... ...... 11. I have considered the facts and submissions I agree with the appellant's view.-I have already in para. No. 6 above that this premises of the assessee was given on lease M/s. Colourtex Industries Pvt. Ltd.w.e.f. 10-7-2006 i.e. prior to the date of survey. Hence, no addition is called for in the hands of the appellant as all the stock belonged to M/s. Colourtex Industries Pvt. Ltd. Further, the assessee has explained the discrepancy in the valuation of stock found which was due to not considering the purity percentage by the survey team. The survey team has taken the gross weight of the raw material which is never pure but has some variation in purity percentage and after applying the purity percentage the net weight has to be taken for applying the rate. The appellant filed the copies of various purchase bills which confirmed this practice that in the bills first gross weight iswritten and then purity percentage is written and then by multiplying the purity percentage net weight is written on which the rate is applied. Therefore, applying the rate to gross weight will give the erroneous valuation. Even at the time....
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....sp; Annexure-5 Copy of lease deed evidencing the fact that the entire facility of the appellant was given on rental basis to Colourtex Industries Pvt. Ltd. effective from July 10, 2006 i.e. prior to the date of search. English version of the same is attached herewith for the kind reference of your honour. Annexure-6 Noting of survey team at the premises of the appellant during the course of survey proceedings itself that the amount of Rs. 291.96 lacs of inventory is lying there on a job work basis as per question No.11 raised to Shri Rajendra Prasad Patel, Officer of the company. 95-117 Annexure-7 Copy of the stock statement submitted to the Bank by Colourtex Industries Pvt. Ltd., which includes the stock lying at the location of the appellant, for justifying the ownership of the inventory in their name as on the year end. 118 Annexure-8 Copy of letter submitted before the learned AO to justify the stock discrepancy of Rs. 92.75 lacs." 119-181 8. The first evidence submitted by the assessee is a registration certificate in Form RC of the Central Excise Department available at page no.22. The relevant part of the certifica....