TaxTMI 
TaxTMI 
2017 (1) TMI 1199
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.... for scrutiny by the CBDT and hence, notices u/s 143(2) & 142(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act') were issued. In response to notices, the authorized representative of the assessee appeared from time to time and produced books of accounts and other relevant details called for. During the course of assessment proceedings, the A.O. noticed that the assessee is into the business of trading in iron scrap mainly purchased scrap by public auction from South Central Railway and official liquidator of companies goes into liquidation. The A.O. further observed that as per the audit report issued by the auditor u/s 44AB of the Act, the auditor observed that quantitative details of stock could not be ascertained and the value of closing stock has been taken as per the certificate by the management, therefore, issued a notice and asked to furnish the details of stock along with valuation of closing stock. Since, the assessee could not furnish details of stock, the A.O. addressed a letter to the bank of the assessee and requested to submit details of stock hypothecated by the assessee for the purpose of obtaining open cash credit loan. 3. In response to notice u/....
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....ck either purchased or sold or remaining as closing stock. It is further submitted that it has approached bank for enhancing the credit limit for the purpose of purchasing stock from M/s. New Star Iron Scrap Private Limited, which is the successful bidder of two factories from the official liquidator. The bank has sanctioned loan based on the request and loan proceeds has been directly credited to the accounts of the company as an advance paid for purchase of stock. The stock statements submitted to the bank, includes stock lying in the godowns or places of purchase of the customers, however, these stocks were not considered in the books of accounts of the assessee and only advances paid to M/s. New Star Iron Scrap Private Limited is taken in the books of accounts. The assessee further submitted that the bank manager has explained the procedure followed by the bank for sanction of open cash credit loan and further followup action in respect of verification of stock hypothecated to bank, but he did not explain the position of the assessee, therefore, the deposition given by the bank manager cannot be considered as evidence. 5. The A.O. after considering the explanations of the as....
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....her submitted that the A.O. was erred in arriving at the conclusion of closing stock of the assessee, based on the stock statement furnished by the assessee inspite of the fact that the said stock statement is factually incorrect. The assessee further submitted that it has submitted stock statement to the bank considering its own stock as well as stock lying in the place of purchase of goods based on the advances given to the parties. The assessee also filed an application for admission of additional evidences, with necessary evidence. The CIT(A), during the course of appellate proceedings has forwarded the additional evidences filed by the assessee to the A.O. for his comments. The A.O. vide his remand report dated 23.12.2011 reiterated the stand taken at the time of assessment. As regards admission of additional evidences, the assessing officer has provided a copy of the sworn deposition of the bank manager dated 22.12.2009 which was not supplied to the assessee during the course of assessment proceedings. The A.O. has given an opportunity to the assessee for cross examination of the bank manager. After the outcome of the cross examination, the A.O. has viewed that the cross exam....
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....on by the A.O. are not relevant to the facts of the case in view of the peculiar circumstances of the case. Basically the bank manager relied on the properties mortgaged and the amount paid to the sister concern for purchase of scrap while sanctioning loan. Therefore, the bank manager obviously did not consider the stock statement furnished to the bank for the purpose of sanction of the loan. Further, he agreed that his first statement was an explanation with regard to the general practice, as he clearly admitted that at the time of recording the statement he did not verify the file of the assessee. Therefore, the statement of the bank manager recorded during the course of assessment proceedings need not be relied upon. With these observations deleted additions made by the A.O. towards difference in closing stock as per stock statement submitted to the bank and disclosed in the books of accounts u/s 69B of the Act. Similarly, the CIT(A) deleted additions made by the A.O. towards gross profit addition on undisclosed sales. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 9. The Ld. D.R. submitted that the Ld. CIT(A) is erred in deleting the additions made by the....
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....red into agreement with its sister concern M/s. New Blue Star Iron Scrap Private Limited for purchase of scrap. The assessee has borrowed cash credit loan from the bank which was directly credited to M/s. New Blue Star Iron Scrap Private Limited account for purchase of stock and the bank has considered the stock lying in the place of purchase of the customer, however, the facts remains that the loan is sanctioned purely based on the strength of the collateral security offered by the partners, but not based on the stock alone. Though the bank has considered stock lying in the godowns and place of purchase of the customers, these stocks were not accounted in the books of accounts of the assessee, because the assessee has not finalized the purchase and only an advance is given for purchase of stock, and advance paid is considered in the books of accounts. The A.O. without understanding the peculiar facts of the case, simply gone on the basis of the stock statements to make additions, which is incorrect. 11. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. made additions towards difference in val....
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....on Scrap Private Limited, which is evident from the fact that the loan proceeds has been directly credited to the account of M/s. New Blue Star Iron Scrap Private Limited, which was further supported by the deposition of the bank manager wherein the bank manager clearly stated that the loan is sanctioned based on the strength of the collateral security mortgaged to the bank and also the loan proceeds is directly credited to the customer account. The assessee further contended that the A.O. has not pointed out any discrepancies in the books of accounts and stock books to say that the closing stock disclosed in the books of accounts is incorrect. The books of accounts are audited under the provisions of section 44AB of the Act and the auditor issued an unqualified report in respect of valuation of closing stock as well as quantitative details of stock submitted in the financial statements. The auditor clearly stated that because of peculiar facts of the case, the quantitative details of the stock cannot be furnished. The A.O. himself has admitted that the assessee has purchased stock and sold on lot basis without any reference to item of stock. Therefore, the A.O. was incorrect in di....
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....edit limit for the purpose of payment of advance towards purchase of stock from M/s. New Blue Star Iron Scrap Private Limited, a sister concern of the assessee which is a successful bidder from the official liquidator for two companies goes on liquidation. The assessee has filed necessary evidences to prove that it has borrowed loan for the purpose of purchase of scrap from M/s. New Blue Star Iron Scrap Private Limited and also filed necessary evidences to prove the amount advanced to the party for purchase of stock. The assessee also proved the fact that it has paid advance for purchase of stock also considered the stock proposed to be purchased in the stock statement submitted to the bank. Therefore, we are of the view that the A.O. was erred in considering stock statement submitted to the bank for making additions towards difference in stock u/s 69B of the Act. 15. Coming to the facts of the present case. The assessee is in the business of trading in scrap, which is mainly purchased from South Central Railway and M/s. New Blue Star Iron Scrap Private Limited, a sister concern of the assessee. The assessee has paid advance to M/s. New Blue Star Iron Scrap Private Limited for p....
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....f the case, we are of the view that the A.O. was erred in making additions towards difference in closing stock based on the stock statement submitted to the bank. The CIT(A) after considering the relevant details has rightly deleted additions made by the A.O. We do not see any reason to interfere with the order of Ld. CIT(A). Hence, we inclined to uphold CIT(A) order and reject ground raised by the revenue. 18. The next issue that came up for our consideration is addition towards gross profit on sales disclosed in the stock statement submitted to the bank. The A.O. made addition of Rs. 20,76,603/- towards difference in gross profit based on the gross profit rate admitted by the assessee. It is the contention of the assessee that purchase of goods are verifiable and the details of sales are also verifiable. It is further submitted that stock details in case of iron scrap is not possible as only weights and lots can be mentioned either in the purchase bills or sale bills and detailed description of stock is not possible. The A.O. has not pointed out any discrepancies with regard to the non-disclosure of either purchase or sale in the books of accounts. The A.O. made additions mere....