TaxTMI 
TaxTMI 
2017 (9) TMI 1596
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee as its income during the course of survey and duly included in the returned income. (c) That the learned Commissioner of Income-tax (Appeals) has erred in upholding the addition by rejecting the contention of the assessee that the addition of Rs. 7,18,000 would lead to taxation of the same income twice. (2) That the learned Commissioner of Income-tax (Appeals) has erred in upholding the addition of Rs. 7,82,000 made to the taxable income of the assessee on the allegation of excess stock having been found during the course of survey. (b) That the learned Commissioner of Income-tax (Appeals) has erred in rejecting the contention of the assessee that in fact no excess quantity of stock was found at the time of survey and that the stock actually found at the time of survey was less than the quantity of stock found recorded in the stock register maintained under the Central Excise Rules. (c) That the learned Commissioner of Income-tax (Appeals) has erred in failing to appreciate that the surrender was made by the assessee in a mistaken belief of fact on the basis of the alleged discrepancy depicted by the authorised officers at the time of surv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as found Rs. 92,84,100. Thus the difference of Rs. 74,82,000. We offer to tax. 2. The excess cash found amounting to Rs. 7,18,000 (rupees seven lakhs and eighteen thousand only) is hereby offered to tax. 3. The sales to the extent of Rs, 58,00,000 (rupees fifty-eight lakhs only) not recorded in the books is hereby offered to tax. 4. During the period relevant to the assessment year 2009-10, the company will not claim the deduction under section 80-IB of the Income-tax Act, 1961. Keeping in view the abovesaid facts, we offer an additional income of Rs. 1,40,00,000 (rupees one crore forty lakhs, only) as detailed above over and above the normal income for the assessment year 2009-10. This offer is made to buy a peace of mind subject to no penalty and or prosecution and has been made voluntary without any pressure or coercion." 4. Subsequently the assessee retracted from the surrendered amount on account of the following : "On account of difference in stock Rs. 74,82,000 On account of excess cash Rs. 7,18,000 In this regard, the assessee filed a letter dated November 7, 2009 which reads as under : 'It is respectf....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... stock registers and the value of excess stocks of Rs. 74,82,000 was worked out only on the basis of wrong valuation. It is a settled law that once no excess quantity of stocks is found, then, no addition can be made far alleged undisclosed excess stocks only on the basis of valuation. Therefore, the surrender of Rs. 74,82,000 is wholly wrong and has, therefore, been withdrawn. (iv) That the instant case is a case where in/act the stocks of work in process have been found on physical verification in survey to be less than the stocks as per the stock registers and, therefore, the surrender of Rs. 58,00,000 has been made to cover such shortage of stocks which can be presumed to have been sold outside the books. (v) That the surrender of Rs. 58,00,000 on account of shortage of stocks due to unaccounted sale will thus cover the excess cash found in the premises of the assessee as well as the receivable found in loose papers and, therefore, the only income taxable in the hands of the assessee on account of surrender will be Rs. 58,00,000 which has been included in the return. (vi) That purchases to the tune of Rs. 69,04,407 made against the payments made to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 222 blocks on one page making a total inventory of 43803.10 kgs. as per the details given hereunder : (1) 274 blocks as inventorised in 9 pages 17820.30 Kgs (2) 274 blocks as inventorised in one page 26774.80 Kgs Total 43,803.10 Kgs The said stock has been valued at Rs. 211.95 per kg. whereas the estimated cost price of the said blocks only Rs. 111.95 per kg. This fact is supported because the company has been selling the finished goods at Rs. 125 to Rs. 135 per kg. The estimated cost price of the work in process cannot be more than the selling price. The difference of Rs. 100 per kg. on 43803.10 kgs. alone show the excess value of stock at Rs. 43,80,310. alleged to be found by the survey team. Even the balance amount is only on account of wrong valuation and wrong computation as there is no difference in quantity of stock found in survey vis-a-vis the quantify duly accounted for in stock registers. The authorised officer insisted that there are unaccounted sales to the tune of Rs. 58 lakhs on the basis of impounded papers, The company does not want to dispute the same and has offered the same in the income of the company while filing the return....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the detailed calculation of cost of work in process during the course of assessment proceedings together with purchase and sale bills as per annexure-6. The average cost of work in process as per the chart placed on record showed the average cost at Rs. 112 per kg. and whereas the authorised officer had valued the same at Rs. 212 per kg. which also resulted in the excess valuation of Rs. 74.82 lakhs. Photocopies of the purchase vouchers are enclosed to substantiate the working of average cost at Rs. 112 per kg. Similarly copy of the sale bill is also enclosed to substantiate the sale price of finished goods. It is further submitted that the authorised officer wrongly valued the work-in-progress at Rs. 212 per kg. This valuation is apparently wrong as the detailed calculation brought on record during the course of assessment proceedings showed that the average sale price of first grade, second grade and skins was Rs. 143 per kg. Therefore, the valuation of work-in- progress at Rs. 212 was imaginary, wrong and cannot not be justified in any manner. The company had in fact given complete break up of the valuation during the course of survey also showing value at Rs. 111.95 which was c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of stock. 7. Being aggrieved, the assessee carried the matter to the learned Commissioner of Income-tax (Appeals) and reiterated the submissions made before the Assessing Officer, it was submitted that excess cash of Rs. 7,18,000 found during the course of survey was already covered in the amount of Rs. 58,00,000 disclosed as unaccounted sales. The learned Commissioner of Income-tax (Appeals), however, did not find merit in the submissions of the assessee and sustained the addition of Rs. 7,18,000. As regards to the other addition of Rs. 74,82,000 on account of the excess stock found during the course of survey, the assessee submitted that no excess stock was found at the time of survey and as per register maintained under the Central Excise Rules. The stock physically inventorised was stock as per the books and that in the provisional trading account prepared at the time of survey, purchased amounting to Rs. 69,04,407 had not been debited to the purchase account even though the quantity of goods purchased was included in the stock register and that the profit as per the provisional trading account was only 3.7 per cent. whereas the assessee had been declaring gross profit ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal. The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee offered a sum of Rs. 58 lakhs on account of sales outside the books of account and the excess cash found during the course of survey amounting to Rs. 7,18,000 was covered out of the sale proceeds of Rs. 58,00,000 as offered by the assessee. It was further stated that the balance which was offered at Rs. 74,82,000 was wrongly offered due to some calculation mistake of the rate applied to the work-in- progress as valued by the Department during the course of survey. It was further stated that the unit of the assessee is registered with the Central Excise Department and the assessee was maintaining day-to-day register and had been filing the statutorily return under the Central Excise law. It was further stated that during the course of survey the Department had counted the stocks of finished goods packing material, raw material and work-in-progress but the valuation of work-in-progress had not been taken correctly because the Department had made the calculation at the time of survey at Rs. 111.95 per kg. but adopted at Rs. 211.95 per kg. by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....supported by the sales bills placed at pages 44 to 50 of the assessee's paper hook which has also not been doubted by the Assessing Officer. Therefore, the valuation of work-in-progress at 211.95 per kg. by the survey team was made just to increase the surrendered amount. As such, the assessee had written a letter dated November 7, 2009 to the Assessing Officer giving therein the reasons for retraction of the amount of surrender and the said action was taken before any query was raised by the Assessing Officer. It was further submitted that there was no documentary evidence before the survey team and the Assessing Officer to arrive the rate of Rs. 211.95 per kg. of work- in-progress. It was stated that the assessee furnished the documentary evidences before the learned Commissioner of Income-tax (Appeals) and stated that it was only at the time of finalisation of accounts, the assessee noticed that there were calculation mistakes which had been further substantiated with documentary evidence at the time of survey when the rate of finished goods adopted was at far lesser rate than the rate of work- in-progress. It was slated that the assessee pointed out with documentary evidenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he learned Commissioner of Income-tax (Appeals) in their respective orders and submitted that the assessee itself admitted that the mistakes were there in the cash, sales stock and thereafter voluntarily surrendered. So there was no reason for making the retraction later, which is only an afterthought and could not be allowed. 11. We have considered the submissions of both the parties and carefully gone through the materials available on record. In the present case, the first controversy in this appeal to be resolved relates to the unaccounted cash amounting to Rs. 7,18,000 found during the course of survey search. The claim of the assessee is that the said cash was out of the amount received on account of the sale proceed outside the books of account. In the present case, nothing is brought on record to substantiate that the cash generated from the sale proceeds was utilised by the assessee elsewhere and that the cash found during the course of search was not relating to the business activity of the assessee. We, therefore find merit in this submission of the learned counsel for the assessee that the amount of Rs. 7,18,000 i.e., the cash found during the course of survey was ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as increased. Now, the question arises as to whether the rate of 111.95 kgs. as claimed by the assessee in its retraction letter dated November 7, 2009 (copy of which is enclosed in the assessee's paper book at page 63) was justified or not. In this regard, the assessee explained to the Assessing Officer vide letter dated December 16, 2011 that average sale price was Rs. 143 per kg. and even during the course of survey it was noted that a batch of work-in-process of 195.73 kgs. cost Rs. 18,919, thus the cost price worked out to Rs. 96.95 per kg. which is evident from page No. 63 of the assessee's paper book, in the said cost Rs. 15 per kg. were added on account of overhead expenses. Therefore, the cost was worked out at Rs. 111.95. In that view of the matter, we find merit in this submission for the learned counsel for the assessee that the figure of Rs. 111.95 per kg. was manipulated to Rs. 211.95 per kg. by making the overwriting on the actual figure, therefore, the cost of work-in-progress found at the time of survey weighing 43,803 kgs. was to be taken by applying the rate of Rs. 111.95 and not Rs. 211.95. Its total value will come at Rs. 49,06,000. However it is not cl....