AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 1638
X X X X Extracts X X X X
X X X X Extracts X X X X
....om where the Assessing Officer got the copies of stock statement submitted by the assessee company to the Bank which is reproduced as under: Date Value of closing stock 26-09-2009 Rs.65,95,000/- 31-10-2009 Rs.67,04,500/- 31-12-2009 Rs.69,55,000/- 31-01-2010 Rs.70,99,000/- 05-03-2010 Rs.75,10,500/- The Assessing Officer after taking note of the value of closing stocks as given above was of the opinion that the assessee had maintained monthly stock amounting to Rs. 65 lakhs to 75 lakhs, i.e. average stock of Rs. 69,72,800/-per month during the last six months. However, he noted that as per the stock submitted before him by the assessee, the closing stocks were shown at only Rs. 32,13,280/- as on 31-03-2010. Taking note that assessee did not produce any books of accounts and other documents to verify the stock, the Assessing Officer concluded that the correctness, completeness of the value of closing stock cannot be verified. Therefore, the Assessing Officer adopted the average value of stock of Rs. 69,72,800/- as on 31-03-2010. So, there was a stock difference of Rs. 37,59,520/- (Rs.69,72,800/- - Rs. 32,13,280/-) which was treated as the undisclosed income from undisclo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore the authorities below, therefore, he prayed for admission of these financials which according to AR was necessary to adjudicate the issues before us. We note that because of the unfortunate sudden demise of the accountant, the assessee could not prepare the month wise break up which was reasonable cause, and that fact prevented the assessee from filing it from the authorities below and it only gives the breakup/details therefore we are inclined to admit in the interest of justice. 3.3 Coming to the issue in hand, we note that the addition has been made by the Assessing Officer taking note of the statement of assets hypothecated against cash credit by the assessee from Overseas Bank of India, after comparing it with the assessee's balance sheet as on 31.03.2010. According to the Assessing Officer, since the assessee had disclosed from 26.09.2009 to 05.03.2010 monthly stock of Rs. 65 lakhs to 75 lakhs, the average stock of assessee must be Rs. 69,72,800/- as on 31.03.2010 and, therefore, since the assessee had shown only Rs. 32,13,280/-, the difference of Rs. 37,59,520/- was treated as undisclosed income from undisclosed source of assessee which it had invested in stock and ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....accountant of the assessee had passed away in November, 2010, the Chartered Accountant with the aid of books maintained by the late accountant prepared the Profit & Loss and Balance Sheet, after proper verification of income and expenditure. We note in a similar case Jay Engineering Works Ltd. reported in 113 ITR 389 (Del). When the regular books of accounts were destroyed by fire, the Assessing Officer did not accept the deduction claimed by the assessee. However, the Tribunal taking note of the fact that the assessee's accounts have been audited, allowed the deduction. The Revenue challenged the action of the Tribunal where in the Hon'ble Delhi High Court upheld the Tribunal order as under: "These are two applications under s. 256(2) of the IT Act, 1961 (hereinafter referred to as "the Act"), praying that the Tribunal be asked to state the case and to refer to this Court the following question of law : "Whether, on the facts and in the circumstances of the case, the Tribunal in the absence of any evidence was legally correct in holding that the amounts of Rs. 3,26,200 and of Rs. 83,523 were deductible from determination of profits for the asst. yrs. 1962-63 and 1963-64 respecti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of wider varieties of facts which need not be proved before them. Thus, not only in respect of the relevancy but also in respect of proof the material which can be taken into consideration by the ITO and other authorities under the Act is far wider than the evidence which is strictly relevant and admissible under the Evidence Act Under s. 34 of the Indian Evidence Act account books maintained in the regular course of business are evidence after the relevant entries are proved by oral evidence or are admitted. The ITOs, however, have to deal with such numerous cases of assessment that they can accept as correct books of account maintained in regular course of business without such a formal proof. In the present case, the relevant books of account in which detailed information as to the expenses which were claimed as deductions for the asst. yrs. 1962-63 and 1963-64 are destroyed by fire in November, 1962. Under the Indian Evidence Act secondary evidence of the contents of these account books would have to be adduced if they were to be used to prove any fact. The external auditors of the assessee-companies had, however, made their annual reports under s. 227(2) of the Companies Act,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....int No. 2 The Tribunal has stated that, though, ordinarily, the adjustments relating to expenses should have been made by the assessees in the accounts of the year to which the adjustments relate and not in a subsequent year, it is often inevitable that such adjustments relating to earlier years have to be made in subsequent years. This is specially so, when the business, as of the assessees, is of giant proportions and the branches are farflung. The Tribunal has also very properly relied upon the auditors' reports to draw the proper inference from the same. Since the evidence in income-tax proceedings need not consist necessarily of evidence admissible under the Evidence Act but may consist of other material which has a probative value, the Tribunal was justified in taking such material into account. It cannot, therefore, be said that the decision of the Tribunal was not based on any evidence. On the contrary, it was based on evidence meaning thereby that it was based on relevant material which can be considered in the income-tax proceedings. The applications are, therefore, dismissed. There will be no order as to costs." We note that the statement of stock hypothecated by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of assessee is accepted by us, in the absence of physical verification by Bank of the stock as on 31.03. 2010. We note that there are divergent views on this issue by other Hon'ble High Courts, however in the absence of jurisdictional Hon'ble High Court on this issue, the settled position of law is that decision favorable for the assessee needs to be taken as per the judgement of the Hon'ble Apex Court's in the case of CIT vs. M/s. Vegetables Products Ltd. in 88 ITR 192(SC) therefore, we accept the explanation rendered by the assessee company for the difference in stock position between statement given to the Bank as well as that given in the balance sheet. Therefore, this ground of the appeal of the assessee is allowed. 4. Coming to the Ground No.2 which is against the action of the ld. CIT(A) in confirming the addition of Rs. 65,89,841/- which was disallowed by the Assessing Officer as excessive claim of the expenditure. 4.1 The brief facts of the case is that the Assessing Officer during the assessment proceedings compared the Profit & Loss A/c for the year ended 31-03-2009 and 31-03-2010 wherein he observed that gross turnover for Assessment Year 2009-10 was Rs. 3,50,28,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnment of West Bengal and invested for heavy earth removers for excavating mud from the earth which was to the tune of Rs. 27,48,000/- whereas last year it was zero, since assessee had started new line of business of manufacturing bricks. The assessee had also booked a vehicle expenses of Rs. 1,42,145/- since the assessee had purchases a new vehicle and last year it was Nil. These expenses which have been claimed by the assessee was because of its setting up a new business for manufacturing of bricks and was related to the production of bricks which had started w.e.f. 13/01/2010. We note that the authorities below were influenced by the fact that the assessee failed to produce books of accounts (we have already dealt with this issue so we are not repeating). The Assessing Officer ought to have taken note of the fact that the assessee's accounts were audited by Chartered Accountant professionals and without finding fault in the evidence furnished by the assessee ought not to have made disallowance in the facts of this case as discussed earlier in our order. In case if the Assessing Officer had any doubts about the expenditure claimed by the assessee on the items specified above and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not appear before him and taking note of their individual ITRs, and failure on the part of the assessee to explain the source of investment, it was treated as unexplained investment of the share capital from unexplained source of income of the assessee company, so the said amount was added to the total income. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer. Aggrieved, the assessee is in before us. 5.2 We have heard both the parties and perused the records. We note that the assessee is closely held private limited company and the amounts in question have been received from the directors and shareholders of the company. The breakup of Rs. 6,00,000/- is that Shri Tapan Kr. Manna, Director, father of Shri Sayantan Manna has introduced Rs. 3,00,000/- and Shri Sayantan Manna, Director and son of Shri Tapan Kr. Manna has introduced Rs. 1,50,000/- and wife of Shri Tapan Kr. Manna, Smt. Shibani Manna who is mother of Shri Sayantan Manna has introduced Rs. 1,50,000/-. Thus total amounting to Rs. 6,00,000/- were introduced in the company by family members who are directors of assessee company. It was brought to our notice that Directors of the company was entitled to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lication money has been explained. We also note that all the three were residing at the same house, therefore expenditure in the house was common and so the remuneration from the company could be adjusted for purchase of shares of own company is a plausible explanation in the facts of the case. Therefore we are of the view that on the facts and circumstances of the case as noted above, since the assessee has discharged the onus casted upon it in respect of introduction of share application money, the Assessing Officer ought not to have made addition on this count, without bringing any adverse material against the assessee company. Therefore, we allow the appeal of the assessee and direct deletion of the addition made. 6. Coming to the last ground which is against the action of the ld. CIT(A) in confirming the addition of Rs. 3,73,282/- which was claimed by the assessee for depreciation on machinery (fixed assets) of Rs. 39,22,400/-. 6.1 The brief facts of the case is that the Assessing Officer noted that assessee has made an addition to machinery (fixed assets) of Rs. 39,22,400/- and claimed depreciation of Rs. 7,48,407/-. According to the Assessing Officer since the assessee did....