TaxTMI 
TaxTMI 
2022 (3) TMI 337
X X X X Extracts X X X X
X X X X Extracts X X X X
....or amend any grounds of appeal before the appeal is heard and finally disposed of. 3. Ground No. 3 & 4 are general in nature so do not require any comment on our part. 4. Vide Ground No. 1 the grievance of the Department relates to the deletion of addition of Rs. 2,49,01,874/- made by the A.O. on account of bogus purchase of rice husk. 5. Facts of the case in brief are that the assessee is a domestic Private Ltd. Company and was engaged in the business activity of manufacturing of paper. The return of income was e-filed on 30/09/2011 declaring an income of Rs. 1,11,05,644/-. Later on the case was selected for scrutiny. 5.1 During the course of assessment proceedings the A.O. noticed that the assessee had shown purchases worth Rs. 14,35,20,713/- of rice husk and that the some verification made regarding the genuineness of the purchases of rice husk made by the assessee, revealed that the assessee had shown bogus purchases at large scale. The A.O. observed that the assessee was arranging only purchase bills without getting the delivery of rice husk just to inflate its manufacturing expenses and made bogus purchases through two of its sister concerns, the proprietor of eac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mentioned are different from the truck numbers mentioned in the sale bill to your concern. How it is possible that your sister concern at the same station would purchase husk in a different trucks and would deliver the same husk to your concern in different trucks. Besides difficult task of loading and unloading of husk, there are heavy loading and unloading expenses are also involved . This is humanly not possible in a transactions among the sister concern. 2 Most of the truck numbers mentioned on the sale & purchase bills are bogus . For instance truck Numbers quoted on bill No. 027 truck No. PB11AC9935 and PB11 P 4512 are Motor Cycles , bill No. 033 .truck No. PB11T4976 is Moped. 3 Dates of purchase by your sister concerns and dates of sale to you by your sister concerns are different which is not acceptable in the case of sale and purchase of husk as neither any Godowns were maintained by your sister concerns nor by M/s Jai Maa Kali foods. 4 Sh. Ajay Malik intimated that he had no godown & was doing only billing work. M/s Suraj Bhan & Brother & M/s Babu Ram Ram Gopal has also not shown any godown. M/s Suraj Bhan & Brothers and M/s Ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e have filed confirmations from these two concerns on the last date of hearing. They have confirmed sale of husk to our company in this relevant period. They have received payments against sale of husk from our company. We are enclosing herewith notarized solemn affirmations from proprietors of these two concerns. (Page No. 1 to 2). They have again confirmed sale of husk to our company in this relevant period. 4. Please refer your office letter dated 21.03.2014, we respectfully submit that the statement of one Sh. Ajay Malik son of Sh. Rakesh Malik should have been addressed to proprietors of M/s. Suraj Bhan & Brothers Patiala and M/S Babu Ram Ram Gopal Patiala rather than to our company. We have not purchased any goods from Sh. Ajay Malik son of Sh. Rakesh Malik of M/s Jai Maa Kali Foods, Patiala. The goods have been purchased by our company from M/s Suraj Bhan & Brothers Patiala and M/s Babu Ram Ram Gopal, Patiala and these parties have confirmed sale of husk to our company. We are not privy to the contract between Sh. Ajay Malik and both these concerns. All the contents of the statement of Sh. Ajay Malik should be addressed to the proprietors of these concerns. The prop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncern from our books of accounts. (Page No. 14 to 16). The payments have been made by payees account cheque. It is therefore prayed that the purchases from the said concern are genuine. 10. With regards to furnishing of details of consumption of husk for the immediate preceding two years vis-a-vis consumption of raw material and production, the details are enclosed. (Page No. 17). Hope the entire quarries have been explained and your honour shall be kind enough in appreciating the respectful submissions made in this reply letter." 5.5 However the A.O. did not find merit in the explanation of the assessee for the following reasons : i. Assessee's contention that M/s Suraj Bhan & Brother and M/s Babu Ram Ram Gopal were not their sister concerns is totally misleading as two directors of the assessee's company were running these concerns under their proprietorship. ii. Assessee's submission that neither Sh. Suraj Bhan nor Sh. Vidya Sagar had substantial interest in the assessee company because they were not having voting power more than 20% is baseless. Both Sh. Suraj Bhan and Sh. Vidya Sagar are the Directors of the company. They are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ala. All this circumstantial evidence clearly indicates bogus transactions undertaken by the assessee. ix. During the course of recording of statement of Sh. Ajay Malik u/s 131 of the Income Tax Act, the assessee was conveyed telephonically to cross examine Mr. Ajay Malik. The counsel of the assessee, however, declined the same for reasons best known to him or the assessee. x. Further, the perusal of the Income Tax returns of M/s Suraj Bhan and Brothers, M/s Babu Ram Ram Gopal and Sh. Ajay Malik show sales made by these concerns at Nil which further proves corroboratively that these concerns never supplied rice-husk to the assessee. xi. The assessee company could not bring anything on record such as stock register, gate register, weighment slips, proof of payments for freight and labour to substantiate that the goods actually landed at its business premises. 5.6 The A.O. treated the assessee's purchase from M/s Suraj Bhan & Brother and M/s Babu Ram Ram Gopal as bogus purchases which were shown to increase the production cost and thereby to reduce the profits. He accordingly made the addition of Rs. 94,38,395/- on account of bogus purchases made from th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....own in the purchase bills during last 10 years. None of the persons in the area has ever heard of the name of M/s Sarthi Commission Agents. The assessee did not produce itself the said person for examination if it was so sure of the genuineness of its transaction with M/s Sarthi Commission Agents. The assessee has shown purchase of husk worth Rs. 69,69,993/-. In the absence of any evidence regarding the genuineness of purchase, the said purchase of Rs. 69,69,993/- is disallowed. Accordingly, an addition of Rs. 69,69,993/- is made to the returned income of the assessee on a/c of disallowance of bogus purchases of husk by the assessee. 5.9 The A.O. further observed that the assessee had shown purchase of rice husk amounting to Rs. 22,50,396/- from M/s Abhishek Enterprises, Lalhari Road, Near Rly Fatak, Khanna. He issued a notice under section 131 of the Act to said party which had been received back undelivered with remarks given by the postal department " Not Known". The A.O. asked the assessee to prove the genuineness of the said purchases. In response the assessee submitted as under: "With regards to purchases f rom M/s Abhishek Enterprises, Khanna, it has been stated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Patiala, the said vehicle number is of motor car. Similarly, vehicle number PB 11AJ 8283 mentioned on bill no. 361 dated 06/08/2010 is of motorcar and the vehicle number PB 11AC 9029 mentioned on bill no. 359 dated 04/08/2010 is of car. The purchase of husk by the assessee has been shown at Rs. 1,66,86,309/- from this concern. The enquiry made from M/s Mandeep Kumar & Brothers, he could not furnish any evidence regarding the source from where he arranged the trucks for supply of husk to the assessee . No weighment slips were available with the assessee and there was no evidence of loading and unloading. The said concern could not produce any evidence in support of purchase of husk to the extent to which he has shown sale to M/s Vishal Paper Industries Pvt. Ltd, Village Khusropur. b) No evidence of freight payment was available with these concerns whereas according to sale bills they supplied husk to the assessee on F.O.R basis. As such the very basis of evidence of transportation of the goods was missing c) None of them was having godown for the storage of the husk still there was time gap between purchase of husk by them and sale of husk to the assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct of which separate additions have already been made as discussed above. 5.14 Accordingly, the addition of Rs. 2,49,01,874/- (Rs. 94,38,395/- + Rs. 69,69,993/- + Rs. 22,50,396/- + Rs. 62,43,090/-) on account of bogus purchases of rice husk was made. 6. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: "i) The learned A.O. held purchases made from M/s Suraj Bhan & Brothers & M/s Babu Ram Ram Gopal Patiala worth Rs. 94,38,495/- as bogus on the following grounds which are devoid of any merit. a) The learned A.O. has drawn adverse inference from the fact that the proprietors of M/s Suraj Bhan & Brothers & M/s Babu Ram Ram Gopal from whom the assessee purchased rice husk were directors of the company and were actively involved in the functioning of the company (Para (/) & (ii) on page 20 & 21 of order u/s 143(3)). It was brought to Learned. A.O. s notice that neither Sh. Suraj Bhan nor Sh. Vidya Sagar proprietor of the said concerns was substantially interested in the company nor they were actively involved in the functioning of the assessee company. Anyhow, no adverse inference can be drawn legally simply due to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k during the last two years which has not been done (Para (vi) page 22). A chart indicating comparative consumption of rice husk during the last two assessment years was duly filed before the LD A.O. (copy enclosed) but he did not consider the same. Had he considered the said chart there would have been no occasion for him to make any addition since the consumption of rice husk during the year under consideration compares favorably with the consumption of rice husk in earlier assessment years. The LD A.O. did not consider the said chart perhaps due to the fact that he was somehow or other bent upon making the addition. e) The LD A.O. has drawn adverse inference on account of the fact that audited accounts were signed by Sh. Vidya Sagar which indicates that he had a vital role in the functioning of the assessee company (Para (vii) page 23). As already submitted, Sh. Vidya Sagar has no substantial interest in the company. Moreover, signing of the audit report of the company cannot make purchases from his concern bogus when he has emphatically admitted the sale to the assessee company and sale tax record of his concern also prove the same. f) The LD....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the assessment order. In his rejoinder the assessee submitted that from the confession of Shri Ajay Malik before the A.O. (reproduced at S.No. 6 page 8 of assessment order), it transpires that he purchased rice husk in cash in violation of Section 40A(3) of the Act and out of fear of Income Tax scrutiny, he twisted the facts and posed as accommodation entry provider. It was further submitted that the assessee could not be penalized if the other party enters in any dubious transactions and that the assessee as a purchaser was concerned with the goods and the only obligation remained was to make the payment. It was further stated that the assessee did not have to recover money from those parties, hence he was not required to confirm on their credit worthiness and hence sit over to investigate the genuineness of the parties or their business transactions. It was also stated that the assessee as a business man had taken due care in getting necessary details which were produced before the A.O. during the assessment proceedings but the A.O. failed to appreciate that the assessee had been purchasing rice husk from M/s Babur Ram Ram Gopal and M/s Suraj Bhan & Bros in the earlier year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y to establish his suspicions that the said purchases were bogus. However, the appellant has brought on record documentary evidences to establish the genuineness of the said purchase transactions like purchase bills, sales tax record and ITRs of suppliers and evidence of payment through banking channel. When the payments for the said purchases are through proper banking channels and no evidence is brought on record by the AO to establish that the said payments were routed back to the appellant, his action in brushing aside these evidences cannot be accepted and the addition made by the AO is unsustainable. The reliance was placed on the following case laws: * CIT Vs. Ashish International in ITA No. 4299 of 2009 (Bom) * Nikunj Eximp Enterprises (P.) Ltd. Vs. CIT [2013] 216 Taxman 171/35 taxmann.com 384 (Bom). 6.3 As regards to the addition of Rs. 69,69,993/- from M/s Sarthi Commission Agent the assessee submitted as under: "ii ) The LD A.O. held purchases of Rs. 69,69,993/- from M/s Sarthi Commission Agent, Sunam bogus on the ground that assessee has failed to produce any person from M/s Sarthi Commission Agent in support of his contention that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us. His sale tax record, account books and bank account confirm the factum of sales of rice husk to the assessee company. Under the circumstances, it is requested that addition of Rs. 69, 69,993/- may kindly be deleted." 6.4 The Ld. CIT(A) forwarded the submissions of the assessee to the A.O. for his comments. In response the A.O. relied on the assessment order. In rejoinder the assessee relied on the following case laws: * M/s Ganesh Dass Piara Lal Jain Vs. The ITO, Ward-4, Ambala City in ITA No. 83/Chd/2013 (Chd Trib) * ITO Vs. Kashmir Ind. Palace 99 Taxmann (Chd)(Mag) * Mather Platt (India) Ltd. Vs. CIT (1987) 168 ITR 493(Cal.) 6.5 The Ld. CIT(A) after considering the submissions of the assessee and the report of the A.O. deleted the addition of Rs. 69,69,993/- by observing as under: "6.4 I have considered the assessment order and submissions made by the d other material available on record. The case laws relied upon by the counsel of the appellant have also been perused. On appreciation of material on record, it is evident from order of assessment that it is primarily on the basis of appellant's inability to produce the supplier in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to establish the genuineness of the said purchase transactions like purchase bills, sales tax record and ITRs of suppliers, payment through banking channel. When the payments for the said purchases are through proper banking channels and no evidence is brought on record by the AO to establish that the said payments were routed back to the appellant, the action of the AO in brushing aside these evidences cannot be accepted and the addition made by is unsustainable. In view of the case laws cited by appellant and factual matrix of the case, addition of Rs. 69,69,993/- is ordered to be deleted. 6.6 As regards to the addition of Rs. 22,50,396/- from M/s Abhishek Enterprises the assessee submitted before the Ld. CIT(A) as under: "iii) The LD A.O. held purchases of Rs. 22,50,396/- from M/s Abhishek Enterprises, Khanna on the ground that notice u/s 131 of the I. T Act, 1961 was issued to the said person was received un-served with the postal department remarks "Not Known". That assessee has failed to produce evidence regarding genuineness of purchase from the said concern (Para g of page 36 & 37 of order u/s 143(3)). A letter dated 26.03.2014 was received from the le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erved four years later would not mean that they were non-existent at the time of payment. Hence, no adverse inference on this account could be drawn. Moreover, copies of sales tax records of the assessee which confirm the factum of sales to the assessee company which could not be filed due to paucity of time during the course of assessment proceedings, is also enclosed to establish the genuineness of the purchases of rice husk from the said person to the assessee company. In view of the facts discussed above, it is established that the LD A.O. had no material / evidence with him to hold the rice husk purchases from the said concern as bogus. His sale tax record, account books and bank account confirm the factum of sales of rice husk to the assessee company. Under the circumstances, it is requested that addition of Rs. 22,50,396/- may kindly be deleted." The reliance was placed on the following case laws: * Nikunj Eximp Enterprises(P.) Ltd. Vs. CIT[2013] 216 Taxman 171/35 Taxmann.com 384 (Bom). * CIT vs. Nangalia Fabrics (P.) Ltd. [2014] 220 Taxmann 17/[2013] 40 taxmann.com 206(Guj). * CIT Vs. M.K. Bros. [1987] 163 ITR 249 / 30 Taxman 547 (Guj)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed with the summons issued u/s 131 would not in itself suffice to treat the purchases as bogus and make the addition u/s 69C of the Act. If the AO doubted the genuineness of the said purchases, it was incumbent upon him to cause further inquiries in the matter in order to ascertain the genuineness or otherwise of these transactions. Without causing any further enquiries in respect of the said purchases, the AO cannot make the addition u/s 69C of the Act merely owing to non compliance of summons u/s 131. In the factual matrix of the case on hand, whereas the AO failed to cause any enquiry to establish his suspicions that the said purchases were bogus, the appellant has brought on record documentary evidences to establish the genuineness of the said purchase transactions like purchase bills, sales tax record and evidence of payment through banking channel. Moreover, when the payments for the said purchases are through proper banking channels and no evidence is brought on record by the AO to establish that the said payments were routed back to the appellant, the action of the AO in brushing aside these evidences cannot be accepted and the addition made by him is unsustainable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. Since the addition has been made without confronting the result of enquiries to the assessee company the same deserves to be deleted. Without prejudice to above it is submitted that no addition on ad-hoc basis can be made without rejecting the books of account which has not been done by the LD A.O. as no discrepancy in the account books was noticed by him. On this score alone the addition deserves to be deleted. Even otherwise on the basis of enquiries from a few persons the purchases of rice husk made from other persons cannot be held to be bogus. From the facts discussed above, it is abundantly clear that addition on account of bogus purchases has been made on the basis of surmises and conjectures only as all the persons from whom purchases have been made are identifiable, payments have been made through account payee cheque only and sales have been shown by them in their sales tax returns. The Hon'ble Supreme Court in the case of Dhiraj Lai Girdhari Lai V/s CIT reported at 26 ITR 736 has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dhoc basis can be made without rejecting books of account. Moreover, based on the enquiries made from a select few purchasers, the AO was not justified to hold that the purchases of rice husk made from other persons were also bogus. In my considered view, from the facts discussed above, it is abundantly clear that ad hoc addition on account of bogus purchases has been made on the basis of surmises and conjectures only as all the persons from whom purchases have been made are identifiable, payments have been made through account payee cheque only and sales have been shown by those persons in their sales tax returns. The Hon'ble Supreme Court in the case of Dhiraj Lai Girdhari Lai V/s CIT reported at 26 ITR 736 has held that an assessment based on mere conjectures, surmises or suspicion or irrelevant and inadmissible evidence and material is invalid and unsustainable in law. Thus, the action of the A.O. is not sustainable and the addition made is directed to be deleted. 7. Now the Department is in appeal. 8. The Ld. CIT DR strongly supported the order passed by the A.O. and reiterated the observations made therein. It was further submitted that the assessee was eng....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he A.O. 8.2 The Ld. CIT DR reiterated the observations made by the A.O. in para 10(c) of the assessment order which we have already reproduced in the former part of this order. It was stated that the assessee company could not bring anything on record such as stock register, gate register, weighment slips, proof of payments for freight and labour to substantiate that the goods actually landed at the business premises of the assessee. 8.3 It was further stated that the purchases had been shown to have been made by the assessee from M/s Sharthi Commission Agent, Shop No. 157B, Sunam worth Rs. 69,69,553/-, however, on inquiry it was found that the said concern closed its business. It was pointed out that the contention of the assessee that purchases made from M/s Sharthi Commission Agent were genuine was totally baseless since the assessee failed to produce any person from M/s Sharthi Commission Agent in support of its contention and the inquiry made by the Income Tax Department revealed that no such concern had operated from the address of the business premises given by the assessee and shown in the purchase bills for the last ten years. Therefore the addition made by the A.O. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is of statement of one Shri Ajay Malik, Proprietor of M/s Jai Maa Kali Goods which was a third party and was having no connection with the assessee, his submission was recorded at the back of the assessee without giving any opportunity of cross examination. Furthermore the assessee had filed sworn affidavits of the two parties from whom the purchases were made, with the request to examine those persons. However the A.O. failed to make any inquiry from the Proprietors of M/s Suraj Bhan & Brothers, Patiala and M/s Babu Ram Ram Gopal, Patiala, reference was made to page nos. 4 & 5 of the assessee's paper book which are the copies of the Affidavit of M/s Suraj Bhan & Brothers, Patiala and M/s Babu Ram Ram Gopal, Patiala and Shri Vidya Sagar. 9.2 It was stated that the assessee discharged its onus by producing the relevant record showing the genuineness of the purchases in the form of purchase bills, sales tax record and Income Tax Return of the suppliers alongwith evidence of payment through banking channels to prove the genuineness of the transactions relevant to the purchases of rice husk, those evidences furnished by the assessee were not found to be fabricated or false by the A.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t through account payee cheque etc. Therefore the addition was rightly deleted by the Ld. CIT(A). 11. As regards to the another addition of Rs. 22,50,396/- on account of bogus rice husk purchase from M/s Abhishek Enterprises, Khanna. It was submitted that the said addition was made simply on this basis that the notice issued under section 131of the Act to M/s Abhishek Enterprises, Khanna was received back unserved. It was stated that the returning of the notice under section 131 of the Act cannot be a ground to make the addition particularly when payment was made through account payee cheque and the assessee furnished documentary evidences like copy of account, VAT number of the party, sales tax record etc. Therefore the Ld.CIT(A) rightly held that the A.O. had not brought on record any material evidence to conclusively prove that the purchases from the said party were bogus and that the merely reliance by the A.O. on the fact that the supplier had not complied with the summon under section 131 would not itself suffice to treat the purchase as bogus. 12. As regards to the remaining adhoc addition of Rs. 62,43,090/- @ 5% of the remaining purchases of rich husk amounting to Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is not the case of the A.O. that the consumption of rice husk was excessive in comparison to the earlier years. The Ld. CIT(A) after appreciating the documentary evidences furnished by the assessee, deleted the addition. We do not see any valid ground to interfere with the findings of the Ld. CIT(A) while deleting the addition of Rs. 94,38,395/-. 14. As regards to the another addition of Rs. 69,69,993/- deleted by the Ld. CIT(A). It is noticed that the said addition was made by the A.O. for the reasons that the assessee failed to produce any person from M/s Sarthi Commission Agent, from whom the rice husk was purchased by the assessee to prove the genuineness of the purchase made from the said party. The assessee furnished VAT number issued by the Punjab VAT Department to prove the existence of the said party and all the payments were made through banking channel. The assessee also furnished Sales Tax Record which confirmed that the sales were made to the assessee by M/s Sarthi Commission Agent therefore the Ld. CIT(A) rightly held that the mere fact that during the F.Y. 2014-15 it was found that the said party M/s Sarthi Commission Agent closed its business at that time was n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... raised by the Department vide Ground No. 2 relates to the deletion of addition of Rs. 52,12,000/- made by the A.O. on account of under valuation of closing stock. 18. The fact related to this issue in brief are that the A.O. during the course of assessment proceedings noticed that there was a difference in the stock statement as on 31/03/2011 given by the assessee to State Bank of India, Civil Line Branch, Ludhiana and as recorded in the books of accounts. The A.O. asked the assessee to show cause and explain the difference in the stock statement, vide letter dt. 10/11-03-2014 which read as under: "You have availed CC limit from State Bank of India, Civil Lines Branch, Ludhiana during the financial year 2010-11 relevant to A.Y. 2011-12. The Information regarding the stock statement given by you to the bank as on 31/03/2011 was called for from the said bank u/s 133(6) of the I.T Act, 1961. The stock statements given by you to the bank did not match with the stock as per your books of account. The position of the stock available in your regular books of a/c and stock position as per hypothecated stock statement is reproduce below :- In view of the above details,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... bank. There is, therefore, no deficiency in the closing stock of store & spares. (Page No.52). Paper & semi finished goods: As per stock statement, we have shown 142 MT of finished paper and 50 MT semi-finished and the quantity of finished paper tallies with our stock position as on 31.03.2011 in our stock register prescribed under the Central Excise Act & Rules.(Page No. 53 to 54). The quantity of semifinished goods is 72 MT in our stock register, the quantity of semifinished goods is more than shown in the stock statement. So, there is no deficiency in terms of quantity in finished and semifinished goods. The valuation of finished and semi-finished goods in the stock statement has been made at a higher price than the cost price of the goods whereas the valuation of finished and semifinished goods has been made at a cost price as prescribed in clause 12 (a) of tax audit report in Form 3CD dated 28.08.2011. The assessee company has placed on record the inventory of closing stock and its basis of valuation during the previous dates of hearing. So the difference in valuation of finished and semi-finished goods stands explained. The valuation in books of accounts is proper a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich yielded G.P rate of 30.5% where as the G.P. rate shown by the assessee during the year was merely 11.5% which contradicted the explanation rendered by the assessee. He further observed that in the case of chemicals in which the assessee was not dealing as those chemicals were only consumables therefore cost price and market price thereof should have been the same for the assessee, moreover no working of the basis of valuation for those items had been disclosed by the assessee either to the bank or in the books of account. The A.O. therefore made the addition of Rs. 52.12 lacs on account of the lesser value of the items of the stock mentioned in the books of account vis a vis the value shown in the hypothecation statement to the bank. 19. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: "The LD A.O. has made addition of Rs. 52.12 Lacs on account of difference between value of stock of various items shown for hypothecation purposes to the bank and valuation of stock as per books of account as on 31.03.2011. This addition has been made by the LD A.O. after making following observation: i) The assessee has not offered a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessees explanation regarding the lesser valuation of stock of Rs. 52.12 Lacs mentioned in books of a/c is not correct. The stock statement given to the bank by the assessee cannot be at variance with the value of stock shown by the assessee in its books of a/c." Under the circumstances no addition on the basis of said decision can be made since there is no excess stock hypothecated with the bank and difference is on account of valuation only. It has been held in the case of India Motor Parts & Associates Pvt. Ltd. v/s CIT60ITR 53 (Mad) and CIT vs. Apcom Computers Pvt. Ltd. 292 ITR 630 (Mad.) that no addition on account of difference between valuation of stock hypothecated to the bank and value of stocks as per books of accounts can be made. Without prejudice to the above, it is submitted that no addition on account of valuation of closing stock can be made if the closing stock has been valued at cost price or market price whichever is lower since this is accepted principle of accountancy that no person can make notional profits. It has been held by the various Hon'ble Judicial authorities that no addition on account of valuation of closing stock can be ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovided under section 145 A of the Act. Details of inventory and its valuation has not been disputed by Id. A.O. c) The value as per bank stock statement was on estimated basis. No basis of valuation of hypothecated stock with the bank was furnished to the bank as there is no such requirement. The accepted position is that stock given to the bank cannot be given preference over the stock actually maintained and valued by the assessee. 19.3 The Ld. CIT(A) further observed that the material on record revealed that there was no difference in the quantity of goods as per bank statement and closing stock as per books of account. As regards to the decision of Hon'ble Punjab & Haryana High Court in the case of M/s B.T. Steels Ltd. Vs. CIT dt. 06/10/2010 relied by the A.O, the Ld. CIT(A) observed that in the said case the bank had actually verified the stock held by the assessee and the assessee failed to furnish explanation regarding difference in the stock, but in the case of the assessee, there was no excess stock hypothecated with the bank, only the difference of Rs. 52.12 lac was on account of lesser valuation in the books of accounts. 19.4 The Ld. CIT(A) further ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....O. had accepted the books of account and had not given any adverse findings regarding purchases and sales. Reliance was placed on the following case laws: * Calcutta National Bank Ltd. Vs. CIT [1953] 24 ITR 280 * A.L. A. Firm Vs. CIT [1991] 189 ITR 285 * ITO Vs. Devi Dayal Rice Mills [2002] 75 TTJ 24 (ITAT Asr) 23. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that there was no difference in the quantitative details of the stock furnished to the bank and maintained in the books of account, the difference in the valuation was explained by the assessee which was due to the valuation in stock statement furnished to the bank on estimate basis while in the books of account the assessee valued the raw material & consumables on the cost price basis while the semi finished & finished goods were valued on the cost of production basis. The A.O. did not point out any defect in the said valuation. It is also not the case of the A.O. that the valuation in the books of account was not in accordance with the provisions contained in section 145A of the Act. 23.1 ....