2022 (4) TMI 1079

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....d law in deleting the addition of Rs. 23,85,981/- out of total addition of Rs. 61,85,981/- u/s 69 of the I.T.Act, 1961 being under valuation of stock found during survey, without considering the findings of survey team and observations of the Assessing Officer. 3. That the Department craves leave to add modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case. 3. In the ground no.1 raised , the revenue has assailed the order of Ld. CIT(A) in deleting the addition of Rs. 2,16,34,400/- as made by the AO on account of share application money with share premium u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as the Act). 4. Facts in brief are that during the assessment proceedings the AO issued notice u/s 133(6) of the Act to eight parties which were duly replied by these parties. The case of the assessee was selected for limited scrutiny on various issues including the one in respect of large share premium by the assessee. The assessee has received Rs. 1,56,84,400/- from these eight parties on various dates. According to the AO, the assessee has failed to prove the identity, creditworthiness of the investors and ....

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....said conversion of unsecured loans into the share capital was necessitated for business and commercial considerations. There were two ways of doing that. First one is to convert the unsecured loans into share application straight away and second alternative was to return and repay the unsecured loans and again bring back that money into the assessee company in the form of share capital. It was argued by the Ld. A.R. that the assessee has followed the second method. The Ld. A.R. submitted before us that it was not in the case of any outside party investing in the assessee company or funds coming from unknown sources/investors not known to the assessee company but all the investors were either directors or their close relatives therefore the order of AO doubting the transactions of share capital just on the ground that the loans were first returned and then investments were brought back to the assessee company is wrong. The Ld. A.R. submitted before us that the Ld. CIT(A) has correctly appreciated the facts of the case and given a detailed findings on all the three ingredients of Section 68 of the Act and allowed the appeal by following various judicial decisions. The Ld. D.R. ,on th....

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....urse of assessment proceedings, the AO issued show cause notice on the assessee as to why the excess of stocks of Rs. 61,85,981/- should not be added into the income of the assessee. The Ld. Counsel for the assessee submitted before the AO that there were factual infirmities and discrepancies in the stock taking done by the survey team at the time survey. The Ld. Counsel pointed out that in some cases double entries were taken, in some instances wrong quantities were taken and rate applied by the survey team were also wrong. The assessee filed reconciliation statement during assessment proceedings which is reproduced as under for the sake of convenience: According to the assessee, the survey team has made apparent and clear-cut mistakes while taking the stock as brought out by the reconciliation statement. The statement reveals that it has left the stocks of finished item aggregating to Rs. 36,80,834.34 and there were double entries/wrong rate by the survey team to the tune of Rs. 80,64,055.50/- . similarly the sale rate applied in place of purchase rate which resulted in discrepancy of Rs. 4,10,726.75/-. The discrepancy of Rs. 10,10,970/- has resulted from the sale made but not e....

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....crepancy in stock amounting to Rs. 34,45,162/-. The possibility of the appellant under valuing his stock to reduce his tax liability cannot be ruled out. Therefore, it would served the interest of revenue, if the stock discrepancy is taken at Rs. 38,00,000/-. The addition of Rs. 61,85,981/- is restricted to Rs. 38,00,000/-. This ground of appeal partly succeeds and is therefore partly allowed." 11. The Ld. D.R. submitted before us that the Ld. CIT(A) has wrongly deleted the addition on account of stock discrepancies noticed by the survey team to the tune of Rs. 23,85,981/- as the survey team has taken the inventory during the course of survey and found that the assessee had excess to the tune of Rs. 61,85,981/-. The Ld. D.R. prayed before the bench that the addition as deleted by the Ld. CIT(A) may kindly restored. The Ld. D.R. has also pointed out that before the Ld. CIT(A) the assessee's counsel has admitted the stock difference of Rs. 34,45,162/- whereas the assessee has challenged the part confirmation of addition on account of excess stock found during the survey at Rs. 38,00,000/- which is wrong as it should have been only Rs. 3,54,838/-. 12. The Ld. A.R. on the other hand ....