TaxTMI 
TaxTMI 
2023 (1) TMI 704
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....as not been pressed). Ground no. 3 & 4: Addition on account of alleged bogus purchases of Rs. 5,39,15,841/-. Ground no. 5: Addition on account of discrepancy in stock of Rs. 13,76,21,050/-. Ground no. 6: Estimated addition of Rs. 8,05,495/- on account of alleged unaccounted stock of Graphite. Ground No. 7: Addition of Rs. 13,94,071/- in respect of alleged labour job payments. Ground No. 8: Incorrect invocation of provision of section 115BBE of the Act, levying tax @ 60% on the addition made u/s 69 and 69C in respect of ground no. 5 to 7. 4. In the department appeal, the only issue raised is that, Ld. CIT (A) has erred in restricting the addition to 10% of the total alleged purchases as against the entire purchases added by the AO. 5. Ground no. 1 & 2 have not been pressed by the assessee; therefore the same is dismissed as not pressed. 6. In so far as addition on account of alleged bogus purchases of Rs. 5,39,15,841/- and the similar ground raised by the department whereby revenue has challenged that Ld. CIT(A) should not have restricted the addition to the extent of 10% of gross profit rate. 7. Both the parties are agreed th....
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....n capital for making the purchase. The assessee has first received sales consideration from which it has paid for purchases. During the relevant previous year, the assessee has traded in food grains and HR plates and Food grains are exempt from GST. In respect of HR plates, GST is chargeable at 18%. However, the assessee has traded in HR plates hence GST has been levied both on purchases and sales and no benefit has been availed by the assessee. Hence there is no question of any savings in GST. 10. The objection of the AO was that, firstly; assessee has not produced the purchase party, secondly; invoices were submitted only on simple basis despite the details, ITR, balance sheet of the parties was not produced, thirdly; SOP was not filed in respect of purchases made from the said third parties; and lastly; assessee had traded any items other than regular business items of these 3 parties. 11. To controvert these objections, firstly; the assessee had submitted that AO has not conducted any inquiry while coming to the conclusion as the parties are not genuine. Secondly; the AO has asked for invoices only on simple basis which is evident from para 12.5 of the assessment order at....
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....same amount which are duly recorded in the books of account. This fact has also been noted by Ld. CIT (A) also. This detail has been filed in response to query raised by us during the course of hearing by us to furnish the date wise detail of trading account showing the gross profit percentage in respect of alleged bogus purchases and other purchases and apart from that, details of bill wise sales against such alleged bogus purchases for the above captioned assessment years. 14. From the perusal of the same, we find that there is one to one co-relation of exact quantity of purchases as well as sales and also the corresponding GP on such sales. Apart from that, details of purchase order, invoice, delivery challan, material receipt stamp, confirmation, ledger accounts of the bank statements have been submitted before us which has also been filed before the lower authorities and which fact we find that, Ld. CIT (A) has also noted and in the assessment order also which are mentioned from pages 6-8 of the assessment order. Ld. Counsel before us filed item wise registers showing purchases and sales of goods which have also placed in the paper book. Once the source of purchases a....
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.... the sales order, assessee has made the purchases on credit and immediately after the purchases received, assessee makes the corresponding sales on the same day or next day, which fact has been noted by Ld. CIT(A) and has also been demonstrated and filed before us. Thus, there was no working capital or investment which has been blocked for alleged bogus purchases. From the details furnished before us and also before Ld. CIT(A), it is seen that assessee has received sale consideration and immediately from such sale assessee had made purchases and this fact has been noted by Ld. CIT(A) in para 6.27 as noted above. In any case assessee is trading in fabrics which items are exempt from VAT, Octroi etc., therefore, it cannot be presume that assessee has taken accommodation entries of purchases to save VAT of 10% or 12%. Assessee has filed justification for GP rate on these items which is ranging 1.36% to 2.34% and looking into the fact that there is minimum movement of the stock right from the moment purchase to sales and it is in consistent with its gross profit margins showed by the assessee in the earlier and in subsequent years, therefore it cannot be held that assessee's GP rate on....
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....gs, the Assessing Officer issued a notice dated 01.10.2019, wherein he stated that physical verification of stock was done in presence of Shri Vithal Gopal Patil and he also provided the tally data from the system. He further stated that there is huge discrepancy in stock and in the closing balance maintained in computer accounting system as against actual calculation of closing balance. He pointed out following discrepancies in the data taken from the tally accounting system in respect of the period from 01.04.2016 to 31.03.2017 i.e. A.Y. 2017-18 [table (a) and (b) on Pg no 16 of assessment order]: Pg no 16 of A.O. Particulars Opening balance Inward Outward Closing balance Table (a) Total stock 9,62,97,239 4,03,86,542 8,78,10,868 9,82,98,208 Table (b) Carbon America 6,01,87,448 1,38,72,061 4,97,44,801 5,62,36,704 17. The Assessing Officer was of the view that the value of closing balance has to be calculated by applying the formula; opening balance + purchases -sales. He contended that, if the said formula is applied then the value of closing balance would be; i) Rs. 4,88,72,9137- (Rs. 9,62,97,239 + Rs. 4,03,86,542 ....
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....ficer did not agree with the contention of the assessee. He stated that the assessee has not given any scientific way to calculate the correct valuation of stock and has not reconciled the difference in stock. He further stated that the gross profit of assessee is 10.97% and even if stock is adjusted for, still the discrepancy is much higher, hence the argument of assessee is not acceptable. He concluded that the assessee has not been able to explain discrepancy in stock. Accordingly, the Assessing Officer added Rs. 13,76,21,050/- (Rs. 4,94,25,295/- + Rs. 3,19,21,996/- + Rs. 3,17,90,089/- + Rs. 2,44,83,670/-) as discrepancy in stock u/s 69 of the Act. 21. The detail reasoning of the AO have been given from pages 20 to 25 of the assessment order. 22. Before the Ld. CIT (A), assessee has filed detail written submission explaining each and every items and objections raised by the AO and have been pointed out that addition aggregating to Rs. 10,58,30,961/- did not pertain to the present assessment year 2018-19, albeit pertain to AY 2017-18 and hence, the same could not have been added in the current year u/s 69. However, the Ld. CIT (A) had simply upheld the order of AO. 23. B....
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.... 4,97,44,801 5,62,36,704 5. CARR REINFORCEMENT 28,532 750 mtrs 7472 10,59,581 1005 mtrs 2,024 20,34,450 -3,24,661 6. Ce Tech Co. Ltd 2,25,834 70,800 3,01,361 2,33,737 7. CHINA UNION 1,77,845 83,264 91,800 1,81,156 8. CZ-Carbon 14 mtrs 79495 2,88,534 2 Nos 17,371 2,88,534 9. Euro Carbon 1 5 mtrs 476 6,240 -15 mtrs 10. FMI INC 21,41,294 1,05,18,175 2,13,60,706 18,92,562 11. Formosa 635 kgs 584 3,71,078 1750 kgs 2702 47,28,593 124 kgs 7,974 2,44,855 2261 kgs 2799 49,74,153 12. G. Angeloni SRL 190 mtr 70,663  ....
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.... 4558 91,172 29. ZIRCAR 8,84,245 58,78,757 191 Nos 30,298 57,86,942 25,19,543 30. Zoltex 19,313 4,91,953 17,35,000 -6,88,736 31. Collar Type Crucibles 28Nos 91 2,560 28 Nos 91 2,560 32. Machined Graphite Blocks 390 pcs 2059 8,03,114 390 pcs 2059 8,03,114 33. UD Carbon Fabric 20 sq.mtr 720 14,413 100 sq.mtr 739 73,950 113 sq.mtr 1,610 1,81,940 7 sq.mtr 720 5,044 34. Without Collar Type Crucibles 5 Nos 248 1,244 5 Nos 248 1,244 35. Total 9,62,97,239 4,03,86,542 8,78,06,289 9,82,98,208 36. As per audited accounts 9,63,07,017 6,99,81,806 13,70,....
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....ils of stock and not for valuation of stock. 28. Lastly, he submitted that the Assessing Officer has relied upon the seized tally data for making addition u/s 69 of the Act. He submitted that the seized tally data is incomplete and consists of numerous mistakes hence cannot be relied for making addition. By way of example he pointed out that in sr. no. 1 of the above chart, there is no opening balance or purchases, however there is outward quantity of 402 kgs having value of Rs. 15,12,997. In the closing balance there is negative quantity with no value. Similarly in Sr. No. 2 also the closing stock quantity is negative. In respect of Sr. No. 8, the value of opening balance and closing balance is same even though there is an outward value of Rs. 17,371. It is evident from the above that the seized tally data was incomplete and consists of several mistakes. It was submitted before the Assessing Officer that the accounts were not complete. 39. On the issue of addition of Rs. 3,17,90,089/-, which was tallied data of the stock summary of Graphite division for the period 01.04.2017 to 17.11.17, he submitted the following chart:- Sr.No. Particulars Opening Balance Inward....
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....ith the figures as mentioned by the Assessing Officer in table (c) on Pg no. 16 of the assessment order. He submitted that the seized tally data is incomplete and incorrect. For eg. in sr. no. 1 the opening balance is Rs. 8,18,695, inward of Rs. 10,51,075, outward of Rs. 1,70,06,146. However, the closing value is Rs. 7,99,300/-. In sr. no. 5, the opening value and closing value is same even though there is an outward value of Rs. 7,950/-. Thus, he submitted that seized data can be relied for making addition provided the contents of the seized data are true and correct. In the present case, it is evident that the seized data relied upon by the department for the period 01.04.2016 to 31.03.2017 and 01.04.2017 to 17.11.2017 is incomplete and incorrect. Hence, the seized tally data cannot be relied upon for making addition. He further submitted that the addition of Rs. 3,17,90,089/- is not based on mismatch in physical stock but is on the basis of formula adopted by Assessing Officer to calculate the value of closing stock. The addition for mismatch in physical stock has already been done by the Assessing Officer which has been challenged by the assessee in ground no.6 of the present a....
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....n of America 81695 1051075 17006146 799300 (-)15136376 4 FMI Inc 927781 5238818 9196754 1635059 (-)3030155 10 Local Graphite 24165411 6218272 11117284 24093516 19266399 11 Sichuan AerospcaTuo Xin 201654 120215 173972 81434 12 ZIRCAR 2057641 1846554 1628541 211087 Total 3,31,61,314 1,31,35,820 4,45,95,295 3,34,91,927 17,01,839 33. From the aforesaid extract, AO has found that the value of the closing balance has to be calculated by applying the formula i.e. opening balance (+) purchases (-) sales applying that formula. According to him, the closing balance would be; i) Rs. 4,88,72,9137- (Rs. 9,62,97,239 + Rs. 4,03,86,542 - Rs. 8,78,10,868) in respect of table (a) and; ii) Rs. 2,43,14,7087- (Rs. 6,01,87,448 + Rs. 1,38,72,061 - Rs. 4,97,44,801 in respect of table (b). He was of the view that the difference of Rs. 4,94,25,295/- (Rs. 9,82,98,208 -Rs. 4,88,72,913) and Rs. 3,19,21,9967- (Rs. 5,62,36,704 - Rs. 2,43,14,708) should be added u/s 69 of the Act. 34. Similarly, he has pointed out certain discrepancy in the tally data taken wi....
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.... addition of Rs. 10,58,30,961/- is directed to be deleted. 37. Apart from that, there are various double additions as pointed out by Ld. Counsel which itself goes to show that the tally data is not reliable which is evident from the submission of Ld. Counsel as incorporated herein above. Further AO has adopted a formula by applying balance (+) purchases (-) sales. The value of the closing stock has to be arrived at after reducing the profit element from the sales made by the assessee and further the value of closing stock has to be adjusted as per the relevant accounting standard applicable for valuation of closing stock. The AO is adopting formula for calculating quantitative details and not the valuation of stocks. This itself shows the error in working of the AO. 38. In so far as the tally data of the stock summary of the graphite division for the period 01.04.2017 to 17.11.17, as noted above, which is also evident from the submission of Ld. Counsel that there are various defects in the entry in the said tally data or were incomplete or incorrect which has been demonstrated by him as incorporated above. Here the addition of Rs. 3,17,90,089/- is not based on mismatch of phy....
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....d provided details, therefore the same cannot be treated as falls or incorrect. 43. After considering the aforesaid submission and on perusal of the impugned orders as well as details of stock, it is seen that survey team has taken the quantity of graphite block of 18612.637 kg approximately, whereas assessee has recorded the stock in the books at 17317.8 kg. Before the AO and Ld. CIT (A), assessee contended that it is very difficult to measure actual weight and it has been done purely by taking the length, breadth and height of the blocks which cannot be accurate basis. We agree with the contention of the Ld. Counsel because even if the dimension may be accurate, however the density and the weight may vary depending on grade to grade and the quality. Nowhere it has been brought on record that these stocks was actual weighed but the weight was taken on approximation by calculating length and breadth without factoring into density and it would not be possible for physical verification of almost 18 Mt. of graphite depending upon various shapes and sizes, therefore such estimation based on approximation cannot be basis for making addition on account of unaccounted stock. Therefore,....