DCIT CENTRAL CIRCLE-06, NEW DELHI V. ISOE PRINTPACK INDUSTRIES PVT LTD, NEW DELHI

ITA 734/DEL/2021

AI Insights

The case involves cross appeals by the assessee, M/s. ISOE Printpack Industries Pvt. Ltd., and the Revenue against the order of the CIT(A) for the assessment years 2017-18 and 2018-19. The appeals arose from a survey and seizure operation conducted at the assessee's premises, leading to the issuance of notices under section 153A of the Income Tax Act. The AO made substantial additions to the assessee's income based on estimated unaccounted sales and profits, derived from electricity consumption data during the survey. The CIT(A) partially upheld these additions, which were contested in the Tribunal. The Tribunal found that the additions were not substantiated by any incriminating material and were based on assumptions and estimations, leading to the decision to allow the assessee's appeals and dismiss the Revenue's appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712511 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: Commissioner Central Excise vs R.A. Casting (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEERAJ MANGLA
• Assessee Lawyers: DAYAINDER SINGH SIDHU
• Keywords: Opportunity of being heard; Question of law; Depreciation; Principle of natural justice; Block assessment
• Section: 143(3); 153A; 69; 139

Judgement Text

"ITA Nos.292, 293, 734 & 735/Del/2021 Page | 1 THE INCOME TAX APPELLATE TRIBUNAL DELHI “C” BENCHES: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA Nos.292 & 293/Del/2021 [Assessment Years : 2017-18 & 2018-19] M/s. ISOE Printpack Industries Pvt.Ltd., B-1/1691, Vasant Kunj, New Delhi-110070. PAN-AABCI6734P vs ACIT, Central Circle-06, Room No.364, A.R.A.Centre, Jhandewalan Extn., New Delhi-110055. APPELLANT RESPONDENT ITA Nos.734 & 735/Del/2021 [Assessment Years : 2017-18 & 2018-19] DCIT, Central Circle-06, Room No.344, A.R.A.Centre, Jhandewalan Extn., New Delhi-110055. vs M/s. ISOE Printpack Industries Pvt.Ltd., B-1/1691, Vasant Kunj, New Delhi-110070. PAN-AABCI6734P APPELLANT RESPONDENT Appellant by Shri Neeraj Mangla, CA Respondent by Shri Dayainder Singh Sidhu, CIT DR Date of Hearing 19.05.2025 Date of Pronouncement 31.07.2025 ORDER PER MANISH AGARWAL, AM : These are cross appeals filed by the assessee and the Revenue against the common order of Ld.CIT(A)-24, New Delhi dated 29.01.2021 for various AYs including 2017-18 & 2018-19 passed u/s 250 of the Act arising from the different assessment orders which are tabulated as under:- Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 2 Sl. No. ITA No. Assessment Years CIT(A)’s order dated AO’s order dated Assessment Order passed u/s 1. 292/Del/2021 2017-18 29.01.2021 NIL 153A 2. 734/Del/2021 2017-18 29.01.2021 NIL 153A 3. 293/Del/2021 2018-19 29.01.2021 NIL 143(3) 4. 735/Del/2021 2018-19 29.01.2021 NIL 143(3) 2. Since the issues involved in both the cross-appeals filed by the assessee and the Revenue are common therefore, they are taken together for consideration and decided by way of a common order as below:- ITA Nos.292 & 734/Del/2021 [Assessment Years : 2017-18] 3. First we take the cross appeal filed by assessee in ITA No.292/Del/2021 and by Revenue in ITA No.734/Del/2021 both for AY 2017-18. 4. Brief facts of the case are that the assessee is a company, engaged in the business of manufacturing of laminated packing material since its inception. A survey and seizure operation was carried out at the business premises of the assessee company on 31.01.2018 and during the course of survey, certain documents were seized by the survey team and statements on oath were recorded of the staff members and Directors of the assessee company besides physical verification and inventorization of the stock available. As a result of search, the notice u/s 153A of the Act was issued. The assessee furnished its return of income u/s 139 of the Act, declaring total income of INR 54,94,520/- on 26.10.2017. After the search, in response to notice u/s 153A of the Act, the return of income was filed on 14.11.2019, declaring the same income as was declared u/s 139(1) of the Act. Thereafter, the AO Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 3 issued notices from time to time which were duly replied and the assessment was finally completed wherein the AO has alleged that assessee has indulged into the activity of unaccounted sales and thereby, making unaccounted profits out of such sales which is computed based on the electricity consumption monitored by the survey team for 137 minutes during the course of survey. Accordingly, the addition of INR 4,38,48,334/- was made to the total income of the assessee. 5. Against such order, the assessee preferred appeal before Ld. CIT(A) who after considering the submissions of the assessee, has allowed part relief and confirmed the addition of INR 1,89,90,978/- and deleted the balance addition of INR 2,48,57,356/-. 6. Aggrieved by the said order, both the assessee and the Revenue are in appeal before the Tribunal wherein the following grounds of appeal were raised by both the parties:- ITA No.292/Del/2021 [Assessment Year : 2017-18] 1. “On the facts and circumstances of the case, the order passed by the Ld.CIT (A) is bad in law and against the principles of natural justice. 2. That the learned CIT(A)-24, New Delhi has grossly erred both on the facts and in circumstances of the case and in law by confirming the addition of Rs. 1,89,90,978/- by giving only partial relief on account of unaccounted sales and thereby resulting into unaccounted profit on an estimated basis without any proper reasoning and without any supporting incriminating material found during the survey proceedings, in an arbitrary manner. 3. On the facts and in circumstances of the case and in law the Commissioner of Income-Tax(Appeals) grossly erred by dismissing the ground for generation of single DIN for order of assessment u/s 153A of the Income Tax Act, 1961, which is bad in law as per circulars No.19/2019 dated 14.08.2019. Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 4 4. That the learned CIT(A)-24, New Delhi has erred on dismissing the ground of the appellant assessee in fact by not allowing assessee's appeal in so far that the Id. AO bringing to tax an additional income which is based on the statement(s) recorded in the course of survey of some non competent and non technical persons in an arbitrary manner and without any supporting findings in this regard. 5. That the Ld. CIT(A)-24, New Delhi has erred on the facts and in circumstances of the case and in law by not allowing assessee's appeal in so far that the Ld.AO has not provided proper opportunity of being heard and violated the principle of natural justice by either rejecting or ignoring the submission made by appellant assessee. 6. In view of the facts and circumstances of the case the appellant prays that the additions may kindly be deleted or any other order which this hon'ble court deems fit and proper be passed. 7. That the appellant craves leave to add, alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary either before or during the hearing of these grounds.” ITA No.734/Del/2021 [Assessment Year : 2017-18] 1. “The order of CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case, the Commissioner of Income Tax (A) has erred in law and on facts in restricting the addition of Rs. 4,38,48,334/- on account of unaccounted profit from unaccounted sales to Rs. 1,89,90,978/-. 3. The appellant craves to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.” 7. Before us, Ld.AR for the assessee majorly re-iterated the submissions made before Ld. CIT(A) and submits that the sole basis for the additions was the trial production carried out by the survey team for 137 minutes according to which the total electricity consumed and the production done by all the machines has been taken as the basis to estimate the production for the entire year. While doing so, AO has failed to appreciate the fact that electric consumption is effected by various other factors such as electricity consumed at work station, office premises etc. for which no Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 5 concession was given. Further, the production is based on a various other factors such as quantity of production, quality of raw material, nature of final products which cannot be identical in each and every order of the goods produced during the year. He further submits that the books of accounts of the assessee company are maintained in the regular course of business and are duly audited and the same are accepted by the AO. He further argued that there was no material whatsoever was found as a result of search indicating any production out of the books or any evidence of sales made which is not recorded in the books of accounts. Ld.AR submitted that in such circumstances no addition could be made even for the assessment years which are not abated years without referring to any incriminating material found or seized during the course of survey/search. He further placed reliance on the submissions made in this regard before Ld.CIT(A) which are placed in the Paper Book and read as under:- Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 6 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 7 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 8 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 9 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 10 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 11 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 12 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 13 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 14 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 15 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 16 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 17 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 18 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 19 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 20 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 21 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 22 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 23 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 24 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 25 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 26 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 27 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 28 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 29 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 30 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 31 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 32 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 33 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 34 8. In the last, Ld.AR submits that the AO has failed to appreciate the fact that Gross Profit (“GP”) has not been static on year to year basis and further submits that the GP rate applied by the AO is not correct which has been taken as per Tax Audit Report ignoring the facts that the Tax Auditor has not considered certain items of expenditure such as labour charges, depreciation on machinery, fuel expenses to compute the gross profits and if the same are considered the GP rate for the year under appeal comes to 12.13% as against GP rate of 13.99% computed by the tax auditor and taken by the AO. Ld.AR further submits that the AO has applied average GP rate of 14.78% which is average of GP rate of the year under appeal and one year prior and subsequent to the year under appeal and if the revised GP rate of the corresponding period is taken, it will come to 11.40%. Ld.AR also submits that the various judicial pronouncements stated that only electric production cannot be the sole basis for computing the suppressed production for which he placed reliance on various judgements including the Hon’ble Apex Court in the case of Commissioner Central Excise vs R.A. Casting (P.) Ltd. and Ors. Central Excise Appeal No.67/2009 pronounced on 09.09.2010. Ld.AR also submits that the addition was made on assumption and presumption and estimation were made without any logical basis and therefore, the entire additions deserved to be deleted. 9. On the other hand, Ld.CIT DR for the Revenue vehemently supported the order of the AO and submits that in the instant case, AO has made extensive inquiries and the working of the extra Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 35 production is based on the exercise undertaken by the survey team for estimation of the production based on electricity consumption. He further submits that the survey team in the presence of the officials of the assessee company has carried out trial production for 137 minutes and based on which the estimation of production is made therefore, the addition made is duly supported by a scientific method which deserves to be uphold. Further, Ld.CIT DR submits that Ld.CIT(A) on assumption basis reduced the cost of production vis-à-vis GP rate and therefore, he prayed for the confirmation of the order of the AO in this regard. 10. Heard the contentions of both the parties and perused the material available on record. From the perusal of order of Ld.CIT(A), we find that Ld.CIT(A) has considered various aspects and contention raised by the assessee in its order. The observations made by Ld.CIT(A) as contained in para 6.3.31 to 6.3.38 are as under:- Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 36 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 37 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 38 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 39 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 40 11. It is further seen that after considering all the submissions made by assessee, Ld. CIT(A) on mere assumptions upheld the rate of production of finished products per unit of electricity at INR 2/- per KG unit of electricity instead of 2.7519 KG per unit of electricity taken by the AO and no basis is given for the same. Further as against the 14.78% GP rate applied by AO on alleged unaccounted for sales, Ld. CIT(A) has taken GP rate of 10.70% which is average GP rate of AYs 201314 to 2018-19. 12. As observed above, in para 6.3.39, Ld. CIT(A) has taken the rate of production of finished goods per unit of electricity at 2.0 KG per unit though he himself accepted the contentions raised by the assessee which are summarized in para 6.3.38 of the appellate order as reproduced above wherein Ld.CIT(A) has accepted that measurement of electricity consumption was not the best possible method of computing undisclosed sales or income. In the said para, Ld. CIT(A) further observed that when no reason or justification was given for the estimation of production more particularly looking to teg fact that books of accounts maintained are not rejected by the Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 41 AO himself. Further, the said books of account were regularly inspected by other government agencies like Excise Department or VAT Department etc. Ld. CIT(A) also agreed with the claim of the assessee that the production is also dependent on various external factors like (a) offline production process, (b) size and volume of the orders affects the capacity utilization of plant,(c) labour productivity (d) quality of raw material, size and thickness, (e)running of machinery multiple times for sampling and testing (f) rejection of materials etc. 13. Ld.CIT(A) further observed that the AO has applied various assumptions and presumptions like (i) that every part of finished products has 70% glued printed foil lamination and 30% of flexible laminated Poly packing material. (ii) the average growth rate of industry is taken at 15%. (iii) the AO also presumed that 971 KG is the 100% capacity of quoting machine and the major objection accepted by Ld.CIT(A) was that the entire electricity consumption is only for production purposes. Once the existence of these external factors was accepted by Ld. CIT(A) and the assessee has been able to demonstrate that if these factors are factored, there would be no suppression of production therefore, solely based on the electricity consumption that too on wrong appreciation of facts and presumption that such electricity was consumed only for the production of purpose, estimation of production and sales thereof, cannot be made basis for making the addition. In view of these facts, in our considered opinion, in the present case, the estimation Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 42 of the suppressed production cannot be made and consequently no addition should be made for unaccounted for profit. 14. In view of above discussion and under these facts and in the circumstances of the case, we hereby direct the AO to delete the addition so confirmed by Ld.CIT(A) at INR 1,89,90,978/- towards alleged unaccounted profit from the sale of suppressed production. All the grounds of appeal taken by the assessee are allowed as well grounds of appeal taken by the Revenue are dismissed. 15. In the result, appeal of the assessee is allowed and appeal of the Revenue is dismissed. ITA Nos.293 & 735/Del/2021 [Assessment Years : 2018-19] 16. Grounds of appeal taken by the assessee are as under: 1. “On the facts and circumstances of the case, the order passed by the Ld. CIT (A) is bad in law and against the principles of natural justice. 2. That the learned CIT(A)-24, New Delhi has grossly erred both on the facts and in circumstances of the case and in law by confirming the addition of Rs. 1,77,92,785 by giving only partial relief on account of unaccounted sales and thereby resulting into unaccounted profit on an estimated basis without any proper reasoning and without any supporting incriminating material found during the survey proceedings, in an arbitrary manner. 3. That the learned CIT(A)-24, New Delhi has grossly erred both on the facts and in circumstances of the case and in law by confirming the addition of Rs. 3,17,33,177/- by giving partial relief on account of unaccounted purchase u/s 69 rws 115BBE of the Income Tax Act, 1961 without any proper reasoning and without any supporting incriminating material found during the survey proceedings, in an arbitrary manner and ultimately leading to double taxation on account of ground no. 1 mentioned above. 4. On the facts and in circumstances of the case and in law the Commissioner of Income-Tax(Appeals) grossly erred in confirming Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 43 the generation of single DIN for order of assessment u/s 153A of the Income Tax Act, 1961, which is bad in law as per circulars No.19/2019 dated 14.08.2019. 5. On the facts and in circumstances of the case and in law the commissioner of income-Tax(Appeals) grossly erred by dismissing the ground for generation of single DIN for order of assessment u/s 153A and 143(3) of the Income Tax Act, 1961, which is bad in law as per circulars No.19/2019 dated 14.08.2019. 6. That the learned CIT(A)-24, New Delhi has erred on dismissing the ground of the appellant assessee fact by not allowing assessee's appeal in so far that the ld. AO bringing to tax an additional income which is based on the statement(s) recorded in the course of survey of some non competent and non technical persons in an arbitrary manner and without any supporting findings in this regard. 7. That the Ld. CIT(A)-24, New Delhi has erred on the facts and in circumstances of the case and in law by not allowing assessee's appeal in so far that the Ld.AO has not provided proper opportunity of being heard and violated the principle of natural justice by either rejecting or ignoring the submission made by appellant assessee. 8. In view of the facts and circumstances of the case the appellant prays that the additions may kindly be deleted or any other order which this hon'ble court deems fit and proper be passed. 9. That the appellant craves leave to add, alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary either before or during the hearing of these grounds.” 17. Grounds of appeal taken by the revenue are as under: 1. “The order of CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case, the Commissioner of Income Tax (A) has erred in law and on facts in restricting the addition of Rs. 5,22,48,260/-on account of unaccounted profit from unaccounted sales to Rs. 1,77,92,785 /-. 3. On the facts and circumstances of the case, the Commissioner of Income Tax (A) has erred in law and on facts in restricting the addition of Rs. 4,65,79,617/-on account of unaccounted purchases u/s 69 r.w.s. 115BBE to Rs. 3,17,33,177/-. 4. The appellant craves to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.” Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 44 18. The assessee’s Grounds of appeal Nos. 1 to 8 and Grounds of appeal Nos. 1 & 2 of Revenue’s appeal are in relation to the unaccounted profit from sale of suppressed production. This issue is decided by us while disposing assessee’s appeal in ITA No.292/Del/2021 and Revenue’s appeal in ITA No.734Del/2021, wherein it is held by us that no addition could be made towards unaccounted profit on unrecorded sale of suppressed production computed solely on the basis of electric consumption and accordingly, by following the same observations, the additions in the year under appeal is hereby, deleted. Accordingly, captioned grounds of assessee’s appeal are allowed and captioned grounds of Revenue’s appeal are dismissed. 19. Ground No.3 of the assessee and Ground No.3 of the Revenue are with respect to the addition of INR 4,65,79,617/- made by the AO on account of alleged excess stock found during the course of survey which was reduced to INR 3,17,33,177/- by CIT(A). 20. Before us, Ld.AR re-iterated the submissions made before Ld.CIT(A) in this regard wherein it is contended that the stock found during the course of survey was quantified and inventoried in Annexure SF 1 to SF 6 which are the inventory sheets prepared at various factory sites and godowns of the assessee company. It is submitted by Ld.AR that from the perusal of these sheets which are available at pages 38 to 43 of the Paper Book filed by the assessee, it could be seen that they contained the quantity in “0.00 KG meaning thereby in round figures such as 9200 KG, 53,000 KG, 3060 KG, 2418 KG, 5250 KG, 4000 KG” etc. and in none of the Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 45 case, it is given in the odd figures such as 111 KG etc. This clearly shows that physical verification of the stock was not done in proper manner. Ld.AR further submits that the survey was started during the working hours of 31.01.2018 and concluded on 01.02.2018 at 3.30 PM wherein only four staff personals were comprising the survey team, who not only recorded the statements during this period but also carried out test run on the machines at the factory site. Ld.AR further argued that during this short period of time, with such a short number of staff, it is humanly impossible to verified and quantified of more than 60,000 KG of various items of miscellaneous goods of stores and spears and raw material and finished goods as tabulated in stock inventory in Annexure SF 1 to SF 6. Ld. AR further drew our attention to the statements of the Director recorded during the course of survey, Shri Anuj Sood who had not accepted the quantification of stock and working of excess stock and therefore, submits that no addition could be made on this account. Ld.AR further submits that the AO based on the incomplete books of accounts, have recasted the trading account as on the date of survey which is appearing at page 24 of the assessment order in para 11.2 according to which, the stock as per books of accounts was worked out at INR 1,72,22,239/- as against the stock physical quantified and valued at 6,38,01,856/- and requested that if all the factors have been considered, there would be no excess stock at the time of survey. He also placed reliance on the submissions made before Ld.CIT(A) in this regard which is as below:- Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 46 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 47 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 48 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 49 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 50 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 51 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 52 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 53 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 54 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 55 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 56 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 57 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 58 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 59 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 60 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 61 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 62 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 63 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 64 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 65 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 66 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 67 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 68 21. On the other hand, Ld.CIT DR vehemently supported the order of lower authorities and submits that the stock was physically quantified and valued by the survey/search officers during the course of search/survey. He further submits that during the course of survey, the books of accounts of the assessee were maintained on Tally 7.2 software upto 31.12.2017 and thereafter, they were shifted to Tally ERP-9 software from where the figure of the purchases and sales and other figures were taken by the survey authorities and accordingly, the trading account was recasted as per which stock as on the date of survey was worked out at INR 1,72,22,239/- which is not disputed by the assessee and therefore, the difference of stock of INR 4,65,79,617/- [INR 63801856-17222239] which is calculated by applying GP rate of 14% i.e. GP rate of the year under appeal deserves to be accepted and he prayed accordingly. Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 69 22. Heard the contentions of both the parties and perused the material available on record. In the instant case, it is seen that during the course of survey/search, the stock was physically verified are quantified and valued within the help of staff of the assessee company. The assessee claimed that the search was commenced on 31.01.2018 at 7.40 AM and closed at 01.02.2018 at 5.35 PM and the survey was started on 31.01.2018 at 8.38 AM and concluded on 02.02.2019 at 3.30 PM during which statements of various persons were recorded besides the survey team also running the factory machines for trial production to work out the production per hour. Besides this, the survey team also identified all the fixed assets which consumed lots of time and therefore, it is not possible for them to physically quantified such a huge quantity of stock with such a low number of officials in the survey team and therefore, the quantity taken during the course of survey, cannot be humanly possible and is thus, cannot be taken as true. During the course of survey, in the statement of Director, Shri Anuj Sood recorded u/s 131(1a) “on oath” wherein in reply to Question No.45 about the stock inventory, he categorically stated that I will review at length and then answered. He thereafter, refused to verify the stock inventory prepared further with respect to the excess stock had stated that he has valid explanation which will be offered later. The relevant questions and answers available at Page No.45 to 48 of the Paper Book in para 126 are reproduced as under:- Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 70 Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 71 23. It is also seen that the AO in the recasted trading account at page 24 of the assessment order has taken direct expenses at INR 2.15 crores whereas from the perusal of final accounts, it could be seen that the assessee has claimed direct expenses (employees benefit expenses of INR 2.96 crores), and power and fuels expenses of INR 1.75 crores besides depreciation on the machinery which have not been considered for working of the closing stock as on the date of survey. One more glaring fact ignored by the lower authorities is that when director of the assessee company denied the verification of stock as proper, no efforts was made by the Revenue to re-verifying the physical stock found and quantified which further shows the casual approach taken by the Revenue. The sole basis for alleging the discrepancies is the mis-conception of the AO of transfer of accounting from Tally 7.2 software to Tally ERP-9. It is an accepted accounting principle that when books of accounts have been transferred to certain other mode of maintenance, the necessary entries with respect to the inventory etc. has to be made and according to which the closing stock as on 31.12.2017 was worked out to INR 5,12,80,870/-. Further if the working of the AO is accepted, the stock was calculated by the AO himself as per books of accounts at INR 4,13,53,898/- wherein he has not considered the value of GP included in the same and therefore, if necessary credit of the same is given there would be no excess/shortage of the stock. It is also seen that AO has not doubted the books of accounts maintained by the assessee in the regular course nor the trading results were doubted. Further, the assessee has maintained the stock inventory which were subject to Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 72 verification of excise authority also which fact was ignored by both the lower authorities. The Hon’ble Jurisdictional High Court in the case of CIT vs Balalji Wire (P.) Ltd. in the identical circumstances has held as under:- 15.5…………. “Relying on judgment of Hon'ble High Court of Delhi in Commissioner of Income Tax, Delhi-I vs Balaji Wire (P) Ltd where it was held that, \" In respect of a block assessment, undisclosed income is required to be computed on the basis of evidence found during the search or being directly relatable to evidence found during the search. In the instant case, nothing was found during the search which would suggest that the books maintained by the assessee were unreliable. It was only subsequent to the search and with a view to verify the correctness of the books that the Deputy Director recorded the statement of 'V'. Whatever be the merits or demerits of both statements of 'V', unless they could be directly connected with the recovery of any incriminating material during the search, they could not be used against the assessee. [Para 8] In the absence of any incriminating material found during the search conducted in the premises of the assessee, both the statements of 'V' could not be used for proceedings under Chapter XIV-B. [Para 12] Earlier statement of 'V' was recorded after the search proceedings and appeared to have been recorded only with a view to confirm the correctness of the account books. It was not as if the statement was recorded during the search proceedings nor was it the case of the revenue that because of some incriminating material that was unearthed during the search proceedings that it became necessary to record the statement of 'V'. It could not, therefore, be said that the statement of 'V' was a direct consequence or result of obtaining some incriminating material which showed that the assessee had undisclosed income. [Para 13] Quite apart from the above, it was found that the statement of 'V' was recorded behind the back of the assessee. When the assessee was in fact allowed to cross-examine 'V' after his second statement was recorded, 'V' had retracted from his earlier statement. The Assessing Officer, nevertheless, relied upon the earlier statement given by 'V' completely disregarding his subsequent statement. [Para 14] Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 73 Under those circumstances, the revenue had not been able to raise any substantial question of law which would necessitate admission of the instant appeal.\" 24. Considering these facts and circumstances of the case and further looking to the facts that if the stock of INR 4.65 crores as computed by the survey authorities if taken into consideration, the resultant GP rate would be the impossible GP rate which cannot be achieved in this line of trade. Thus, under these circumstances and as per the discussion made herein above, in our considered opinion the addition made on account of alleged excess stock deserves to be deleted. It is also pertinent to note that the Director of the assessee company since beginning of the proceedings stating that there was no excess stock found nor any admission was made on this account and therefore, it could not be said that the working of the survey authorities of quantification of the stock at the time of survey is correct and could be made the basis for making such a huge addition in the hands of the assessee. In view of these facts and circumstances of the case, we hereby direct the AO to delete the addition made on this account of INR 3,17,33,177/- as confirmed by Ld.CIT(A). Accordingly, Ground No.3 of the assessee is allowed and Ground No.3 of the Revenue is dismissed. 25. In the result, the appeal of the assessee is allowed and appeal of the Revenue is dismissed. Printed from counselvise.com ITA Nos.292, 293, 734 & 735/Del/2021 Page | 74 26. In the common result, appeals of the assessee for both the assessment years are allowed and cross appeals of the revenue are dismissed. Order pronounced in the open Court on 31.07.2025. Sd/- Sd/- (MAHAVIR SINGH) VICE PRESIDENT *Amit Kumar, Sr.P.S* (MANISH AGARWAL) ACCOUNTANT MEMBER Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 6. Guard File ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "