BORSAD TOBACCO CO.P.LTD, MUMBAI V. ASST CIT CEN CIR 44, MUMBAI

ITA 2941/MUM/2014

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3768 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Assessee Lawyers: PANKAJ TOPRANI
• Keywords: Unexplained cash credit; Set aside
• Section: 143(3); 153A; 201; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NOS.2941 & 2942/MUM/2014 ASSESSMENT YEARS : 2008-09 & 2009-10 BORSAD TOBACCO CO. P. LTD., 21 ST NIRMAL, NARIMAN POINT, MUMBAI 400 021. PAN AAACB5089K VS. ASST. CIT CENTRAL CIRCLE 33, MUMBAI (APPELLANT) ( RESPONDENT) APPELLANT BY : SHRI PANKAJ TOPRANI RESPONDENT BY : SHRI H N SINGH DATE OF HEARING : 0 4 .0 6 .201 9 DATE OF PRONOUNCEMENT : 03 .09 . 201 9 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSES SEE AGAINST A COMMON ORDER OF THE CIT(A)-37, MUMBAI, DATED 24.02. 2014, WHICH IN TURN ARISES OUT OF THE ASSESSMENT ORDER PASSED U/S 143(3 ) R.W.S 153A OF THE I.T. ACT, 1961 FOR A.YS. 2008-09 AND 2009-10. 2. ITA NO.2941/MUM/2014 FOR A.Y. 2008-09 THE ISSUE RAISED IN GROUNDS OF APPEAL NOS 1 & 2 IS AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF ` 11,31,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED CASH CREDITS BEIN G REFUND IN CASH, OF ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 2 ADVANCE PAID BY CHEQUES TO TWO FARMERS FOR PURCHASE OF AGRICULTURAL LAND ON NON-MATERIALIZATION OF PURCHASE DEAL. 3. THE FACTS IN BRIEF ARE THAT A SEARCH ACTION U/S. 132 OF THE ACT WAS CARRIED OUT ON SOPARIWALA GROUP ON 29.04.2008, OF W HICH ASSESSEE WAS ONE OF THE GROUP COMPANIES AND, ACCORDINGLY, NOTICE U/S . 153A OF THE ACT WAS ISSUED ON THE ASSESSEE FOR A.YS. 2003-04 TO 2009-10 ON 29.01.2010. THE ASSESSEE COMPLIED WITH THE NOTICE WHILE FILING RETU RN OF INCOME FOR THE CURRENT YEAR ON 04.03.2010, DECLARING INCOME OF ` 1,15,45,250/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER AS KED THE ASSESSEE TO FURNISH INFORMATION ABOUT RECEIPT OF CASH EXCEEDING ` 20,000/- SPECIFICALLY WITH REGARD TO THE REFUND OF ADVANCE PAYMENT MADE F OR PURCHASE OF LAND. THE ASSESSEE COULD NOT FURNISH ANY DETAILS/EVIDENCE TO PROVE THE RECEIPT OF CASH REFUND AND, ACCORDINGLY, THE CASH RECEIVED FRO M SHRI MEHMUDBEG UMERGEB MIRZA OF ` 5,51,000 AND SHRI AMIRBEG UMERGEB MIRZA OF ` 5,80,000/- WAS HELD TO BE UNEXPLAINED CASH CREDIT U/S. 68 AND ADDED TO THE INCOME OF THE ASSESSEE. 4. IN THE APPELLATE PROCEEDINGS, THE LEARNED CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE AFTER CALLING FOR A REMAND R EPORT FROM THE ASSESSING OFFICER ON VARIOUS EVIDENCES FILED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS IN THE FORM OF CONFIRMATION LETTERS FRO M THE PARTIES WHO REFUNDED THE ADVANCE, THEIR AFFIDAVITS, ETC. THE ASSESSING OFFICER FILED A REMAND REPORT ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 3 BEFORE THE CIT(A) BY STATING THAT THE SAID REFUND O F ADVANCES WERE NOT GENUINE AND, THUS, THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: 5.9.2. I HAVE EXAMINED THE SUBMISSION OF THE APPELL ANT CAREFULLY. THE AO MADE AN ADDITION OF RS. 11,31,000/- IN RESPECT OF C ASH RECEIPTS RECEIVED BY THE APPELLANT DURING THE CURRENT YEAR. THE APPEL LANT EXPLAINED THAT THE CASH WAS. RECEIVED FROM UMERBEG MIRZA OF RS. 5,51,0 00/- AND SHRI AMIRBEG UMERBEGI MIRZA, OF RS. 5,80,000/-IT WAS EXPLAINED THAT THE SAME WERE REFUND OF ADVANCE GIVEN BY-WAY OF CHEQUE IN RESPECT OF PROPOSED PURCHASE OF LAND. THIS DEAL DID NOT MATERI ALIZE AND HENCE THE CASH WAS REFUNDED BY THESE TWO PERSONS. AFFIDAVITS IN REPLY OF THESE TWO PARTIES HAVE BEEN FILED AS EVIDENCE THAT THESE WERE THE PERSONS WHO HAD REFUNDED THE ADVANCE RECEIVED. THE AO HAS MERELY RE JECTED THE SUBMISSION BY HOLDING THAT THE COPIES OF THE AGREEM ENT IN GUJARATI DID NOT INDICATE THAT THESE AMOUNTS WERE REFUNDED TO TH E APPELLANT. IT IS APPARENT THAT THE AO HAS MISUNDERSTOOD THE SUBMISSI ON OF THE APPELLANT. THE APPELLANT HAS EXPLAINED THAT THESE AGREEMENTS A RE IN RESPECT OF LAND DEAL THAT FRUCTIFIED WITH THESE TWO PERSONS. THE OT HER ADVANCE WAS REFUNDED SINCE THE CORRESPONDING LAND DEAL DID NOT FRUCTIFY. THERE WAS NO BAR ON APPELLANT PRODUCING THE TWO PERSONS BEFORE T HE AO IN THE ASSESSMENT PROCEEDINGS OR REMAND PROCEEDINGS. SIMIL ARLY, THERE WAS NO BAR ON THE ASSESSING OFFICER IN MAKING INQUIRIES WI TH BANK OF BARODA AS HE DEEMED FIT. HOWEVER, I DO FIND IT STRANGE THAT C ASH DEPOSITS WERE MADE ON 14 DATES BETWEEN A SHORT PERIOD OF 26-06-07 TO 17-7-07 OF AMOUNTS EACH LESS THAN RS 50,000/-. IT IS ALSO STRA NGE THAT BOTH THE PARTIES CHOSE THE SAME 14 DATES TO PAY CASH OF LESS THAN RS 50,000/- ON EACH OCCASION. THE AGREEMENTS ENTERED IN TO AND THE LAND DEAL THAT DID NOT MATERIALIZE REFER TO SAME LAND SURVEY NO. DURIN G THE COURSE OF SEARCH SHRI PARVEZ MODI, GENERAL MANAGER AT BORSAD FURNISH ED THE LEDGER ACCOUNTS IN THE APPELLANT'S BOOKS OF THE PARTIES FR OM WHOM CASH WAS RECEIVED. HE HOWEVER STATED THAT THE TRANSACTION IN RESPECT OF THESE TWO PARTIES MAY BE KNOWN TO THE DIRECTORS. SHRI FAISAL YOUNUS FAZLANI , IN HIS STATEMENT RECORDED ON 22-5-2008 REITERATED THAT THE SE CASH DEPOSITS ARE IN RESPECT OF CANCELLATION OF THE LAND DEALS, AND H AVE BEEN DULY RECORDED IN THE BOOKS OF THE APPELLANT COMPANY. I DO NOT FIN D THE EXPLANATION OF APPELLANT SATISFACTORY. THE LAND IN RESPECT OF WHIC H IT IS CLAIMED THAT REFUND IS RECEIVED HAS THE SAME SURVEY NO. AS THE L AND WHICH WAS PURCHASED AS PER APPELLANT'S SUBMISSION. SINCE THE APPELLANT PAID THE TWO PARTIES BY CHEQUE, IT IS CLEAR THAT THEY HAD BANK A CCOUNTS. WHY DID NOT THEY RETURN THE AMOUNT BY WAY OF CHEQUE? WHY WAS CA SH DEPOSITED ON 14 DATES EACH OF AMOUNT LESS THAN RS.50,000/- WHICH IS THE LIMIT FOR WHICH INSIST ON PAN? AFTER CAREFULLY CONSIDERING TH E DOCUMENTS ON RECORD AND THE BY ASSESSING OFFICER AND ALSO KEEPING IN VI EW THE EXPLANATION ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 4 FURNISHED BY THE APPELLANT, THE AMOUNT OF RS. 11,31 ,000/- DEPOSITED IN CASH IS TREATED AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE I.T.ACT. THIS ADDITION IS UPHELD AND THE GROUND OF APPEAL NO.8 IS DISMISSED. ' 5. AFTER HEARING BOTH THE PARTIES AND PERUSAL OF TH E MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE, ASSESSEE HAS ENTERED INT O PURCHASE AGREEMENTS FOR WHICH THE ASSESSEE HAS PAID ADVANCE TO TWO PERSONS VIZ. SHRI MEHMUDBEG UMERGEB MIRZA OF ` 5,51,000 AND SHRI AMIRBEG UMERGEB MIRZA OF ` 5,80,000/- AS PER THE FACTS ON RECORD, WE OBSERVE THAT THE LAND DEAL DID NOT MATERIALIZE AND THE SAID MONEY WAS REFUNDED ON VARI OUS DATES BY DEPOSITING AMOUNTS IN CASH OF LESS THAN ` 50,000/- IN THE ASSESSEES BANK ACCOUNT. THE CASE OF THE REVENUE IS BASED UPON THE FACT THAT THE ASSESSEE HAS PAID ADVANCE FOR THE PURCHASE OF LAND, WHICH BEARD THE S AME SURVEY NUMBER FROM TWO PARTIES FROM WHOM ADVANCES WERE RECEIVED. THE CASE OF THE REVENUE IS SIMPLY ON THE BASIS THAT REFUND OF ADVANCE WAS MADE IN CASH ON VARIOUS DATE AND DEPOSITED BY THE PARTIES IN THE BANK ACCOUNT OF THE ASSESSEE. WE HAVE ALSO PERUSED THE BALANCE SHEET OF THE ASSESSEE AS O N 31.03.2008 AND OBSERVE THAT THE ADVANCES GIVEN TO SHRI MEHMUDBEG UMERGEB M IRZA OF ` 5,51,000/- AND SHRI AMIRBEG UMERGEB MIRZA OF ` 5,80,000/- WERE OUTSTANDING AS ON 31.03.2007 AND WERE NIL ON THE CORRESPONDING DATE I N THE CURRENT PREVIOUS YEAR I.E. 31.03.2008. WE ALSO OBSERVE FROM THE LED GER ACCOUNT OF THESE TWO PARTIES AS APPEARING IN THE BOOKS OF THE ASSESSEE T HAT THE ADVANCES WERE REFUNDED ON VARIOUS DATES DUE TO CANCELLATION OF TH E PURCHASE AGREEMENTS. THUS, THE CASE OF THE REVENUE IS TOTALLY BASED UPON SUSPICION AND ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 5 PRESUMPTIONS WHEREAS THE ASSESSEE HAS PROVED BY WAY OF EVIDENCE IN THE FORM OF COPY OF BALANCE SHEET, LEDGER ACCOUNT, CONF IRMATIONS/AFFIDAVITS FROM THE PARTIES WHO MADE THE REFUNDS. WE ARE, THEREFOR E, NOT INCLINED TO ACCEPT THE CONCLUSION OF THE LEARNED CIT(A) AND, ACCORDING LY, THE ORDER OF THE CIT(A) IS SET ASIDE AND ASSESSING OFFICER IS DIRECTED TO D ELETE THE ADDITION. 6. THE ISSUE RAISED IN GROUNDS OF APPEAL NO.3 IS AG AINST THE CONFIRMATION OF ADDITION OF ` 2,86,686/- AS MADE BY THE ASSESSING OFFICER FOR PR OVIDING FOOD TO THE EMPLOYEES DURING THE OFFICE HOURS IN TH E RAMZAN MONTH, WHICH WAS CLAIMED AS STAFF WELFARE EXPENSES. 7. THE FACTS IN BRIEF ARE THAT IT WAS FOUND DURING THE COURSE OF SEARCH THAT ASSESSEE HAS INCURRED RAMZAN EXPENSES AMOUNTING TO ` 12,50,000/- OUT OF WHICH ` 2,86,686/- HAS BEEN BOOKED AS EXPENSES UNDER THE H EAD STAFF WELFARE. ACCORDING TO THE ASSESSING OFFICER HOSTIN G RAMZAN PARTY CANNOT BE BUSINESS EXPENSE AND, HENCE, ADDED THE SAME TO THE INCOME OF THE ASSESSEE BY TREATING THE SAME AS PERSONAL EXPENSES OF THE DI RECTORS. IN THE APPELLATE PROCEEDINGS, THE LEARNED CIT(A) DISMISSED THE APPEA L OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 5.10.1. IT IS SEEN THAT THE ASSESSEE GROUP HAD INC URRED AN EXPENDITURE OF RS. 12,50,000/- ON RAMZAN CELEBRATIONS OUT OF WH ICH AN AMOUNT OF RS. 2,86,686/- WAS EXPENSES TO THE APPELLANT COMPAN Y. THERE IS NOTHING TO INDICATE THAT THIS INCURRED SPECIFICALLY ON THE EMPLOYEES OF THE APPELLANT COMPANY. THE ALLOCATION OF EXPENDITURE DO ES NOT NECESSARILY PROVE THAT THE EXPENDITURE IS INCURRED FOR THE BUSI NESS OF THE APPELLANT COMPANY. EACH COMPANY MAY HAVE CONTRIBUTED TO REIMB URSE AND EXPENDITURE INCURRED FOR THE SAME DOES NOT MEAN THA T THE EXPENDITURE IS ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 6 FOR THE PURPOSE OF APPELLANT'S BUSINESS. THERE ARE NO DETAILS AVAILABLE AS TO THE NUMBER OF EMPLOYEES OF THE APPELLANT COMPANY , THE NUMBER OF EMPLOYEES WHO ARE MUSLIMS AND THE REASONABLENESS OF THE CLAIM OF THE EXPENSES. FROM THE COPY OF AUDITED ACCOUNTS, IT IS NOTED THAT IN AY 2008- 09 THE TOTAL EXPENSES ON EMPLOYEES IS SHOWN AS RS 7 3 LAKHS. OUT OF THIS, SALARY IS RS 27 LAKHS, BONUS RS 5 LAKHS AND GRATUIT Y RS 1.5 LAKHS. AS AGAINST THIS, THE STAFF WELFARE EXPENSES CLAIMED IS RS 18.32 LAKHS AND STAFF WELFARE EDUCATIONAL BENEFIT RS 15.31 LAKHS. U NDER THE HEAD FESTIVAL EXPENSES NIL IS SHOWN. IN THE FOLLOWING ASSESSMENT YEAR 2009-10, THE STAFF WELFARE EXPENSES IS ONLY RS 2.84 LAKHS. THE E XPENSES ARE CLEARLY WAY OUT OF PROPORTION OF OVERALL EXPENSES AND ARE N OT REASONABLE. THESE EXPENSES ARE THEREFORE TREATED AS NOT BEEN INCURRED FOR THE BUSINESS OF THE APPELLANT. THEREFORE, THIS GROUND OF APPEAL NO 9 IS DISMISSED. 8. AFTER HEARING BOTH THE SIDES AND ON PERUSAL OF T HE RECORD, WE OBSERVE THAT DURING THE COURSE OF SEARCH A DOCUMENT WAS SEI ZED WHICH CONTAINED DETAILS OF EXPENDITURE INCURRED UNDER THE HEAD RAMZ AN EXPENSES AMOUNTING TO ` 12,50,000/- OUT OF WHICH ` 2,86,686/- WAS BOOKED FOR STAFF WELFARE EXPENSES BEING IN THE NATURE OF PROVIDING FOOD TO T HE EMPLOYEES, WHO OBSERVE ROZA IN THE RAMZAN MONTH AND TAKE ONLY ONE MEAL IN A DAY. THUS, THE ASSESSEE BEING A FOLLOWER OF MUSLIM RELIGION HA S TO INCUR THESE EXPENSES IN ORDER TO MOTIVATE THE WORK FORCE. WE FURTHER OB SERVE THAT THE ASSESSMENT ORDER AND THE APPELLATE ORDER WERE PASSED IN A CRYP TIC MANNER WITHOUT BRINGING ANY FACTS ON RECORD TO PROVE THAT THESE WE RE PERSONAL EXPENSES OF THE DIRECTORS. THE ADDITION WAS MADE PURELY ON TH E BASIS OF GREY WORK OF THE ASSESSING OFFICER. THE LEARNED CIT(A) ALSO UPH ELD THE SAME OBSERVING THAT EXPENSES WERE INCURRED IN A DISPROPORTIONATE R ATION AND NOT REASONABLE. EVEN IF FOR A MOMENT, IF WE GO BY THE THEORY OF THE REVENUE AUTHORITIES THAT THE EXPENSES ARE NOT REASONABLE, EVEN THEN THE TOTA L DISALLOWANCE IS NOT ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 7 JUSTIFIED. UNDER THESE CIRCUMSTANCES, WE ARE OF TH E VIEW THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT CORRECT AND NE EDS TO BE REVERSED. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE A ND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. AS A RESULT, ASSESSEES APPEAL FOR A.Y. 2008-09 IS ALLOWED. ITA NO.2942/MUM/2014 FOR A.Y. 2009-10: 9. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE U PHOLDING THE ADDITION AMOUNTING TO RS.13,01,053/- BY LD. CIT (A) AS MADE BY THE AO TOWARDS EXCESS PHYSICAL STOCK OVER THE BO OK STOCK OF THE ASSESSEE. WHEREAS THE ISSUE RAISED IN 2 ND GROUND OF APPEAL IS AGAINST THE CONFIRMATION OF ADDITION BY LD. CIT(A) AT RS.8,61,545/- BEING 15.45% OF THE EXCESS BOOK STOCK OVER PHYSICAL STOCK TO RS.55,76,347/-. 10. THE FACTS IN BRIEF ARE THAT A SEARCH ACTION WAS CONDUCTED ON THE ASSESSEE ON 29.04.2008. A NOTICE UNDER SECTI ON 153A OF THE ACT WAS ISSUED TO THE ASSESSEE FOR BLOCK ASSESS MENT YEARS FOR A.Y. 2003-04 TO 2009-10 INCLUDING THE SEARCH YEAR A ND ASSESSMENT WAS COMPLETED FOR ALL THE YEARS UNDER S ECTION 153A READ WITH SECTION 143(3) OF THE ACT. IN THIS CASE, THE ASSESSMENT WAS COMPLETED AT RS.1,26,61,978/- AS AGAINST THE RE TURN OF INCOME OF RS.1,04,99,380/- BY MAKING AN ADDITION OF RS.21,62,598/- ON ACCOUNT OF ALLEGED DISCREPANCIES IN STOCK IN TRADE. DURING SEARCH, THE SEARCH PARTY HAS UNDERTA KEN A PHYSICAL VERIFICATION OF STOCKS IN TRADE AS ON THE DATE OF SEARCH AND ACCORDING TO THE SEARCH PARTY THERE WAS DIFFER ENCE BETWEEN ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 8 BOOK STOCK AND PHYSICAL STOCK. ACCORDINGLY, THE AO CALLED UPON THE ASSESSEE TO GIVE RECONCILIATION OF ITS STOCK IN TRADE WHICH WAS SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 18.11.2 010 AND 14.12.2010. THE RECONCILIATION AS FILED BY THE ASS ESSEE IS REPRODUCED AS UNDER: LOCATION EXCESS PHYSICAL STOCK AMOUNT (RS.) EXCESS BOOK STOCK AMOUNT (RS.) BORSAD 4,97,920/- 19,11,742/- KHANPUR 1,94,855/- NIL KASARI 6,03,913/- 36,64,605/- VISHNOLI 4,365/- NIL TOTAL 13,01,053/- 55,76,347/- THE AO MADE ADDITIONS IN RESPECT OF EXCESS PHYSICAL STOCKS. 11. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) AF FIRMED THE ORDER OF AO BY OBSERVING AND HOLDING AS UNDER: 6.3.3.1. THE APPELLANT HAS ARGUED THAT THERE WERE ERRORS IN COMPUTING THE PHYSICAL \ STOCK DURING THE COURSE OF SEARCH, THE STOCK OF SOPARIWAL A EXPORTS PVT. LTD AND BORSAD \ TOBACCO CO. LTD. ARE KEPT AT BORSAD AND THE STOCK MAY HAVE BEEN INTERCHANGED WHILE COMPUTING THE PHYSICAL STOCK. THE APPELLANT HAS ARGUED THAT THE STOCK SHOULD NOT BE ANALYZED ITEM WISE INSTEAD IT SHOULD BE CONSIDERED IN TOTALITY. 6.3.3.2. IT IS SEEN THAT THE APPELLANT HAS MADE GEN ERAL ARGUMENTS WITHOUT PINPOINTING ANY ERROR THAT HAS TAKEN PLACE IN PHYSICAL STOCK TAKING . EVEN OTHERWISE THE AO HAS CONSIDERED THE DISCREPANCY ITEM WISE BETWEEN THE PHYSICAL STOC K AND BOOK STOCK AS PREPARED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS. MOREOV ER, THIS RECONCILIATION WAS PREPARED BY THE APPELLANT ITSELF AND FURNISHED TO THE AO VID E ITS LETTER DATED 24/12/10. THUS, NO GRIEVANCE CAN ARISE IN THIS REGARD. I ALSO DO NOT F IND ANY MERIT IN THE CONTENTION OF THE APPELLANT THAT COMPARISON OF PHYSICAL STOCK AND BOO K STOCK SHOULD NOT BE DONE ON ITEM WISE BASIS. THE VERY ESSENCE OF STOCK TAKING IS TO ELABORATELY IDENTIFY THE DIFFERENT ITEMS AND TO DETERMINE ITS QUANTITY. IN FACT ITEM WISE ANALYSIS IS MORE ACCURATE WAY TO NOTICE THE ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 9 DISCREPANCY. THE AO HAS CORRECTLY ADDED THE EXCESS PHYSICAL STOCK AS COMPARED WITH THE BOOK STOCK IN RESPECT OF SPECIFIC ITEMS TO THE TOTA L INCOME OF APPELLANT. HE HAS ALSO CORRECTLY MADE ADDITION IN RESPECT OF GROSS PROFIT ON STOCK S OLD BUT NOT REFLECTED IN THE BOOKS OF ACCOUNTS. THIS IS THE CASE WHERE THE BOOK STOCK IS MORE THAN PHYSICAL STOCK. NATURALLY IF SUCH STOCK HAS ALREADY BEEN SOLD, IT IS REASONABLE TO EX PECT THE GROSS PROFIT TO BE EARNED WHICH HAS NOT BEEN REFLECTED IN BOOKS OF ACCOUNTS. IN VIE W OF THE ABOVE IT IS HELD THAT THERE IS NO INFIRMITY IN THECJJON OF THE AO. THIS GROUND OF APP EAL NO 8 IS ACCORDINGLY DISMISSED. 7.0 IN THE RESULT, FOR STATISTICAL PURPOSES, APPEAL FOR A.Y. 2008-09 & AY 2009-10 IS DISMISSED. 12. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THA T THE ORDER OF LD. CIT(A) IS WRONGLY APPRECIATED THE FACTS OF T HE CASE. THE LD. A.R. SUBMITTED THAT ASSESSEE CARRIES ON ITS OPERATI ON FROM FOUR LOCATIONS NAMELY BORSAD, KHANPUR, KASARI AND VISHNOL I. THE ASSESSEE HAS A SYSTEM OF PREPARING MANAGEMENT INFOR MATION SYSTEM (MIS) REPORTS WHEREBY REGULARLY THE PHYSICAL STOCK VERIFICATION AT DIFFERENT LOCATIONS IS UNDERTAKEN A ND MIS REPORTS ARE PREPARED. THE PROCEDURE FOR SUCH PHYSICAL VERI FICATION OF STOCK GENERALLY TAKES ABOUT A WEEK OR SO. HOWEVER, THE SEARCH PARTY COMPLETED THE PHYSICAL VERIFICATION AT ALL FO UR LOCATIONS WITHIN A SPAN OF 12 - 14 HOURS. BECAUSE OF THIS REA SON, THERE IS EVERY LIKELIHOOD THAT THERE MAY BE MISTAKES ON THE PART OF SEARCH PARTY. FURTHER, NO INCRIMINATING DOCUMENTS WERE FOU ND DURING SEARCH AND ADDITION HAS BEEN MADE SOLELY OF ACCOUNT THE DIFFERENCE IN STOCK AS WORKED OUT BY THE SEARCH PAR TY AND AS PER THE APPELLANT. THE DIFFERENCE IN STOCK AS WORKED OU T BY THE SEARCH PARTY AND AS PER THE APPELLANT IS MAINLY BEC AUSE OF THE FOLLOWING REASONS : A. AFTER THE TOBACCO IS PURCHASED, THE SAME IS CHECKED AT THE FACTORIES AND PROCESS REPORT IS PREPARED. TH E STOCK IS TAKEN IN BOOKS ONLY AFTER THE PROCESS REPORT IS PRE PARED. IN ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 10 ANNEXURE - 1 TO APPELLANT'S LETTER DATED 24TH DECEM BER, 2010 GIVEN IN PAGE NOS. 37 TO 43 OF THE APPELLANT'S SUPPLEMENTARY PAPERBOOK, VARIOUS INSTANCES ARE SHOW N WHERE THE SEARCH PARTY HAS INCLUDED TOBACCO STOCK I N FINAL SUMMARY WHERE PROCESS REPORTS WERE PENDING AS A RES ULT OF WHICH PHYSICAL STOCK AS PER SEARCH PARTY IS SHOWN A T A HIGHER VALUE. B. THE APPELLANT GROUP HAS OTHER SISTER CONCER NS OPERATING FROM THE SAME LOCATIONS. THERE ARE INSTAN CES WHERE SEARCH PARTY HAS INCLUDED THE STOCK PERTAININ G TO ANOTHER CONCERN IN THE STOCK OF THE APPELLANT. IN A NNEXURE - 1 TO APPELLANT'S LETTER DATED 24TH DECEMBER, 2010 WHICH IS ON PAGE NOS. 37 TO 43 OF THE APPELLANT'S SUPPLEM ENTARY PAPERBOOK, VARIOUS INSTANCES ARE SHOWN WHERE THE SE ARCH PARTY HAS INCLUDED STOCK OF ANOTHER CONCERN IN STOC K OF THE APPELLANT. C. THE SEARCH PARTY HAS MADE MISTAKES IN NOTIN G THE STOCK. IN ANNEXURE - 1 TO APPELLANT'S LETTER DATED 24TH DECEMBER, 2010 WHICH IS ON PAGE NOS. 37 TO 43 OF TH E APPELLANT'S SUPPLEMENTARY PAPERBOOK, VARIOUS INSTAN CES ARE SHOWN WHERE THE SEARCH PARTY HAS NOT NOTED STOC K PROPERLY. 13. THE RATIO OF TOTAL EXCESS OF PHYSICAL STOC K OVER BOOK STOCK AND THE EXCESS OF BOOK STOCK OVER PHYSICAL STOCK CO MPARED WITH TURNOVER AND TOTAL INVENTORY IS MINIMAL AS EXPLAINE D BELOW : EXCESS PHYSICAL STOCK RS. 13,01,053/- ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 11 EXCESS BOOK STOCK RS. 55,76,347/- TOTAL EXCESS STOCK RS. 68,77,400/- RATIO OF ABOVE EXCESS STOCK COMPARED WITH TURNOVER OF RS.30,74,57,182/- IS AS UNDER : = 68,77,400/- = 2.23% 30,74,57,182/- RATIO OF ABOVE EXCESS STOCK COMPARED TO INVENTORY OF RS.15,87,97,904/- IS AS UNDER : = 68,77,400/- = 4.33% 15,87,97,904/- IT IS SUBMITTED THAT SUCH MINOR DIFFERENCES IN THE STOCK FIGURES BE IGNORED AS THE SUCH PARTY HAS COMPLETED PHYSICAL VERIFICATION OF STOCK IN A SPAN OF 12 - 14 HOURS CO MPARED WITH A WEEK WHEN STOCK IS PHYSICALLY VERIFIED BY THE APPEL LANT. AS PER THE MANAGEMENT INFORMATION SYSTEM (MIS ) REPORT IN FORCE, AFTER THE QUALITY CHECKING OF TOBACCO, GOODS RECEIVED NOTES (GRNS) ARE PREPARED AND THEREAFTER THIS STOCK IS RECORDED IN THE BOOKS OF ACCOUNTS. THERE IS A TIME LAG BETWE EN THE PREPARATION OF GRNS AND ENTRY IN THE BOOKS OF ACCOU NTS. THIS IS ALSO ONE OF THE REASONS FOR THE VARIATION BETWEEN T HE BOOK STOCK AND THE PHYSICAL STOCK. ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 12 14. THE LD. A.R. RELIED ON THE FOLLOWING DECISIONS IN DEFENSE OF HIS ARGUMENTS: 1. CIT VS. BALAJI WIRE PVT. LTD. (DELHI HIGH COURT) (304 ITR 693) 2. CIT VS. UTKAL ALLOYS LTD. (ORISSA HIGH COURT) (3 19 ITR 339) 3. RADHEY SHYAM TANWAR VS. ACIT (JODHPUR ITAT) (77 TTJ 505) 4. LAKSHMI ENERGY & FOOD LTD. VS. ACIT (CHANDIGARGH ITAT) (2014) 44 TAXMANN.COM 248 5. MEHRA ART PALACE VS. DCIT (DELHI ITAT) (2001) 11 4 TAXMAN 201 (DELHI MAG.) 15. THE LD. D.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDER OF LD. CIT(A) AND AO AND SUBMITTED THAT THERE EXIST ED FACTUAL DISCREPANCIES IN THE INVENTORIES OF THE ASSESSEE PH YSICALLY AS WELL AS, AS PER THE RECORDS MAINTAINED BY THE ASSESSEE A ND THEREFORE THE ADDITION HAS RIGHTLY BEEN MADE BY THE AO AND AF FIRMED BY THE LD. CIT(A). 16. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, W E FIND THAT THE ASSESSEE IS OPERATING FROM FOUR LOCATIONS AS MENTIO NED HEREINABOVE AND HAS THE SYSTEM OF MANAGEMENT INFORM ATION SYSTEM IN PLACE FOR ACCOUNTING OF ITS INVENTORIES. THE ASSESSEE HAS FILED RECONCILIATION EXPLAINING THE DISCREPANCI ES IN THE STOCKS AS NOTED BY THE SEARCH PARTY. THE ASSESSEE HAS ALS O FILED BEFORE US THE VARIOUS DOCUMENTS AND RECONCILIATION EXPLAIN ING THE SAID DISCREPANCIES. MOREOVER, THE ASSESSEE HAS EXPLAINE D WHY THE ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 13 SAID DISCREPANCIES HAVE ARISEN WHICH ARE VERY MINOR AND WITHIN NORMS. THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION REFERRED TO BY THE LD. A.R. DURING THE COURSE OF HE ARING. IN THE CASE OF CIT VS. BALAJI WIRE PVT. LTD. (DELHI HIGH C OURT) (304 ITR 693) THE HONBLE DELHI HIGH COURT HAS AFFIRMED THE ORDER OF THE TRIBUNAL DELETING THE ADDITION ON ACCOUNT OF EXCESS STOCK CALCULATED BY THE REVENUE AND THE HONBLE COURT HAS HELD AS UNDER: 18. THE TRIBUNAL CAME TO THE CONCLUSION, WITH WHIC H WE AGREE, THAT IT WOULD HAVE BEEN APPROPRIATE IF THE NUMBER OF BUNDLES AND THE AVERAG E WEIGHT WAS WORKED OUT ON SOME EMPIRICAL BASIS RATHER THAN THROUGH MERE GUESS-WORK . IT APPEARS THAT DURING THE SEARCH, THE NUMBER OF BUNDLES AND WEIGHT ESTIMATE IN RESPECT OF HALF A DOZEN BUSINESS CONCERNS WERE MADE WITHIN A FEW HOURS. THE SEARCH PARTY EITHER DI D NOT HAVE THE NECESSARY TIME OR DID NOT HAVE THE NECESSARY EXPERTISE TO CORRECTLY ASSESS TH E STOCK POSITION. A SHORT-CUT APPEARS TO HAVE BEEN TAKEN BY THE SEARCH PARTY WHICH CAME TO A CERTAIN CONCLUSION ON AN ESTIMATE BASIS. IN LAW, AS IN LIFE, A SHORT CUT IS OFTEN A W RONG-CUT. 19. THE MERE FACT THAT SOME EMPLOYEES OF THE ASSESS EE SIGNED THE PANCHNAMA DOES NOT MEAN THAT THEY CERTIFIED THE CORRECTNESS OF THE NUM BER OF BUNDLES OR THE AVERAGE WEIGHT OF EACH BUNDLE. THEY ONLY CERTIFIED THAT THEY WERE WIT NESSES TO THE PROCEEDINGS. WHAT CONCLUSIONS HAVE TO BE DRAWN FROM THE PANCHNAMA IS OF NO CONCERN TO THOSE EMPLOYEES. 20. OF COURSE, THE BEST METHOD OF DETERMINING THE N UMBER OF BUNDLES AND THEIR AVERAGE WEIGHT WOULD BE TO ACTUALLY COUNT THE BUNDLES AND U SE MACHINES/CRANES FOR WEIGHING EACH BUNDLE. THIS IS NO DOUBT A TEDIOUS EXERCISE BUT WHE RE A LIABILITY IS SOUGHT TO BE FOISTED UPON AN ASSESSEE, THE REVENUE HAS TO BE A LITTLE MORE SE RIOUS WHILE EXERCISING POWERS CONFERRED UPON IT UNDER THE ACT. MERE GUESS-WORK OR AN ESTIMA TE CANNOT BE AN ADEQUATE SUBSTITUTE FOR A SCIENTIFIC INVESTIGATION OR CARRYING OUT SOME EMPIRICAL STUDY. THE OFFICERS WHO CONDUCTED THE SEARCH DID NOT WANT TO TAKE THE NECES SARY TROUBLE WHICH, OF COURSE, WOULD HAVE BEEN TIME CONSUMING, BUT THE IMPACT OF MAKING A GUESSTIMATE CAN BE QUITE DAMAGING INSOFAR AS THE ASSESSEE IS CONCERNED. THE ASSESSEE CANNOT BE MADE TO SUFFER THE CONSEQUENCES OF LETHARGY ON THE PART OF THE OFFICER S OF THE REVENUE. 21. UNDER THESE CIRCUMSTANCES, WE ARE OF THE OPINIO N THAT THE TRIBUNAL RIGHTLY CAME TO THE CONCLUSION THAT THE ALLEGED EXCESS STOCK CALCULATED BY THE REVENUE NEEDS TO BE DELETED. IT IS, OF COURSE, NOT POSSIBLE TODAY TO REDETERMINE TH E STOCK SO THE QUESTION OF ANY REMAND DOES NOT ARISE. SIMILARLY THE ORISSA HIGH COURT IN THE CASE CIT VS UTKAL ALLOYS LTD (SUPRA0 BY FOLLOWING THE DELHI HIGH COUR T IN THE CASE ITA NOS. 2941 & 2942/MUM/2014 BORSAD TOBACCO CO. PVT. LTD. 14 CIT VS BALAJI WIRE PVT LTD 304 ITR 393 HAS DELETED THE ADDITION BY HOLDING THAT ASSESSEE CAN NOT BE MADE TO SUFFER FROM THE LETHARGY OF THE OFFICERS OF THE REVENUE WHEN THE S EARCH PARTY DID NOT FIND ANY INCRIMINATING EVIDENCES. 17. UNDER THESE FACTS AND CIRCUMSTANCES WE ARE INCL INED TO SET ASIDE THE ORDER OF CIT(A) IN VIEW OF THE RATIO LAID DOWN BY THE VARIOUS HIGH COURTS AND DIRECT THE AO TO DELETE THE ADDITIONS OF RS. 13,01,053 ON ACCOUNT OF EXCESS STOCK AND RS. 8, 61,545/- ON ACCOUNT OF GP MARGIN ON EXCESS OF BOOK STOCKS OVER PHYSICAL STOCKS. THE APPEAL OF THE ASSESSEE IS ALLOWED. 18. RESULTANTLY BOTH THE APPEALS OF THE ASSESSEE AR E ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.09.2019 SD/- SD/- (RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 03.09.2019 SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. THE CIT 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER, /TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI