SH. KULDEEP SINGH, AMRITSAR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-II, AMRITSAR

ITA 592/ASR/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2915 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 13-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 592/Asr/2017 Assessment Year: 2013-14 Sh. Kuldeep Singh, 271-A, East Mohan Nagar, Amritsar [PAN: ABSPS 9123R] Vs. Deputy Commissioner of Income Tax, Circle-III Amritsar (Appellant) (Respondent) Appellant by : Sh. Nipun Khanna, CA Respondent by : Sh. S. M. Surendranath, Sr. DR Date of Hearing: 24.03.2022 Date of Pronouncement: 06.05.2022 ORDER Per Dr. M. L. Meena, AM: The captioned appeal of assessee is directed against the impugned order dated 12.07.2017, passed by the Ld. Commissioner of Income Tax (Appeals)-1, Amritsar (hereinafter referred to as the CIT(A), in respect of the Assessment Year 2013-14. where the assessee has raised the following grounds of appeal: “1. That the order of the Ld. AO is illegal and arbitrary and this ground of appeal pervades other grounds of appeal too. ITA No.592/ASR/2017 Kuldeep Singh v. DCIT 2 2. That the Ld. AO has erred on the facts and in law in making addition of Rs.500000 (Five Lac) on account of undervaluation of closing stock without giving any basis that on what basis addition of Rs. Five Lac has been made. 3. That the Ld. AO has erred on the facts and in law in making addition of Rs. 21000 (Twenty Thousand) and Rs. 140000 (One Lac Forty Thousand) on account of personal disallowance of Telephone Expenses and Travelling & Conveyance Expenses without stating any reason. 4. That appellant prays leave to add, amend or press new ground of appeal before the hearing of appeal.” 2. The assessee is engaged in the business of manufacturing of machines related to packing where production/ manufacturing process starts with heating of Pig iron/Mild steel in blast furnace which is also known as coupla/foundry which results in making cast iron (called as sanchas of machine) properly known as exterior iron body of machine alias CI casting. Besides manufacturing, the assessee is in the processing by way of assembling, packing etc to transform raw material into saleable working machines. This entire process consists of starting from casting of Sanchas to assembling of machine by fitting of motor/blades/belt/ AC drive/ belt etc therein as per the requirement of the customers. After hearing the assessee during the course of scrutiny proceedings, the AO has observed as under: “2.2. Inferences on the Trading & Manufacturing Results From the totality of facts & in the circumstances, as discussed above, following inferences are drawn:- (i) The assessee has not maintained day to day production record, wherefrom the consumption of raw material, production of semi finished goods and finished goods could be ascertained. Even this fact ITA No.592/ASR/2017 Kuldeep Singh v. DCIT 3 has been duly admitted by the assessee that day to day production records were not maintained. (ii) The assessee has not shown valuation of any semi finished stocks at the end of the year implying there that all stocks were either raw material or finished products in the form of full machines. However, this contention is not supported with day to day stock register and it is not possible that in a running business, there is no semi finished stock at all, which may be in the form of partly assembled machines. (iii) The assessee has not justified the rates for valuation of closing stocks with complete evidence & justification especially the C.I. Castings as also the Pig Iron, where the valuation is done apparently at rates less then rates shown in the opening stock. This claim of the assessee is not supported by any documentary evidence especially when it is also evident from assessee's data that the cost of Mild steel (M.S.) items have increased from Rs.58.39 per Kg as on 01/04/2012 to Rs.65.34 per Kg as on 31/03/2013, then how rates of another steel items like C.I castings & Pig Iron have shown decline in rates. (iv) In the absence of any day to day stock register & fluctuating market rates of raw material how the assessee has maintained a consistent G.P. is certainly a proof of the fact that the book results are reflected in such a way to show consistent GP which is not possible in view of the fact that assessee do not maintain any cost analysis data so as to have full control over the sale rates corresponding of fluctuating purchases rates. It is also worth mentioning that assessee has also done trading & export of certain items like Machines and Gum powder as well, which is not manufactured by assessee, wherein the assessee has earned G.P. of 17.61% on sales of 76.36 lacs. So clearly the assessee's book results are not reflecting the true state of affairs. 2.2. Conclusion In view of the inferences drawn above on the basis of totality facts & in circumstances of the case, it is clearly evident that assessee’s book results are neither complete nor correct so they are liable to be rejected within the meaning of section 145(3) of Income Tax Act, 1961, Considering the aspects of under undervaluation of closing stocks and showing no semi finished goods in the ITA No.592/ASR/2017 Kuldeep Singh v. DCIT 4 background of absence of day to day stock register, it is quite in order to make an addition of Rs.5,00,000/- towards suppression in business results Addition : 5,00,000/- 3. Aggrieved the assessee carried the matter before the ld. CIT(A) who has confirmed the findings of the CIT(A) vide para 6 by observing as under: “I have gone through the grounds of appeal, submission and assessment order. From a perusal of the submission of the appellant, it is clear that no day to day stock register was maintained by the assessee. The counsel of the assessee was confronted with the issue vide order sheet entry dated 19.02.2016 in which it has been pointed out that main items like Cl casting is valued at lesser rate than opening stock. The Assessee was not able to substantiate the rate with the bills and has not maintained day to day production record and it was also admitted by the counsel as per para 2.2 of the assessment order that assessee has not shown semi finish stock in the books of accounts which shows that all the stock were either raw material or finished product, which is not possible in manufacturing industry. Keeping in view the above inferences the AO has rightly rejected books of account u/s 145(3) and the defects in the books of accounts were confronted to the assessee and the explanation given by the counsel was not in order. Further it is beyond any stretch of imagination that in a manufacturing concern there are no semi finished goods. The appellant has not placed the valuation of semi finished goods. Further the price of steel has increased but pig iron and Cl casting has decreased which is not possible as both are directly proportional. The AO has passed a well reasoned order on the same and the addition of Rs. 5,00,000/- is therefore upheld.” 4. Aggrieved with the appellate order, the assessee is in appeal before us. The ld. counsel for the assessee contended that the ld. AO has invoked section 145(3) without any valid reason. He stated that purchases and sales are properly vouched and verifiable and no defect is pointed out by the ld. AO during the ongoing proceedings or in assessment order. He claimed that the appellant has enclosed complete item wise stock tally ITA No.592/ASR/2017 Kuldeep Singh v. DCIT 5 details of both raw material and finished goods which clearly reflects opening balances/purchase/manufactures/sale and closing quantitative details (APB page 4). He requested that the stock details may be considered explained and addition made on account of under valuation of closing stock of Rs. 5 Lac confirmed by the ld. CIT(A) may be deleted. 5. Per contra, the ld. DR for the department stand by the order of the ld. CIT(A). He submitted that the contentions of the assessee that complete item wise stock tally, both the raw material and finished goods, which clearly reflects opening balances/purchase/manufacture/sale and closing quantitative details (APB page 4) is factually not correct. He has referred to the APB, page 4 of the assessee’s paper book pointing out that the inventory given therein by the assessee are total number of items under different denominations in quantity without mentioning corresponding value/cost price of individual items being claimed to be varying in values with the support of corresponding cogent material evidence such as bills and vouchers for the purchase of such items from the vendors to substantiate the actual value of the raw material and closing stock. He further contended that the assessee has failed to explain and substantiate the rate of the different items of the stock with bills and has not maintained day to day production records. The DR argued that the assessee’s counsel also admitted in para 2.2 of the assessment order that the assessee has not shown valuation of any semi finished goods in the books of account, explaining that maintenance of all the stocks or other raw material or finished production is not possible in the manufacturing industry. Accordingly, he argued that the AO being not satisfied with the assessee’s ITA No.592/ASR/2017 Kuldeep Singh v. DCIT 6 explanation and rejected the books of account u/s 145(3) and estimated the closing stock by passing a well reasoned order. 6. We have heard the rival contention and perused the material available on record and the paper book filed by the assessee. Admittedly, the assessee has not maintained any stock register of day to day production and has also not shown semi finished goods stock in the books of account. It is also noted that the assessee was not able to substantiate the rates of the different items of the stock claimed in quantity, with the support of bills either before the AO or before the ld. CIT(A) or even before us. Thus, the explanation given by the counsel for the assessee based on the paper book file was not found in order. The prices shown by the assessee that those of steel have increased but pig iron and steel casting has decreased is again contradictory in itself. Considering the peculiar facts, the matter as discussed above, we are of the considered opinion that the authorities below have been not only quite reasonable but generous to the assessee in estimating under valuation of stock of Rs. 5 Lac only, while verification of the disputed closing stock declared by the assessee at Rs.1,30,94,030/- in absence of day-to-day stock register and cogent documentary evidences such as bills and vouchers. The citations relied by the ld, AR for the are distinguishable on the peculiar facts of the present case. case 7. In our view, we find no infirmity in the order of the ld. CIT(A). Accordingly, we hereby confirmed the order of the ld. CIT(A) and as such, an addition of Rs.5 Lac on account of valuation of closing stock is hereby sustained. ITA No.592/ASR/2017 Kuldeep Singh v. DCIT 7 8. Next issue is ground no. 3 regarding addition on account of Rs.21,000/- and Rs. 14,000/- on account of personal telephone expenses and travelling telephone expenses respectively is not arising out of the impugned order. Hence, we these are dismissed as not maintainable. 9. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 06.05.2022. Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member Date: 06.05.2022 Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order