Appeal Details
Counselvise Citation
[2010] 136 COUNSELVISE.COM (IT) 1583 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-06-2010
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Assessment Year
2007-2008
Appeal Filed On
10-12-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI A.L. GEHLOT, ACCOUTANT MEMBER ITA NO. 6380/M/2009 ASSESSMENT YEAR: 2005-06 CHAWLA BROTHERS PVT. LTD., APPELLANT POORNA ASHA BUILDING, 317, NARSHI NATHA STREET, MASJID BUNDER, MUMBAI 400 009. VS. ASSTT. COMMISSIONER OF INCOME-TAX, RESPONDENT CENTRAL CIRCLE 10, MUMBAI. APPELLANT BY : MR. A.V. SONDE RESPONDENT BY : MR. AJITKUMAR SINHA ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-37, MUMBAI, PASSED ON 09.11.2009 FOR TH E ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDI TION OF RS. 5,58,44,128/- MADE BY THE LD. AO ON ACCOUNT OF THE ALLEGED UNEXPLAINED INVESTMENT MADE IN THE FOLLOWING STOCK ITEMS/CATEGORIES AS AT THE DAY OF SURVEY: SR.NO. PARTICULARS AMOUNT (RS.) A 62, ITEMS OF PACKED FINISHED OIL INVENTORISED BY THE SURVEY PARTY AND ALLEGED TO BE NOT RECORDED IN THE STOCK REGISTER (RG1) OF THE APPELLANT 21528076 B BRANCH STOCK (I.E. STOCK AT BRANCHES) ALLEGED NOT TO BE RECORDED/REFLECTED IN STOCK REGISTER (RG1) MAINTAINED AT THE HEAD OFFICE/FACTORY AT CHANDIVALI, MUMBAI. 24907144 C STOCK GIVEN FOR PACKING AND LYING WITH ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 2 THE PACKER VIZ., INDIA VEG. PRODUCTS ON THE DAY OF SURVEY ALLEGED NOT TO BE RECORDED/REFLECTED IN THE STOCK REGISTER/RG1 OF THE APPELLANT 34,01,646/- D STOCK OF CHEMICAL MATERIALS ALLEGED NOT TO BE RECORDED IN THE STOCK REGISTER(RG1) OF THE APPELLANT 18,83,464/- E ON ACCOUNT OF THE ALLEGED DISCREPANCIES IN RESPECT OF 33 ITEMS (ON A NET BASIS) 41,16,798/- 5,58,44,128/- 2. IT IS RESPECTFULLY SUBMITTED THAT THE ORDER OF T HE LEARNED CIT(A) IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE . 3.1. THE LEARNED CIT(A) ERRED IN SUSTAINING ADDITIO N OF RS. 3,28,679/- MADE U/S 68 IN RESPECT OF CASH FOUND IN THE COURSE OF SURVEY AT THE FACTORY/HEAD OFFICE AT CHANDIVALI. 3.2 THE LEARNED CIT(A) ERRED IN SUSTAINING ADDITION OF RS. 66,675/- MADE U/S 68 IN RESPECT OF CASH FOUND IN TH E COURSE OF SEARCH AT THE REGISTERED OFFICE. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234B AND U/S 234C. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE TRADING AND MANUFACT URING OF EDIBLE OILS AND VANSASPATHI WHICH IS CONDUCTED UNDE R THE NAME OF KAMANI OIL INDUSTRIES, A PROPRIETARY CONCERN OF THE ASSESSEE COMPANY. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCOME OF RS. 4,86,88,205/-. AN ACT ION U/S 132 OF THE IT ACT WAS CONDUCTED IN THE SUKHWANI/CHAWLA GRO UP CASES OF WHICH THE ASSESSEE IS A MEMBER. THE WARRANT OF SEAR CH AUTHORIZATION U/S 132 OF THE ACT WAS ISSUED IN THE NAME OF THE ASSESSEE, WHICH WAS EXECUTED ON 14/6/2006. CONSEQUE NTLY, A SURVEY U/S 133A HAS ALSO BEEN CONDUCTED IN THE OFFI CE PREMISES OF THE ASSESSEE AT BHANDUP. 3.1 THE AO NOTED THE FACTS THAT DURING THE COURSE OF SURVEY ACTION ON 14/6/2006 PHYSICAL INVENTORY OF STOCK WAS TAKEN IN RESPECT OF STOCK FOUND IN THE FACTORY PREMISES AT C HANDIVLI ESTATE, SAKIVIHAR ROAD, MUMBAI 400 072.THE INVENTORIES FR OM BRANCHES ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 3 WERE ALSO CALLED FOR BY THE SURVEY TEAM. DURING THE COURSE SURVEY STATEMENT OF SHRI PRAKASH N CHAWLA WAS RECORDED WHE REIN WHILE REPLYING ANSWERS TO QUESTION NO. 14 MR. CHAWLA CONF IRMED THE PHYSICAL INVENTORY AS CORRECT INVENTORY. THE SURVEY PARTY OBTAINED A TENTATIVE TRADING ACCOUNT FROM THE ASSESSEE FOR T HE PERIOD FROM 1/4/2006 TO 14/6/2006. AS PER THAT TRADING ACCOUNT THE CLOSING STOCK WORKED OUT AT RS. 22,18,23,787/-. HOWEVER, TH E ACTUAL STOCK FOUND WAS AT RS. 21,91,56,285/-. THE AO FURTHER NOT ED THAT THE SURVEY PARTY COMPARED THE PHYSICAL STOCK FOUND WITH FIGURES OF RG- 1 REGISTER MAINTAINED BY THE ASSESSEE. THE SURVEY PARTY FOUND DISCREPANCIES IN AROUND 33 ITEMS WITH THE R.G.1 AND PHYSICAL INVENTORY. THE AO FURTHER NOTED THAT THE COPIES OF RG-1 REGISTER/STOCK BOOK PRODUCED DO NOT CONTAIN ALL THE ITEMS OF RAW MATERIAL, WORK IN PROGRESS, FINISHED PRODUCTS AND B YE-PRODUCTS, THEREFORE THESE ITEMS COULD NOT BE COMPARED. ON CO MPARISON EXCESS STOCK OF RS. 1,49,08,100/- WAS FOUND. THIS E XCESS STOCK WAS FOUND ONLY AGAINST 33 ITEMS APPEARING IN RG1 BOOK W HEREAS AS PER PHYSICAL INVENTORY THERE WERE 62 ITEMS OF PACKED FI NISHED OILS WHICH HAVE NOT BEEN ENTERED IN THE RG-1 REGISTER. T HE VALUE OF THIS STOCK IS RS. 2,15,35,076/-. SIMILARLY STOCK AT BRAN CH VALUED RS. 2,83,08,790/- (WHICH ARE BRANCH STOCK CPD, BRANCH S TOCK BULK AND ITEM GIVEN FOR PACKING) AND CHEMICAL MATERIALS VALU ED AT RS. 18,83,464/-. THE VALUE OF MINUS STOCK AS PER PHYSIC AL VERIFICATION LIST COMES TO RS. 10788302/-.THE AO AFTER CONSIDERI NG ALL THESE THE EXCESS STOCK FOUND WAS VALUED AT RS. 5,58,44,128/- WHICH INCLUDED EXCESS STOCK OF RS. 14905100/- REDUCING THE DEFICIT STOCK AT RS. 10788302/-, AS FOLLOWS:- A) PHYSICAL STOCK OF 62 ITEMS OF PACKED FINISHED OI L 2,15,35,076 B) BRANCH STOCK (2,49,07,144+34,01,646) 2 ,83,08,790 C) EXCESS STOCK OF 33 ITEMS 1,49 ,05,100 D) CHEMICAL MATERIALS 18,83,464 TOTAL 6,66,32,430 LESS: DEFICIT STOCK OF 33 ITEMS 1,07,88,302 EXCESS STOCK 5,58,44,128 ========== 3.2 THE AO DID NOT ACCEPT THE EXPLANATION & RECONCI LIATION GIVEN BY THE ASSESSEE ON THE FOLLOWING GROUNDS: ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 4 I) EVEN THOUGH THE ASSESSEE HAD GIVEN A RECONCILIAT ION STATEMENT NOW IT COULD NOT BE VERIFIED WITH THE FAC TUAL POSITION AS ON THE DATE OF SURVEY. II) THE ASSESSEE SHOULD HAVE EXPLAINED THESE DIFFER ENCES & THE RECONCILIATION THERE OF IN THE COURSE OF SURVEY ITSELF. III) THE EXPLANATION RENDERED BY THE ASSESSEE WAS N OT FULLY SUPPORTED. 3.3 THE AO MADE THE ADDITION OF RS. 5,58,54,128/- O N ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. 3.4 THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT S URVEY PARTY DID NOT ASK ANY SPECIFIC QUESTION TO MR. PRAKASH N. CHAWLA IN RESPECT OF STOCK INVENTORY COMPUTED BY THEM THAT DU RING THE COURSE OF SURVEY. THE BOOK STOCK WAS DULY RECONCILE D BY THE PHYSICAL STOCK AND THE MINOR DIFFERENCES WERE DUE T O VALUATION AND THAT NO MAJOR DIFFERENCES WERE DETECTED. IT WAS ALS O CONTENDED THAT A CHART EXPLAINING THE RECONCILIATION OF EACH AND E VERY ITEMS WERE ALSO FILED VIDE LETTERS DATED 26.11.2008 AND 10 TH DECEMBER08. THE CIT(A) CALLED FOR REMAND REPORT FROM THE AO. THE RE MAND REPORT FILED BY THE AO HAS BEEN REPRODUCED BY THE CIT(A) A T PAGES 10 TO 16 OF HIS ORDER. THE CIT(A) HAD GIVEN A COPY OF RE MAND REPORT TO THE ASSESSEE AND THE ASSESSEE SUBMITTED HIS REPLY A GAINST THE SAME, WHICH HAS BEEN REPRODUCED BY THE CIT(A) AT PA GES 16 TO 20 OF HIS ORDER. THE CIT(A) CALLED FOR SECOND REMAND R EPORT FROM THE AO, WHICH WAS REPRODUCED BY THE CIT(A) AT PAGES 20 TO 26 OF HIS ORDER. A COPY OF THIS 2 ND REMAND REPORT WAS ALSO GIVEN TO THE ASSESSEE FOR COMMENTS. THE ASSESSEE ALSO FURNISHED COMMENTS ON THE SECOND REMAND REPORT, WHICH HAS BEEN REPRODUCED AND DISCUSSED BY THE CIT(A) AT PAGES 26 TO 54 OF HIS OR DER. THE CIT(A) NOTED IN BRIEF THE FACTS AND OBSERVATIONS OF THE AO AND CONTENTION OF THE ASSESSEE AT PAGES 54 TO 63 OF HIS ORDER. THE CIT (A) RELIED UPON THE FOLLOWING DECISIONS:- 1) V. RAJAN VS. CIT [1974] 96 ITR 64 (MAD.) 2) CIT VS. ASHOK TEXTILES (P) LTD. [1983] 141 ITR 7 85 (KER) AGAINST WHICH ASSESSEES SPECIAL LEAVE TO APPEAL HA S BEEN ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 5 DISMISSED BY THE SUPREME COURT VIDE ASHOK TEXTILES (P) LTD. V. CIT [1981] 138 ITR (ST.) 1. 3) RAMANLAL KACHARULAL TEJMAL V. CIT [1984] 146 ITR 368 (BOM.) 4) BADRI PRASAD RAMESHWAR PRASAD VS. CIT [1996] 219 ITR 441, 448-49(MP) 5) CIT VS. G. ANANDRAJAN [1997] 228 ITR 664, 667-68 (KER.) 6) UNIQUE CONSTRUCTION COMPANY LTD. VS. JCIT [2003] 260 ITR 189 (CAL.) 7) VIMLA STORES VS. CIT [2009] 308 ITR 89 (PAT.) 3.5 FINALLY, AFTER REPRODUCTION OF REMAND REPORTS A ND ASSESSEES SUBMISSIONS, THE CIT(A) HELD AS UNDER:- 2.3.14 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE VARIOUS DECISIONS DISCUSSED IN THE PRECEDING PARAGRAPHS, ADDITION OF RS. 5,58,44,1 28/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK CHARGED TO TAX U/S 69 OF THE ACT IS CONFIRMED. 4.1 THE LEARNED AR REITERATED THE SUBMISSIONS, WHIC H WERE MADE BEFORE THE REVENUE AUTHORITIES. THE LEARNED AR SUBM ITTED THAT THE APPELLANT MAINTAINS RG 1 REGISTER (STOCK REGISTER ) FOR RAW MATERIAL (SEPARATE FOR IMPORTED & LOCAL) & FOR FINISHED PROD UCTS. THE APPELLANT ALSO MAINTAINS PRODUCTION RECORDS GIVING DETAILS OF RAW MATERIALS ISSUED FOR PRODUCTION AND PRODUCTION OF F INISHED PRODUCTS ON A DAILY BASIS. THUS THE MOVEMENT OF RAW MATERIAL FROM PURCHASE TO PRODUCTION IS RECORDED IN THE RAW MATER IAL STOCK REGISTER, PRODUCTION RECORDS & FINISHED GOODS STOCK REGISTER. HE FURTHER SUBMITTED THAT THE GOODS SENT TO BRANCHES A RE RECORDED IN THE STOCK REGISTER OF FACTORY AS ISSUED / TRANSFERR ED TO BRANCHES. EACH BRANCH MAINTAINS ITS OWN STOCK REGISTERS GIVIN G DETAILS GOODS RECEIVED, GOODS SOLD & GOODS IN STOCK. IN RESPECT G OODS SENT FOR PACKING, THE STOCK REGISTER OF FACTORY CONTAINS THE ENTRY BOTH FOR GOODS SENT FOR PACKING & GOODS RECEIVED BACK AFTER PACKING AND A SEPARATE STOCK REGISTER IS MAINTAINED FOR STOCK LYI NG WITH PACKER M/S INDIAN VEG. OIL FOR PACKING. IN RESPECT OF CHEM ICAL, STORES ETC. SEPARATE STOCK RECORDS ARE MAINTAINED. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 6 4.2 THE LEARNED AR SUBMITTED THAT N THE DATE OF SUR VEY, STATEMENT OF PRAKASH CHAWLA, DIRECTOR OF THE ASSESS EE WAS A TAKEN U/S 133A. AT Q.NO.17 (PAGE NO. 48 OF PAPER BOOK), O F THE STATEMENT, THE SURVEY PARTY PUT A QUESTION OF DISCREPANCY OF R S.26 LAKHS ODD IN STOCK SHOWN IN TENTATIVE TRADING ACCOUNT PREPARE D ON DATE OF SURVEY AND PHYSICAL INVENTORY TAKEN BY THE SURVEY P ARTY. TO THIS QUERY AN ANSWER WAS MADE THAT THE AVERAGE G.P. RATI O WAS APPLIED WHILE WORKING OUT THE TRADING A/C (TENTATIVE) & HEN CE THERE IS NO DISCREPANCY AS BOOK STOCK IS MATCHED WITH PHYSICAL STOCK. THE CONTENTION OF THE APPELLANT WAS DULY ACCEPTED BY TH E SURVEY PARTY IN THE APPRAISAL REPORT (AT PAGE NO. 362 OF PAPER B OOK) COPY OF TENTATIVE TRADING A/C IS REPRODUCED IN REMAND REPOR T DATED 30.3.09 (APPRAISAL REPORT OF SURVEY PARTY AT PAGE NO. 362 O F PAPER BOOK). 4.3 FURTHER THERE WAS ANOTHER QUESTION NO.7 PUT UP TO IN WHICH THE DIRECTOR WAS ASKED WHETHER PHYSICAL INVENTORY M ADE WAS CORRECT. TO THIS IT WAS ANSWERED THAT THE PHYSICAL INVENTORY MADE WAS CORRECT AND TO AUTHENTICATE IT COPY OF RG-1 REG ISTER (STOCK REGISTER) WERE ALSO PROVIDED TO THE SURVEY PARTY. ( PAGE NO. 96 TO 128 OF PAPER BOOK).BESIDES THESE TWO QUESTIONS, NO OTHER QUESTION OR UNDISCLOSED MATERIAL, PAPERS WERE FOUND OR PUT F ORWARD TO THE DIRECTOR TO EXPRESS ANY DISCREPANCY IN STOCK OR EXC ESS OR SHORTFALL IN STOCK.APART FROM THE ABOVE, NO STATEMENT OF ANY OTHER PERSON WAS RECORDED AND WHAT WAS IMPOUNDED BY / SUBMITTED TO THE SURVEY PARTY WAS AS UNDER : A) PHYSICAL INVENTORY OF STOCK (PREPARED IN THE COURSE OF SURVEY) B) COPIES OF FAXES FROM BRANCHES C) STATEMENT OF ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH, 2006 D) TRADING ACCOUNT FOR THE YEAR 2000-2001 TO 2005- 2006 & PROVISIONAL TRADING ACCOUNT FROM 01.04.2006 TO 14.06.2006. E) LIST OF C & F AGENTS. F) LIST OF BANK ACCOUNTS G) CASH BOOK FROM 01.06.2006 TO 14.06.2006. H) CASH BOOK OF BODARAM & SONS, INDU OIL & SOAP & H.B. CHAWLA CHARITABLE TRUST FROM 01.06.2006 TO 14.06.2006. I) DAILY PRODUCTION SHEETS ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 7 4.4 IN ADDITION TO THAT, COPIES OF RG-1 REGISTER, S TOCK TRANSFER SHEET FROM 01.06.2006 TO 13.06.2006 FOR STOCK TRANS FERRED TO BRANCHES WERE ALSO TAKEN OVER BY THE SURVEY PARTY. BY THIS THE SEARCH & SURVEY HAD ENDED. NO DISCLOSURE OF ANY TYP E WAS ASKED FOR NOR WAS ANY OTHER MATERIAL POINTED OUT TO SHOW THAT THERE WAS NOT ANY DISCREPANCY OR EXCESS STOCK NOR SHORTFALL O F STOCK WAS POINTED. ONLY OTHER THING THAT WAS MADE WAS THAT TH E PREMISES AT NARSI NATHA STREET AND FACTORY PREMISES WERE SEARCH ED / SURVEYED AND CASH FOUND WAS INVENTORIES WHICH WAS NOT SEIZED . A RECONCILIATION OF CASH FOUND DURING SEARCH WAS ALSO FILED ON THE SAME DAY AND A STATEMENT OF KACHOMAL KHATRI WAS RE CORDED, WHO EXPLAINED THE CASH BEING COLLECTION OF DEBTORS OF E TC. THE SEARCH TEAM & SURVEY PARTY RESPECTIVELY DID NOT SEIZE THE CASH. 4.5 IN THE COURSE OF SURVEY, THE SURVEY PARTY HAD C OMPILED A PHYSICAL INVENTORY OF STOCKS AT THE FACTORY PREMISE S OF THE APPELLANT. THE SURVEY PARTY HAD ALSO COMPILED STOCK AT VARIOUS BRANCHES BY CALLING FOR THE STOCK DETAILS FROM EACH OF THE BRANCHES. THE STOCK WITH M/S INDIAN VEG OILS, THE PACKER WAS ALSO COMPILED. THE BRANCHES, C & F AGENTS & M/S INDIAN VEG. OIL (P ACKER) WERE NOT COVERED UNDER THE SURVEY ACTION. HENCE THE STOC K OF BRANCHES INVENTORIES, C & F AGENTS & M/S INDIAN VEG. BY THE SURVEY PARTY WAS ACTUALLY A BOOK STOCK OF THE APPELLANT. 4.6 THE LIST OF PHYSICAL INVENTORY COMPILED BY THE SURVEY PARTY IS ENCLOSED BY THE APPELLANT WITH HIS PAPER BOOK AT PA GE NO. 72 & 73. THE STOCK INVENTORIED BY THE SURVEY PARTY WAS VALUE D AT RS.21,91,56,235/- AS UNDER: SL. NO. DESCRIPTION VALUE (RS.) 1 RAW OIL 10,66,09,779 2 WORK IN PROGRESS 1,75,83,143 3 FINISHED PRODUCTS 4,42,30,314 4 BY PRODUCTS 8,89,183 5 PACKED FINISHED OILS 21,53,076 6 BRANCH STOCK CPD 1,36,49,875 ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 8 7 BRANCH STOCK BULK 1,12,57,269 8 COCONUT OIL GIVEN FOR PACKING 34,01,646 TOTAL 21,91,56,235 4.7 IN ADDITION TO THE ABOVE THERE WAS NO ACT, ACTI ON, MATERIAL, EVIDENCE COLLECTED/SEIZED BY THE SEARCH/SURVEY PART Y. NO PROCEEDINGS UNDER RULE 112 OR ANY OTHER PROCEEDING WAS CALLED FOR BY THE ADI AND THE SEARCH/SURVEY ON THE ASSESSEE HA D ENDED ON 15.6.06. 4.8 THE LEARNED AR SUBMITTED THAT SUBSEQUENTLY A RE TURN OF INCOME FOR A.Y. 2007-08 WAS FILED SUO-MOTO ON 31.10 .2007. THE AO ISSUED 153A NOTICES FOR A.Y. 2001-2002 TO 2006-07 O N 16.3.2007 AND ISSUED A 143(2) NOTICE AND NOT NOTICE U/S. 153A FOR A.Y. 2007- 08 ON 14.10.2008. RETURNS FOR A.Y. 2001-2002 TO 200 6-07 WERE FILED U/S 153A AND THEY WERE ACCEPTED AND NO ADDITI ON MADE THEREON. ASSESSMENTS FOR THOSE YEARS WERE MADE ON 2 9.12.2008, THE SAME DATE ASSESSMENT MADE FOR A.Y. 2007-2008.HE FURTHER SUBMITTED THAT THE APPELLANT HAD NOT DECLARED ANY A DDITIONAL INCOME FOLLOWING THE SURVEY. HOWEVER IN THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER FOR THE F IRST TIME POINTED OUT THAT THERE WERE SOME DISCREPANCIES IN THE PHYSI CAL STOCK AS COMPARED TO THE BOOK STOCK & RG-1 REGISTER BY GIVEN A PAPER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON 20.1 1.2008 (AT PAGE NO. 191 TO 193).THEREAFTER AGAIN ON 26.11.2008 .THE LEARNED AR SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, THE APPELLANT SUBMITTED EXHAUSTIVE EXPLANATION ALON G WITH COMPLETE DOCUMENTARY EVIDENCE IN RESPECT OF EACH IT EM MENTIONED ABOVE VIDE ITS LETTER DATED. 26.11.2008. THE APPELL ANT SUMMARIZED AND EXPLAINED IN DETAIL THE ALLEGED DIFFERENCE IN Q UANTITY OF RAW AND REFINED OIL IN INVENTORY AS PER PHYSICAL VERIFICATI ON AND AS PER RG 1 REGISTER AS ON 14.06.2006 7.00 A.M. FOR THE PURPO SE OF READY REFERENCE THE COPY OF THAT LETTER IS REPRODUCED AS UNDER:- ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 9 26.11.2008 THE ACIT, CENTRAL CIRCLE - 10, ITAT BUILDING, MUMBAI. RE : M/S KAMANI OIL INDUSTRIES (PROP.: CHAWLA BROTHERS PVT. LTD.) ASSESSMENT YEAR : 2007 2008 SUB : SUBMISSION OF DETAILS SIR, IN CONTINUATION OF OUR SUBMISSION, AS REQUIRED BY Y OUR GOOD OFFICE, UNDER THE INSTRUCTIONS OF OUR ABOVE MENTIONED CLIEN T, WE ARE SUBMITTING HEREWITH FOLLOWING DETAILS AND EXPLANATI ON : 1. KINDLY REFER TO THE STATEMENT OF QUANTITY DETAILS G IVEN BY YOU IN THE LAST HEARING CONTAINING QUANTITATIVE DETAILS OF 33 ITEMS. (PG. 191 TO 193) 2. AS PER THE ABOVE LIST, QUANTITY AS PER PHYSICAL VER IFICATION WAS COMPARED WITH QUANTITY AS PER RG - 1 REGISTER AS ON 14.06.2006 AT 07.00 A.M. 3. FROM THE ABOVE STATEMENT, IT CAN BE OBSERVED THAT O F THE 33 ITEMS, 13 ITEMS DOES NOT SHOW ANY DISCREPANCY BETWEEN QUAN TITY AS PER PHYSICAL VERIFICATION AND QUANTITY AS PER RG 1 RE GISTER. 4. OF THE ABOVE STATEMENT THE ITEMS CAN BE BROADLY BIF URCATED INTO 2 PARTS NAMELY: - CRUDE/ RAW OIL - REFINED OIL 5. THE CRUDE OIL IS THE RAW MATERIAL TO MAKE REFINED O IL. 6. FOLLOWING IS THE EXTRACT OF CHART SHOWING THE DIFFE RENCE IN QUANTITY OF RAW OIL AS PER PHYSICAL VERIFICATION & AS PER RG 1 REGISTER. SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION (M.T.) QTY AS PER RG AS ON 14.06.06 AT 7.00 A.M. (M.T.) DIFFERENCE IN QUANTITY (M.T.) 3 CRUDE PALM KERNAL OIL (TANK NO.8 & 11) 996.891 (PG. 191) 997.080 (PG. 224, 225) (-) 0.189 5 CRUDE PALM OIL (TANK NO.7 & 10) 1042.551 (PG. 192) 1042.601 (PG. 226, 227) (-) 0.050 25 COCONUT RAW 284.680 (PG. 193) 291.398 (PG. 228) (-) 6.718 26 GROUNDNUT RAW 171.592 (PG. 193) 189.206 (PG. 231) (-) 17.614 28 RAW MUSTERED 6.347 (PG. 193) 12.793 (PG. 234) (-) 6.446 ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 10 7. RE : CRUDE PALM KERNEL OIL (TANK NO. 8 & 11) A. THE QUANTITY OF CRUDE PALM KERNEL OIL (TANK NO 8 & 11) WAS WRONGLY MENTIONED AS 997.080 M.T. INSTEAD OF 996.89 1 M.T. (KINDLY FIND ENCLOSED HEREWITH THE COPY OF RG 1 R EGISTER IN SUPPORT OF THE SAME, MARKED AS ANNEXURE : 1). (PG. 224, 225) B. HENCE IN FACT THERE WAS NO DIFFERENCE IN THE QUANTI TY OF RAW OIL AS PER PHYSICAL VERIFICATION & AS PER RG 1 REGISTER. 8. RE : CRUDE PALM OIL (TANK NO. 7 & 10) A. THE QUANTITY OF CRUDE PALM OIL (TANK NO. 7 & 10) WA S WRONGLY MENTIONED AS 1042.601 MT. INSTEAD OF 1042.551 MT. ( KINDLY FIND ENCLOSED HEREWITH THE COPY OF RG 1 REGISTER IN SU PPORT OF THE SAME, MARKED AS ANNEXURE : 2). (PG. 226, 227). B. HENCE IN FACT THERE WAS NO DIFFERENCE IN THE QUANTI TY OF RAW OIL AS PER PHYSICAL VERIFICATION & AS PER RG 1 REGISTER. 9. RE : COCONUT RAW A) THE EXTRACT OF THE CHART SHOWING DIFFERENCE IS REPR ODUCED BELOW. SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 25 COCONUT RAW 284.680 (PG. 193) 291.398 (PG. 228) (-) 6.718 B) IN THE ABOVE CHART IT MAY BE OBSERVED THAT THE QUAN TITY OF ONLY LOOSE MATERIAL AS PER PHYSICAL VERIFICATION (PG. 72 ) WAS COMPARED WITH QUANTITY OF LOOSE MATERIAL PLUS PACKED MATERIA L AS PER RG 1 ON 14.06.06 AT 7.00 A.M. C) HENCE WHILE PREPARING THE ABOVE CHART THE FOLLOWIN G ITEMS WERE LEFT OUT: NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) KAMANI (15 KG TIN) 219 (PG. 229) 3.285 KAMANI (5 KG JAR) 624 3.120 CPD (SMALL BOXES) (PG. 229) 0.313 TOTAL 6.718 D) IN SUPPORT OF THE SAME WE ARE SUBMITTING HEREWITH THE PRODUCTION SHEET DTD. 13.06.2006, (PG. 229) THE CLO SING STOCK OF WHICH BECOMES THE OPENING STOCK AS AT 14.06.2006. I T MAY BE NOTED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCT ION SHEET WAS ALREADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. E ) IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF PACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 230) & DULY SIG NED BY THE INCOME TAX OFFICER. F ) HENCE ONCE THE ABOVE ITEMS ARE CONSIDERED, THERE IS NO DIFFERENCE IN QUANTITY AS PER PHYSICAL VERIFICATION & AS PER R G 1 REGISTER. 10. RE : GROUND NUT RAW ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 11 A. THE EXTRACT OF THE CHART SHOWING DIFFERENCE IS REPR ODUCED BELOW. SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 26 GROUNDNUT RAW 171.592 (PG. 193) 189.206 (PG. 231) (-) 17.614 B. IN THE ABOVE CHART IT CAN BE OBSERVED THAT THE QUAN TITY OF ONLY LOOSE MATERIAL AS PER PHYSICAL VERIFICATION (PG. 72 ) WAS COMPARED WITH QUANTITY OF LOOSE MATERIAL PLUS PACK ED MATERIAL AS PER RG 1 ON 14.06.06 AT 7.00 AM. C. HENCE WHILE PREPARING THE ABOVE CHART THE FOLLOWING ITEMS WERE LEFT OUT. (PG. 232) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) SVITY (15 KG TIN) 341 5.115 SVITY (15 LTR TIN) 236 3.221 SVITY (15 LTR JAR) 141 2.115 SVITY (10 LTR POUCH) 161 1.465 SVITY (5 LTR JAR) 312 5.679 SVITY (20 LTR BOTTLES) 1 0.018 (PG. 232) TOTAL 17.614 A. IN SUPPORT OF THE SAME WE ARE SUBMITTING HEREWITH T HE PRODUCTION SHEET DTD. 13.03.2006 (PG. 232), THE CLO SING STOCK OF WHICH BECOMES THE OPENING STOCK AS AT 14.06.2006 . IT MAY BE NOTED THAT AT THE TIME OF SURVEY, THE ABOVE PROD UCTION SHEET WAS ALREADY CONSIDERED & EXAMINED BY YOUR GOO D OFFICE. B. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06.2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 233) & DULY SIGNED BY THE INCOME TAX OFFICER. C. HENCE ONCE THE ABOVE ITEMS ARE CONSIDERED, THERE IS NO DIFFERENCE IN QUANTITY AS PER PHYSICAL VERIFICATION & AS PER RG 1 REGISTER. 11. RAW MUSTERED A. THE EXTRACT OF THE CHART SHOWING DIFFERENCE IS REPR ODUCED BELOW. SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 28 RAW MUSTERED 6.347 (PG. 193) 12.793 (PG. 234) (-) 6.446 ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 12 B. IN THE ABOVE CHART IT MAY BE OBSERVED THAT THE QUAN TITY OF ONLY LOOSE MATERIAL AS PER PHYSICAL VERIFICATION (PG. 72 ) WAS COMPARED WITH THE QUANTITY OF LOOSE MATERIAL PLUS PACKED MAT ERIAL AS PER RG 1 ON 14.06.06 AT 7.00 A.M. C. HENCE WHILE PREPARING THE ABOVE CHART THE FOLLOWING ITEMS WERE LEFT OUT : (PG. 235) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) JAI KISSAN (15 KG TIN) 107 1.605 JAI KISSAN (1LTR. BOTTLES) 6 0.109 JAI KISSAN (1LTR. POUCH) 142 2.584 JAI KISSAN (500 ML BOTTLES) 52 0.946 JAI KISSAN (200 ML BOTTLES) 19 0.346 JAI KISSAN (15LTR. JAR) 47 0.855 (PG. 235) TOTAL 6.446 D. IN SUPPORT OF THE SAME WE ARE SUBMITTING HEREWITH T HE PRODUCTION SHEET DTD. 13.03.2006 (PG. 235), THE CLO SING STOCK OF WHICH BECOMES THE OPENING STOCK AS AT 14.06.2006 . IT MAY BE NOTED THAT AT THE TIME OF SURVEY, THE ABOVE PROD UCTION SHEET WAS ALREADY CONSIDERED & EXAMINED BY YOUR GOOD OFFI CE. E. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 1 4.06.2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 236) & DULY SIGNED BY THE INCOME TAX OFFICER. F. HENCE ONCE THE ABOVE ITEMS ARE CONSIDERED, THERE IS NO DIFFERENCE IN QUANTITY AS PER PHYSICAL VERIFICATION & AS PER RG 1 REGISTER 12. RE : REFINED OIL : FOLLOWING IS THE EXTRACT FROM THE CHART SHOWING THE DIFFERENCE IN THE QUANTITY OF VARIOUS REFINED OILS AS PER PHYSICA L VERIFICATION & QUANTITY AS PER RG 1 REGISTER ON 14.06.06 AT 7.00 A.M. SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 7 COCONUT OIL REFINED 76.313 (PG. 192) 84.368 (PG. 237) (-) 8.055 8 GROUND NUT OIL REFINED 74.240 (PG. 192) 85.401 (PG. 240) (-) 11.161 9 SUNFLOWER OIL REFINED 11.240 (PG. 192) 138.501 (PG. 243) (-) 127.261 10 PALM KERNEL OIL REFINED 59.371 (PG. 192) 70.906 (PG. 246) (-) 11.535 11 PALMOLIVE OIL REFINED 353.341 (PG. 192) 383.400 (PG. 249) (-) 30.059 ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 13 12 SOYA BIN OIL REFINED 5.946 (PG. 192) 17.504 (PG. 252) (-) 11.558 14 CORN OIL REFINED 5.707 (PG. 192) 7.755 (PG. 255) (-) 2.250 15 TILLY OIL REFINED 45.827 (PG. 192) 45.962 (PG. 258) (-) 0.135 16 VANASPATI STOCK 246.765 (PG. 192) 223.814 (PG. 264) (+) 22.951 17 MARGARINE STOCK NIL (PG. 192) 3.735 (PG. 261) (-) 3.735 19 RPO (REFINED / RAW PALM OIL) 94.972 (PG. 192) NIL (+) 94.972 21 RSBO (REFINED S.B. OIL) 5.946 (PG. 192) NIL (+) 5.946 22 RPKO (REFINED PALM KERNEL OIL RAW) 59.371 (PG. 192) NIL (+) 59.371 23 RCNO (REFINED C.N. OIL RAW) 76.313 (PG. 192) NIL (+) 76.313 24 REFINED TILLY OIL 45.827 (PG. 192) NIL (+) 45.827 13. A) FROM THE ABOVE CHART IT CAN BE OBSERVED THAT THE FOLLOWING ITEMS ARE CONSIDERED TWICE : SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION 12 SOYA BIN OIL REFINED 5.946 (PG. 192) 21 RSBO (REFINED S.B. OIL) 5.946 (PG. 192) 15 TILLY OIL REFINED 45.827 (PG. 192) 24 REFINED TILLY OIL 45.827 (PG. 192) 10 PALM KERNEL OIL REFINED 59.371 (PG. 192) 22 RPKO (REFINED PALM KERNEL OIL RAW) 59.371 (PG. 192) 7 COCONUT OIL REFINED 76.313 (PG. 192) 23 RCNO (REFINED C.N. OIL RAW) 76.313 (PG. 192) B) HENCE THERE IS NO DIFFERENCE AS FAR AS SR.NO. 21 (RSBO (REFINED S.B. OIL), 22 (RPKO (REFINED PALM KERNEL OIL RAW) , 23 (RCNO (REFINED C.N. OIL RAW) & 24 (REFINED TILLY OIL) IS CONCERNED. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 14 14. RE : REFINED PN (PALM) OIL (SR. NO. 19) A. REFINED PALM OIL IS ALREADY CONSIDERED AT SR. NO. 1 3 & WHERE YOUR GOOD OFFICE HAS ACCEPTED THAT THERE WAS NO DIF FERENCE IN QUANTITY AS PER PHYSICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER. B. THE QUANTITY RPO (REFINED PALM OIL) AT SR. NO. 19 W AS WRONGLY TAKEN OF WIP STOCK INSTEAD OF FINISHED STOCK. (PG. 72 ITEM NO. 6 OF WORK IN PROGRESS TABLE) C. THE WIP STOCK OF RPO AS ON 14.06.2006 WAS ALREADY C ONSIDERED & ACCEPTED BY YOUR GOOD OFFICE 15. RE : COCONUT OIL REFINED (SR. NO. 3) A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 7 COCONUT OIL REFINED 76.313 (PG. 192) 84.368 (PG. 237) (-) 8.055 B. WHILE COMPARING THE QUANTITY, YOUR GOOD OFFICE HAS COMPARED THE QUANTITY OF LOOSE STOCK AS PER PHYSICAL STOCK (PG. 72) WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED STOCK AS PE R RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS NOT C ONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 238) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) COCOSILVER 429 6.435 COCOSILVER 108 1.620 (PG. 238) TOTAL 8.055 C. IN SUPPORT OF THE SAME, KINDLY FIND ENCLOSED HEREWI TH THE PRODUCTION SHEET OF 13.06.06 (PG. 238) WHICH SHOWS THE CLOSING STOCK OF REFINED COCONUT OIL AS ON 13.06.06 WHICH B ECOMES THE OPENING STOCK OF 14.06.06 AT 7.00 AM. IT MAY BE NOT ED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCTION SHEET WAS ALRE ADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. D. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 239) & DULY SIG NED BY THE INCOME TAX OFFICER. E. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED COCONUT OIL. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 15 16. GROUND NUT OIL REFINED (SR. NO. 8). A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 8 GROUND NUT OIL REFINED 74.240 (PG. 192) 85.401 (PG. 240) (-) 11.161 B. WHILE COMPARING THE QUANTITY, YOUR GOOD OFFICE HAS COMPARED THE QUANTITY OF LOOSE STOCK AS PER PHYSICAL STOCK (PG. 72) WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED STOCK AS PE R RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS NOT C ONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 241) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) JAWAN (15 KG. TIN) 185 2.775 KLASSIC (15LT. TIN) 311 4.245 JAWAN (15 KG. JAR) 10 0.150 KLASSIC (15LT. JAR) 3 0.041 KLASSIC (5LT. JAR) 217 3.950 (PG. 241) TOTAL 11.161 C. IN SUPPORT OF THE SAME, KINDLY FIND ENCLOSED HEREWI TH THE PRODUCTION SHEET OF 13.06.06 (PG. 241) WHICH SHOWS THE CLOSING STOCK OF REFINED GROUNDNUT OIL AS ON 13.06.06 WHICH BECOMES THE OPENING STOCK OF 14.06.06 AT 7.00 AM. IT MAY BE NOT ED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCTION SHEET WAS ALRE ADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. D. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 242) & DULY SIG NED BY THE INCOME TAX OFFICER. E. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED GROUNDNUT OIL. 17. SUNFLOWER OIL REFINED (SR. NO. 9). A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 16 LIST 9 SUNFLOWER OIL REFINED 11.240 (PG. 192) 138.501 (PG. 243) (-) 127.261 B. WHILE COMPARING THE QUANTITY, THROUGH OVERSIGHT QUA NTITY AS PER PHYSICAL VERIFICATION WAS WRONGLY TAKEN AS 11.240 I NSTEAD OF 111.240, HENCE THE DIFFERENCE OF 100 M.T. (SEE PAGE 72 ITEM NO. 3 OF FINISHED PRODUCTS & 192) C. AS ALSO WHILE COMPARING THE QUANTITY, YOUR GOOD OFF ICE HAS COMPARED THE QUANTITY OF LOOSE STOCK AS PER PHYSICA L STOCK (PG. 72) WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED ST OCK AS PER RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS N OT CONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 244) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) ARITHMETICAL ERROR 100.000 KOMAL (15 KG. TIN) 222 3.330 KOMAL (15LT. TIN) 339 4.627 KOMAL (15 KG. JAR) 18 0.270 KOMAL (15LT. JAR) 106 1.447 KOMAL (5LT. JAR) 556 10.119 KOMAL (20LT. POUCH) 395 7.189 KOMAL (20LT. BOTTLE) 10 0.182 (PG. 244) TOTAL 127.164 D. IN SUPPORT OF THE SAME, KINDLY FIND ENCLOSED HEREWI TH THE PRODUCTION SHEET OF 13.06.06 (PG. 244) WHICH SHOWS THE CLOSING STOCK OF REFINED SUNFLOWER OIL AS ON 13.06.06 WHICH BECOMES THE OPENING STOCK OF 14.06.06 AT 7.00 AM. IT MAY BE NOT ED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCTION SHEET WAS ALRE ADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. E. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 1 4.06.2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 245) & DULY SIGNED BY THE INCOME TAX OFFICER. F. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED SUNFLOWER OIL. 18. PALM KERNEL OIL REFINED (SR. NO. 10). A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 17 PER LIST VERIFICATION 10 PALM KERNEL OIL REFINED 59.371 (PG. 192) 70.906 (PG. 246) (-) 11.535 B. WHILE COMPARING THE QUANTITY, YOUR GOOD OFFICE HAS COMPARED THE QUANTITY OF LOOSE STOCK AS PER PHYSICAL STOCK (PG. 72) WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED STOCK AS PE R RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS NOT C ONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 247) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) KRISP (15 KG. TIN) 738 11.070 KRISP (15 KG. JAR) 31 0.465 (PG. 247) TOTAL 11.535 C. IN SUPPORT OF THE SAME, KINDLY FIND ENCLOSED HEREWI TH THE PRODUCTION SHEET OF 13.06.06 (PG. 247) WHICH SHOWS THE CLOSING STOCK OF REFINED PALM KERNEL OIL AS ON 13.06.06 WHI CH BECOMES THE OPENING STOCK OF 14.06.06 AT 7.00 AM. IT MAY BE NOT ED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCTION SHEET WAS ALRE ADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. D. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 248) & DULY SIG NED BY THE INCOME TAX OFFICER. E. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED PALM KERNEL OIL. 19.PALMOLIEN OIL REFINED (SR. NO. 11). A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 11 PALMOLIEN OIL REFINED 353.341 (PG. 192) 383.400 (PG. 249) (-) 30.059 B. WHILE COMPARING THE QUANTITY, YOUR GOOD OFFICE HAS COMPARED THE QUANTITY OF LOOSE STOCK AS PER PHYSICAL STOCK (PG. 72) WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED STOCK AS PE R RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS NOT C ONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 250) ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 18 NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) FRY WELL (15 KG. TIN) GOLDEN YELLOW(15 KG. TIN) 960 14.400 FRY WELL (15 KG. JAR) GOLDEN YELLOW(15 KG. JAR) 649 9.735 GOLDEN YELLOW(1LT. POUCH) 651 5.924 (PG. 250) TOTAL 30.059 C. IN SUPPORT OF THE SAME, KINDLY FIND ENCLOSED HEREWI TH THE PRODUCTION SHEET OF 13.06.06 (PG. 250) WHICH SHOWS THE CLOSING STOCK OF REFINED PALMOLIEN OIL AS ON 13.06.06 WHICH BECOMES THE OPENING STOCK OF 14.06.06 AT 7.00 AM. IT MAY BE NOT ED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCTION SHEET WAS ALRE ADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. D. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 251) & DULY SIG NED BY THE INCOME TAX OFFICER. E. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED PALMOLIEN OIL 20. SOYABIN OIL REFINED (SR. NO. 12) A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 12 SOYA BIN OIL REFINED 5.946 (PG. 192) 17.504 (PG. 252) (-) 11.558 B. WHILE COMPARING THE QUANTITY, YOUR GOOD OFFICE HAS COMPARED THE QUANTITY OF LOOSE STOCK AS PER PHYSICAL STOCK (PG. 72) WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED STOCK AS PE R RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS NOT C ONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 253) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) RIGHT (15 KG. TIN) 505 7.575 RIGHT (15 KG. JAR) 261 3.915 RIGHT (15LT. TIN) 5 0.068 (PG. 253) TOTAL 11.558 ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 19 C. 1 D. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 254) & DULY SIG NED BY THE INCOME TAX OFFICER. E. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED SOYA BIN OIL 21. CORN OIL REFINED (SR. NO. 14) A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 14 CORN OIL REFINED 5.707 (PG. 192) 7.755 (PG. 255) (-)2.250 (ACTUALLY IT SHOULD BE (-) 2.048) B. THE DIFFERENCE BETWEEN STOCK AS PER PHYSICAL VERIFI CATION & STOCK AS PER RG 1 REGISTER SHOULD HAVE BEEN (-) 2.048 M .T. I.E. 5.707 M.T. (-) 7.755 M.T. HENCE, THIS TYPOGRAPHICAL ERROR NEEDS TO BE RECTIFIED. C. WHILE COMPARING THE QUANTITY, YOUR GOOD OFFICE HAS COMPARED THE QUANTITY OF LOOSE STOCK AS PER PHYSICAL STOCK (PG. 72) WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED STOCK AS PE R RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS NOT C ONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 256) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) KORNSTAR (15 LT. TIN) 150 2.048 (PG. 256) D. IN SUPPORT OF THE SAME, KINDLY FIND ENCLOSED HEREWI TH THE PRODUCTION SHEET OF 13.06.06 (PG. 256) WHICH SHOWS THE CLOSING STOCK OF REFINED CORN OIL AS ON 13.06.06 WHICH BECO MES THE OPENING STOCK OF 14.06.06 AT 7.00 AM. IT MAY BE NOT ED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCTION SHEET WAS ALRE ADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. E. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 73) (ALSO REFER PRODUCTION SHEET ON PG. 257) & DULY SIG NED BY THE INCOME TAX OFFICER. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 20 F. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED CORN OIL 22. TILLY OIL REFINED (SR. NO. 15) A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 15 TILLY OIL REFINED 45.827 (PG. 192) 45.962 (PG. 258) (-) 0.135 B. WHILE COMPARING THE QUANTITY, YOUR GOOD OFFICE HAS COMPARED THE QUANTITY OF LOOSE STOCK (PG. 72) AS PER PHYSICAL ST OCK WITH QUANTITY AS PER LOOSE STOCK PLUS PACKED STOCK AS PE R RG 1 REGISTER. IN OTHER WORDS YOUR GOOD OFFICE HAS NOT C ONSIDERED THE QUANTITY OF PACKED STOCK AS ON 14.06.06 AT 7.00 AM. THE DETAILS OF WHICH ARE AS UNDER: (PG. 259) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) 15 KG. TINS 9 (PG. 259) 0.135 C. IN SUPPORT OF THE SAME, KINDLY FIND ENCLOSED HEREWI TH THE PRODUCTION SHEET OF 13.06.06 (PG. 259) WHICH SHOWS THE CLOSING STOCK OF REFINED TILLY OIL AS ON 13.06.06 WHICH BEC OMES THE OPENING STOCK OF 14.06.06 AT 7.00 AM. IT MAY BE NOT ED THAT AT THE TIME OF SURVEY, THE ABOVE PRODUCTION SHEET WAS ALRE ADY CONSIDERED & EXAMINED BY YOUR GOOD OFFICE. D. IT MAY ALSO BE NOTED THAT THE ABOVE SAID ITEMS OF P ACKED OIL WERE ALREADY CONSIDERED IN THE STOCK STATEMENT OF 14.06. 2006 (PG. 72) (ALSO REFER PRODUCTION SHEET ON PG. 260) & DULY SIG NED BY THE INCOME TAX OFFICER. E. HENCE, IT CAN BE SEEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF REFINED TILLY OIL 23. RE : MARGARINE STOCK (SR. NO. 17) A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 17 MARGARINE NIL 3.735 (PG. 261) (-) 3.735 ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 21 B. ACTUALLY MARGARINE STOCK HAS TO BE INCLUDED IN THE VANASPATI STOCK ONLY & AS SUCH YOUR GOOD OFFICE HAS INCLUDED THE SAME IN VANASPATI STOCK ONLY. C. HOWEVER THROUGH OVERSIGHT YOUR GOOD OFFICE HAS TRIE D TO COMPARE IT SEPARATELY AGAIN AS SEPARATE MATERIAL, WHICH IS NOT PROPER. HENCE AS SUCH THERE IS NO DIFFERENCE IN MARGARINE S TOCK ALSO. 24. RE : VANASPATI STOCK (SR. NO. 16) A. THE CHART SHOWING DIFFERENCE IN QUANTITY AS PER PHY SICAL VERIFICATION & QUANTITY AS PER RG 1 REGISTER IS P RODUCED BELOW: SR. NO. AS PER LIST DESCRIPTION OF ITEM QUANTITY AS PER PHYSICAL VERIFICATION QTY AS PER RG AS ON 14.06.06 AT 7.00 AM DIFFERENCE 16 VANASPATI STOCK 246.765 (PG. 192) 223.814 (PG. 264) (+) 22.951 B. YOUR GOOD OFFICE MAY OBSERVE THAT WHILE PREPARING T HE STATEMENT OF DIFFERENCE IN QUANTITY, THROUGH OVER SIGHT YOUR GOOD OFFICE HAS TAKEN WIP STOCK OF VANASPATI INSTEAD OF TAKING PACK ED STOCK OF VANASPATI. (SEE ITEM NO. 5 ON PAGE 72 IN THE TABLE OF WORK IN PROGRESS) C. AS A KNOWN FACT WIP STOCK IS NEVER ENTERED IN RG 1 REGISTER. D. KINDLY FIND ENCLOSED HEREWITH THE ITEM WISE BREAK U P OF VANASPATI STOCK WHICH ALMOST MATCHES WITH THE STOCK AS PER RG 1 REGISTER AS SUBMITTED TO YOUR GOOD OFFICE. (PG. 2 65) NAME OF THE PRODUCT QUANTITY QUANTITY (IN M.T.) CHOKITA 25KG BIB 540 KONFEX 25KG BIB 1227 K2000 25KG BIB 55 KITA 25KG BIB 649 KOTINA 25KG BIB 328 2799.000 69.975 KARUNA (15 KG. TIN) 475 KACHORI (15 KG TIN) 450 925.000 13.875 KARUNA 1 LTR POUCH 281 5.041 ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 22 KARUNA 500 M L POUCH 13 0.233 RACHANA K - CARE(15 KG TIN) 419 RACHANA (15 KG TIN) 112 KONFEX (15 KG TIN) 370 KOOLEX (15 KG TIN) 1198 RACHANA C - 35 (15 KG TIN) 950 KOMPLETE (15 KG TIN) 2 3051.000 45.765 K2000 15KG TIN 35 0.525 KOMPLETE 15 KG BIB 2430 K PUFF 15 KG BIB 1393 RACHANA 15 KG BIB 220 KLASSIC 15 KG BIB 260 K PUFF DELUX 15 KG BIB 965 K PUFF SUPER 15 KG BIB 297 5565.000 83.475 KREAM 14 KG BIB 50 G 40 14 KG BIB 31 81.000 1.134 DRUMS 18 3.420 TOTAL 223.443 E. HENCE IN FACT THERE WAS ONLY NOMINAL DIFFERENCE IN THE STOCK OF VANASPATI OIL. 25. A. FROM THE ABOVE SUBMISSIONS YOUR GOOD OFFICE MAY OBSERVE THAT THE ASSESSEE HAS MAINTAINED PROPER & ACCURATE DETAILS OF STOCK WHICH MATCHES WITH THE PHYSICAL STOCK VERIFIC ATION AS CARRIED OUT BY YOUR GOOD OFFICE AT THE TIME OF SURV EY CONDUCTED U/S 133A CONDUCTED ON 14.06.06. B. THE ABOVE DIFFERENCE AS SHOWN BY YOUR GOOD OFFIC E WAS MAINLY DUE TO THE REPETITION OF SOME REFINED STOCK ITEMS, IGNORING THE STOCK OF PACKED MATERIAL & DUE TO TYPOGRAPHICAL ERR OR. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 23 C. IN FACT EVEN AT THE TIME OF SURVEY, YOUR GOOD OF FICE WAS DULY SATISFIED WITH THE STOCK RECORDS AS IT WAS PERFECTL Y MATCHING WITH THE PHYSICAL STOCK VERIFICATION CARRIED OUT BY YOUR GOOD OFFICE & IN FACT THAT WAS THE REASON THAT NO FURTHER QUERRIES W ERE RAISED & QUESTIONED WERE ASKED WHILE RECORDING STATEMENT AT THE TIME OF SURVEY. 27. TO FURTHER SIMPLIFY THE SUBMISSION, KINDLY FIND ENCLOSED HEREWITH THE CHART SHOWING RECONCILIATION OF EACH I TEMS ALONG WITH THE EXPLANATION FOR THE SAME. HOPE THE ABOVE WILL SUFFICE YOUR PURPOSE. KINDLY LE T US KNOW IF YOU GOOD OFFICE SEEK ANY FURTHER CLARIFICATION ON T HIS ISSUE. 4.9 THE LEARNED AR SUBMITTED THAT THE AO DID NOT AC CEPT THE ASSESSEES SUBMISSIONS MERELY ON THE FACT THAT THE ASSESSEE COULD NOT FURNISH RECONCILIATION BEFORE THE SURVEY PARTY OTHERWISE SURVEY PARTY WOULD HAVE BEEN APPRISED OF ALL THESE PRACTIC ES OF RECORDING OF THE STOCKS OF THE ASSESSEE AND THEY WOULD NOT HA VE FOUND SUCH EXCESS AT THE END OF THE SURVEY ACTION. THE LEARNED AR SUBMITTED THAT THE AO MADE ADDITION ON THE GROUND THAT THE RE CONCILIATION FILED BY THE ASSESSEE CANNOT BE VERIFIED WITH THE F ACTUAL POSITION AS ON THE DATE OF SURVEY. THE LEARNED AR SUBMITTED THA T THE AO MADE THE ADDITION MERELY ON THE GROUND THAT THE DIFFEREN CE IN STOCK HAS BEEN POINTED OUT IN APPRAISAL REPORT GIVEN BY THE S URVEY PARTY. THE LEARNED AR REFERRING TO PAGE 194 OF ASESSSEES PAPE R BOOK, WHERE A DETAILED EXPLANATION AND RECONCILIATION HAS BEEN FI LED BEFORE THE AO VIDE LETTER DATED 26TH NOVEBER08 POINTED OUT THAT SOME ITEMS HAVE BEEN ADDED TWICE ON ACCOUNT OF SOME DIFFERENT DESCR IPTION OF ITEMS E.G. COCONUT OIL REFINED OF WHICH PHYSICAL QUANTI TY FOUND 76.313, WHICH IS ITEM NO. 7 OF THE LIST AT PAGE 199 OF ASSE SSEES PAPER BOOK AND THE SAME QUANTITY IS THERE AT ITEM NO. 23, WHIC H IS DESCRIBED AS RC NO. (REFINED AND C.N. OIL RAW) AT QUANTITY 76.313, PAPER BOOK PAGE NO. 192. SIMILAR IS THE POSITION IN RESP ECT OF S.NO. 10 PALM KERNEL OIL REFINED AND S.NO. 22 RPK (REFINE D PALM KERNEL OIL RAW). THE LEARNED AR EXPLAINED AND POINTED OUT THE REASONS OF DIFFERENCE BY RECONCILING EACH ITEM OF ADDITION AS UNDER:- 4.10 THE LEARNED AR SUBMITTED THAT THE ADDITION OF RS. 2,15,35,076/- ON ACCOUNT OF PACKED STOCK WAS UNJUS TIFIED IN AS MUCH AS IT IS KNOWN FACT THAT THE RG 1 CONTAINS I TEM WISE (OIL WISE STOCK) & NOT THE BRAND WISE STOCK. THE STOCK R ECORDED IN RG 1 WILL BE THE TOTAL OF LOOSE STOCK & PACKED STOCK. THE NOMENCLATURE ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 24 WRITTEN IN THE LIST OF PHYSICAL INVENTORY PREPARED BY THE SURVEY PARTY (PG. 73) IS THE BRAND NAME OF THE PRODUCT & N OT THE NAME OF OIL. THE SAME WAS DULY EXPLAINED BY MR. PRAKASH CHA WLA IN HIS STATEMENT RECORDED DURING THE COURSE OF SURVEY IN R EPLY TO Q. 3 (PG. 41). HE FURTHER SUBMITTED THAT OIL WISE RECONCILIAT ION OF LOOSE STOCK & PACKED STOCK WAS SUBMITTED BEFORE THE A.O. & THE RECONCILIATION WAS PREPARED BASED ON THE PAPERS IMPOUNDED / COLLEC TED BY THE SURVEY PARTY ON THE DATE OF SURVEY ITSELF I.E. ON 1 4.06.2006. HOWEVER WITHOUT POINTING OUT ANY DISCREPANCY, THE L D. A.O. PROCEEDED TO MAKE AN ADDITION & THE SAME WAS BLINDL Y CONFIRMED BY THE HON. CIT (A).THE FACT THAT THE STOCK RECORDE D IN RG 1 WILL BE THE TOTAL OF LOOSE STOCK & PACKED STOCK WAS EVID ENT FROM THE DAILY PRODUCTION SHEET ALSO WHICH ALSO WAS IMPOUNDE D BY THE SURVEY PARTY ON 14.06.2006.INSTEAD OF CONSIDERING T HE MATERIAL /EVIDENCE PRODUCED BEFORE THE AO (WHICH WAS VERY WE LL AVAILABLE WITH HIM RIGHT FROM THE DATE OF SURVEY I.E. ON 14.0 6.2006 ITSELF) & INSTEAD OF GIVING HIS INDEPENDENT FINDING, THE LD. A.O. OPTED TO RELY UPON THE APPRAISAL REPORT & TO MAKE A HUGE ADDITION OF RS. 2,15,35,076/- & THE SAME WAS CONFIRMED BY THE HON. CIT (A) WITHOUT ASSIGNING ANY REASONS. IT MAY BE NOTED THAT EVEN IN APPRAISAL REPORT, THE SURVEY PARTY HAS DULY ACCEPTE D THE STOCK OF RS. 21,91,56,285/-(CONSIST OF RAW OIL, WIP, FINISHE D GOODS, PACKED GOODS, BRANCH STOCK, STOCK GIVEN TO INDIAN VEG. OIL FOR PACKING) AS BOOK STOCK & AS REGARDS THE ALLEGED DISCREPANCY IT IS CLEARLY WRITTEN THAT THE OPPORTUNITY TO EXPLAIN THE DIFFERENCES SHO ULD BE GIVEN TO THE ASSESSEE. HOWEVER IGNORING SUCH INSTRUCTIONS, T HE A.O. OPTED TO NEGLECT THE VOLUMINOUS SUBMISSIONS OF THE APPELL ANT & MAKE THE ADDITIONS SOLELY RELYING ON THE OBSERVATIONS IN APP RAISAL REPORT & EVEN THE CIT (A) OPTED TO CONFIRM THE ADDITIONS. IN VIEW OF THE ABOVE, THE ADDITION OF RS. 2,15,35,076/- IS HIGHLY UNJUSTIFIED & MAY PLEASE BE DELETED. 4.11 THE LEARNED AR SUBMITTED THAT TOTAL ADDITION RS 2,83,08,790 (THE ADDITION OF RS. 2,49,07,144/- ON ACCOUNT OF BR ANCH STOCK AND STOCK OF RS. 34,01,646/- LYING WITH M/S INDIAN VEG. (PACKERS) SENT FOR PACKING) THE ABOVE ADDITION WAS UNJUSTIFIED IN AS MUCH AS THE STOCK AS RECORDED IN THE PHYSICAL INVENTORY STATEME NT ON ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 25 14.06.2006 WAS INDEED THE BOOK STOCK GIVEN BY THE A PPELLANT TO THE SURVEY PARTY AS THE BRANCHES WERE NEVER GOT SEARCHE D OR SURVEYED. SO THERE CAN NOT BE ANY ADDITION FOR UNDISCLOSED ST OCK. IT WAS ALREADY EXPLAINED ON THE DATE OF SURVEY ITSELF BY M R. PRAKASH CHAWLA THAT THE STOCK IS LYING AT BRANCHES & DEPOT VIDE REPLY TO QUESTION NO. 16. (PAGE 46) & VIDE REPLY TO Q. 4 MR. PRAKASH CHAWLA GAVE THE LIST OF BRANCHES & C & F AGENTS (PAGE 41) (PG. 183-184) IT IS ONLY FROM THE BOOKS OF THE ASSESSEE THE DETAILS OF STOCK TRANSFERRED TO THE CONCERN BRANCHES WAS OBTAINED & THE SAME WAS INDEPENDENTLY VERIFIED BY THE SURVEY PARTY BY COL LECTING THE STOCK DATA FROM INDIVIDUAL BRANCHES & THE SURVEY TEAM DID NOT FIND ANY INDEPENDENT EVIDENCE THAT THE STOCK AS DECLARED BY THE BRANCHES IS EXCESS. WHILE WORKING OUT MARGINS OF THE COMPANY ON 14.06.2006, BRANCH SALES WAS DULY CONSIDERED BY THE SURVEY PART Y. (PG. 179)THE ACCOUNT OF THE COMPANY IS LIABLE TO AUDIT UNDER THE COMPANIES ACT, 1961 AS ALSO UNDER S. 44 AB OF THE INCOME TAX ACT. THE LEARNED AR FURTHER SUBMITTED THAT BY TAKING ENTIRE STOCK AT BR ANCHES AS UNEXPLAINED EXCESS STOCK, THE CIT (A) REALLY FAILED TO APPRECIATE THE FACT THAT IF THAT BE THE CASE, HOW THE ASSESSEE EXE CUTED SALES FROM BRANCHES FROM 1ST APRIL06 UP TO 14TH JUNE06 & EVE N THEREAFTER. IT SOUNDS SO ILLOGICAL THAT THE ASSESSEE CAN MAKE SALE S WITHOUT REALLY HAVING ANY STOCK IN THE BOOKS. HOWEVER NEGLECTING S UCH HARD FACTS, THE LEARNED ASSESSING OFFICER PROCEEDED TO MAKE A H UGE ADDITION OF RS. 2.49 CRORE BY GIVING ILLOGICAL REASON THAT THE SAME WAS SUGGESTED BY THE SURVEY PARTY IN THE APPRAISAL REPO RT. ABOVE ALL THESE, THE LD. A.O. READILY ACCEPTS THE OPENING STO CK, PURCHASES/ TRANSFER, SALES & CLOSING STOCK & STILL OPTS TO MAK E A HUGE ADDITION OF THE STOCK OF ONE PARTICULAR DAY WHICH IS RIDICUL OUS. THE CONTENTION OF THE LEARNED ASSESSING OFFICER THAT TH E ASSESSEE COULD NOT FURNISH ANY STOCK RECORDS TO SHOW AS TO HOW TH E GOODS SENT TO BRANCHES WERE ACCOUNTED IS GROSSLY INCORRECT AS ON THE DATE OF SURVEY ITSELF I.E ON 14/06/2006 ITSELF THE ASSESSEE HAS SUBMITTED THE DETAILS OF GOODS TRANSFERRED TO THE BRANCHES TO THE SURVEY PARTY. THE ASSESSEE HAS ALSO PRODUCED THE STOCK REGISTER M AINTAINED BY THE BRANCHES BEFORE THE LEARNED ASSESSING OFFICER F OR HIS VERIFICATION. AS IT IS EVIDENT FROM ASSESSMENT ORDE R THAT THE LEARNED ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 26 ASSESSING OFFICER REALLY HAS NO REASONS TO MAKE SUC H A HUGE ADDITION EXCEPT THE REASON THAT THE SAME WAS SUGGES TED IN THE APPRAISAL REPORT. EVEN AT THE TIME OF REMAND PROCEE DINGS, THE LD. A.O. COULD NOT POINT OUT ANY DISCREPANCY NOR CONFRO NTED TO THE ASSESSEE WITH ANY FURTHER QUESTIONS & STILL HE PROC EEDED TO SUGGEST THE ADDITION MADE BY HIM IS PROPER & THE SAME MAY B E CONFIRMED. IT MAY BE NOTED THAT EVEN IN APPRAISAL REPORT, THE SURVEY PARTY HAS DULY ACCEPTED THE STOCK OF RS. 21,91,56,285/-(CONSI ST OF RAW OIL, WIP, FINISHED GOODS, PACKED GOODS, BRANCH STOCK, ST OCK GIVEN TO INDIAN VEG. OIL FOR PACKING) AS BOOK STOCK & AS REG ARDS THE ALLEGED DISCREPANCY IT IS CLEARLY WRITTEN THAT THE OPPORTUN ITY TO EXPLAIN THE DIFFERENCES SHOULD BE GIVEN TO THE ASSESSEE. HOWEVE R IGNORING SUCH INSTRUCTIONS, THE A.O. OPTED TO NEGLECT THE VOLUMIN OUS SUBMISSIONS OF THE APPELLANT & MAKE THE ADDITIONS SOLELY RELYIN G ON THE OBSERVATIONS IN APPRAISAL REPORT & EVEN THE CIT (A) OPTED TO CONFIRM THE ADDITIONS. IT WAS DULY EXPLAINED TO THE LEARNED ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS AS AL SO AT THE TIME OF REMAND PROCEEDINGS THAT RG-1 REGISTER MAINTAINED AT HEAD OFFICE (FACTORY) CONTAINS THE STOCK LYING AT FACTORY EITHE R AS RAW MATERIAL OR AS FINISHED GOODS. STOCK TRANSFERRED AT BRANCHES ARE REDUCED FROM THE STOCK REGISTER OF FACTORY & ENTERED IN THE STOCK REGISTER OF THE CONCERN BRANCH. EVIDENCE THAT STOCK WAS TRANSFE RRED TO BRANCHES WAS PRODUCED BEFORE THE AO IN ASSESSMENT A ND REMAND PROCEEDINGS. BY LETTER DT. 22.7.09, ALL EVIDENCES WERE FILED WITH THE AO IN REMAND PROCEEDINGS & THE SAME WAS AGAIN PRODU CED BEFORE THE HON. CIT (A). THE EVIDENCES THAT WERE FILED IN REMAND AND ASSESSMENT & APPEAL PROCEEDINGS & BEFORE THE HON. C IT (A) REGARDING BRANCH TRANSFER ARE AS UNDER: (A) RG-1 REGISTER SHOWING OUTWARD TRANSFERS (SALES & BRANCH TRANSFER). (B) BRANCH STOCK REGISTER SHOWING INWARD AND OUTWAR D REGISTER (FINAL SALE) BY BRANCHES. (C) ACCOUNTS OF THE APPELLANT AS ON 31.3.2006 IN AS ST. PROCEEDINGS OF ASST. YEAR 2006-07 WHERE CLOSING STO CK WAS DECLARED WHICH TO SOME EXTENT WAS STOCKS OF THE YEAR. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 27 (D) FURTHER THE DETAILS OF STOCK TRANSFER TO BRANCH ES FROM 1.6.2006 TO 13.06.2006 WERE EXTRACTED FROM THE BOOK S OF THE ASSESSEE & THE SAME WAS IMPOUNDED BY THE SURVEY PAR TY. (COPY ENCLOSED). (E) DAILY PRODUCTION SHEETS REFLECTING TRANSFER TO BRANCHES. (F) BRANCH TRANSFER INVOICES (G) COPY OF TRANSPORT RECEIPTS FOR THE GOODS TRANS FERRED TO BRANCHES (H) DECLARATION FILED BEFORE THE SALES TAX AUTHOR ITIES FOR GOODS TRANSFERRED FROM FACTORY TO BRANCHES DULY STAMPED B Y SALES TAX AUTHORITIES. (I) BILL OF TRANSPORTER, PAYMENT VOUCHER FOR PAYMEN T MADE TO TRANSPORTERS BY CHEQUE & STAMPED RECEIPT ISSUED BY TRANSPORTER FOR PAYMENTS MADE TO HIM. THE LEARNED AR SUBMITTED THAT THUS THE CIT (A) ERRE D IN HOLDING THAT STOCK BELONGING TO THE BRANCHES OF THE DAY IS EXCESS STOCK AND ERRED IN STATING THAT NO MATERIAL AND EVIDENCES WER E FILED WITH THE AO. THE LEARNED AR SUBMITTED THAT THE LEARNED ASSES SING OFFICER WITHOUT ASSIGNING ANY REASON SIMPLY TAKING SHELTER OF THE APPRAISAL REPORT PROCEEDED TO MAKE A HUGE ADDITION OF RS. 2.4 9 CRORE WHICH IS HIGHLY UNJUSTIFIED AND AGAINST THE PRINCIPLES OF NA TURAL JUSTICE. IN RESPECT OF ADDITION OF STOCK OF RS. 34,01,646/- LYING WITH M/S INDIAN VEG. (PACKERS) SENT FOR PACKING THE LEARNED AR SUBMITTED THAT THE ADDITION OF RS. 34,01,646/- FOR STOCK LYIN G WITH M/S INDIAN VEG. OIL (PACKER) IS HIGHLY UNJUSTIFIED IN A S MUCH AS STOCK RECORDED BY THE SURVEY PARTY WAS INDEED THE BOOK ST OCK GIVEN BY THE ASSESSEE TO THE SURVEY PARTY AS THE PACKER M/S INDIAN VEG. WERE NEVER GOT SEARCHED OR SURVEYED. SO THERE CANNO T BE ANY UNDISCLOSED STOCK (PG. 74). IT IS ONLY FROM THE BOO KS OF THE ASSESSEE THE DETAILS OF STOCK LYING WITH M/S INDIAN VEG. WAS OBTAINED BY THE SURVEY PARTY. THE SURVEY TEAM DID NOT FIND ANY INDE PENDENT EVIDENCE THAT THE STOCK AS DECLARED BY THE APPELLAN T AS LYING WITH M/S INDIAN VEG. IS EXCESS. IN THE STATEMENT OF SHRI PRAKASH CHAWLA ON THE DATE OF SURVEY ITSELF IT WAS STATED THAT THE STOCK ARE TRANSFERRED TO INDIAN VEG. FOR PACKING ( PAGE 46 - Q. 16).RG I REGISTER CONTAINS ALL INWARD & OUTWARD ENTRY FOR ST OCK TRANSFERRED ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 28 TO & RECEIVED FROM M/S INDIAN VEG. BY WAY OF SEPARA TE COLUMN ITSELF. (PG. 120) & THE SAID RG 1 REGISTER WAS DU LY IMPOUNDED BY THE SURVEY PARTY ON THE DATE OF SURVEY ITSELF I.E. ON 14.06.2006.SEPARATE STOCK REGISTER IS DULY MAINTAIN ED BY THE ASSESSEE FOR STOCK LYING WITH M/S INDIAN VEG. (PACK ER) WHICH WAS DULY PRODUCED BEFORE THE A.O. FOR HIS VERIFICATION (PG. 295).ALL THE EVIDENCES LIKE DELIVERY CHALLAN FOR ISSUE OF MATERI AL, DELIVERY CHALLAN ISSUED BY M/S INDIAN VEG. ETC. WAS DULY FIL ED BEFORE THE A.O. (PG. 269-285) (PG. 286-344) (PG. 349-352). HO WEVER THE HON. CIT (A) IGNORING SUCH EXHAUSTIVE ADDITION PROCEEDED TO CONFIRM THE SAID ADDITION. IT MAY BE NOTED THAT EVEN IN APPRAIS AL REPORT, THE SURVEY PARTY HAS DULY ACCEPTED THE STOCK OF RS. 21, 91,56,285/- (CONSIST OF RAW OIL, WIP, FINISHED GOODS, PACKED GO ODS, BRANCH STOCK, STOCK GIVEN TO INDIAN VEG. OIL FOR PACKING) AS BOOK STOCK & AS REGARDS THE ALLEGED DISCREPANCY IT IS CLEARLY WR ITTEN THAT THE OPPORTUNITY TO EXPLAIN THE DIFFERENCES SHOULD BE GI VEN TO THE ASSESSEE. HOWEVER IGNORING SUCH INSTRUCTIONS, THE A .O. OPTED TO NEGLECT THE VOLUMINOUS SUBMISSIONS OF THE APPELLANT & MAKE THE ADDITIONS SOLELY RELYING ON THE OBSERVATIONS IN APP RAISAL REPORT & EVEN THE CIT (A) OPTED TO CONFIRM THE ADDITIONS. IN VIEW OF THE SAME THE ADDITION OF RS. 34,01,646/- FOR STOCK LYING WIT H M/S INDIAN VEG. AS UNDISCLOSED STOCK IS HIGHLY UNJUSTIFIED & M AY PLEASE BE DELETED. 4.12 IN RESPECT OF ADDITION OF RS. 41,16,798/- BE ING DIFFERENCE OF EXCESS STOCK 33 ITEMS OF RS. 1,49,05,100/- AND DEFI CIT STOCK OF 33 ITEMS OF RS. 1,07,88,302/- THE LEARNED AR SUBMITTED THAT THE ABOVE ADDITION WAS HIGHLY UNJUSTIFIED IN AS MUCH AS THERE WERE NUMBER OF TYPOGRAPHICAL ERROR IN THE STATEMENT OF D ISCREPANCY IN 33 ITEMS AS GIVEN BY THE LD. A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ERRORS WERE POINTED OUT DURING THE COURSE OF ASSESSMENT PROCEEDING ITSELF. FOR SUN FLOWER OIL R EFINED THE QUANTITY AS PER PHYSICAL INVENTORY PREPARED BY THE SURVEY PARTY IS 111.240 M.T.(PG. 72) BUT THE A.O. WRONGLY TOOK THAT AS 11.240 M.T. (PG. 192). IT WAS POINTED OUT THAT ONE SUCH INSTANC E OF ERROR LEADS TO AN ADDITION OF AS MUCH AS RS. 45,00,000/-. HOWEV ER IGNORING ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 29 SUCH HARD FACTS, THE LD. A.O. PROCEEDED TO MAKE SUC H ADDITION. IT WAS ALSO SUBMITTED THAT THE STOCK RECORDED IN RG 1 REGISTER IS THE AGGREGATE OF BOTH I.E. LOOSE STOCK & PACKED STOCK. ITEM WISE RECONCILIATION WAS ALSO SUBMITTED ON 26.11.2008 ITS ELF & THE SAME WAS SUPPORTED BY THE PAPERS IMPOUNDED BY THE SURVEY PARTY ON THE DATE OF SURVEY ITSELF. HOWEVER IGNORING THE ENTIRE SUBMISSION, THE LD. A.O. PROCEEDED TO MAKE AN ADDITION OF RS. 2,15, 35,076/- AS UNDISCLOSED PACKED STOCK & WORKED OUT THE DEFICIENC Y INTO THE STOCK.AT MANY PLACES TAKING THE SAME ITEM TWICE WHI CH WAS NEVER APPEARING IN THE PHYSICAL INVENTORY LIST AS PREPARE D BY THE SURVEY PARTY ON 14.06.2006, THE LD. A.O. PROCEEDED TO WORK OUT A HUGE EXCESS STOCK. IN SPITE OF PROVING THE SAME BEYOND D OUBT, THE LD. A.O. PROCEEDED TO WORK OUT A HUGE EXCESS STOCK & AD DED THE SAME AS UNDISCLOSED STOCK.AT SOME PLACES THE LD. A.O. PR OCEEDED TO MAKE AN ADDITION ON THE BASIS THAT THE WIP STOCK IS NOT RECORDED IN RG 1 REGISTER IGNORING THE FACT THAT THE RG -1 RE GISTER IS MEANT ONLY FOR RAW MATERIAL & FINISHED GOODS. IT CAN NEVE R CONTAIN THE WIP STOCK.IT MAY BE NOTED THAT EVEN IN APPRAISAL RE PORT, THE SURVEY PARTY HAS DULY ACCEPTED THE STOCK OF RS. 21,91,56,2 85/- (CONSIST OF RAW OIL, WIP, FINISHED GOODS, PACKED GOODS, BRANCH STOCK, STOCK GIVEN TO INDIAN VEG. OIL FOR PACKING) AS BOOK STOCK & AS REGARDS THE ALLEGED DISCREPANCY IT IS CLEARLY WRITTEN THAT THE OPPORTUNITY TO EXPLAIN THE DIFFERENCES SHOULD BE GIVEN TO THE ASSE SSEE. HOWEVER IGNORING SUCH INSTRUCTIONS, THE A.O. OPTED TO NEGLE CT THE VOLUMINOUS SUBMISSIONS OF THE APPELLANT & MAKE THE ADDITIONS SOLELY RELYING ON THE OBSERVATIONS IN APPRAISAL REP ORT & EVEN THE CIT (A) OPTED TO CONFIRM THE ADDITIONS.IN VIEW OF T HE ABOVE, THE ADDITION OF RS. 41,16,798/- IS HIGHLY UNJUSTIFIED & MAY PLEASE BE DELETED. 4.13 IN RESPECT OF THE ADDITION OF STOCK OF RS. 18, 83,464/- OF CHEMICAL MATERIAL AS UNDISCLOSED STOCK THE LEARNED AR SUBMITTED THAT THE ABOVE ADDITION WAS HIGHLY UNJUSTIFIED IN A S MUCH ASIT IS A KNOWN FACT AS ALSO IT IS CLEARLY WRITTEN ON THE RG 1 REGISTER ITSELF THAT THE RG 1 REGISTER IS MEANT FOR MAINTAINING T HE STOCK OF RAW MATERIAL & FINISHED GOODS. IT CAN NEVER CONTAIN THE STOCK OF ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 30 CHEMICAL MATERIAL. HOWEVER IGNORING SUCH FACTS THE HON. CIT (A) PROCEEDED TO CONFIRM AN ADDITION OF RS. 18,83,464/- SEPARATE STOCK RECORDS FOR CHEMICAL MATERIAL WERE DULY MAINTAINED BY THE APPELLANT & THE SAME WAS DULY SHOWN TO THE SURVEY P ARTY, THE A.O & TO THE HON. CIT (A). HOWEVER WITHOUT POINTING OUT ANY DEFICIENCY IN IT, THE LD. A.O. PROCEEDED TO MAKE THE ADDITION & THE SAME WAS CONFIRMED BY THE HON. CIT (A).IN VIEW OF THE ABOVE, THE ADDITION OF RS. 18,83,464/- IS HIGHLY UNJUSTIFIED & MAY PLEASE BE DELETED. 4.14 THE LEARNED AR SUBMITTED THAT CIT (A) ALSO WIT HOUT APPRECIATING RECONCILIATION AND EXPLANATION FURNISH ED BY THE ASSESSEE SUSTAINED ADDITION MERELY AFTER REPRODUCI NG REMAND REPORT FILE BY THE AO AND REPLY OF THE ASSESSEE.TH E LEARNED AR SUBMITTED THAT THE RATIOS OF THE DECISIONS RELIED U PON BY THE CIT (A) IS IN RESPECT OF WHERE EXCESS STOCK WAS FOUND WHERE AS IN THE CASE OF THE ASSESSEE THERE WERE NO EXCESS STOCK THEREFOR E THOSE DECISIONS ARE DISTINGUISHABLE ON FACTS. 5. THE LEARNED DR RELIED UPON THE ORDERS OF THE REV ENUE AUTHORITIES AND SUBMITTED THAT THE AO HAS MADE THE ADDITION AFTER CONSIDERING ASSESSEES SUBMISSIONS AND APPRAISAL RE PORT OF SURVEY PARTY. HE FURTHER SUBMITTED THAT IN HIS APPRAISAL R EPORT FINAL CONCLUSION AND FINDING WAS GIVEN BY THE SURVEY PART Y. THE LEARNED DR FURTHER SUBMITTED THAT BEFORE THE CIT(A) THE AO HAS SUBMITTED THE REMAND REPORTS WHEREIN HE DEALT WITH ALL THE CO NTENTIONS OF THE ASSESSEE AND SUBMITTED HIS ARGUMENTS. THE CIT(A) CO NFIRMED THE ADDITION AFTER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE AND REMAND REPORTS OF THE ASSESSEE. THE LEARNED DR WHIL E REFERRING TO PAGE 57 TO 59 OF THE PAPER BOOK SUBMITTED THAT THE AO HAS GIVEN REASONS FOR MAKING ADDITION. THE LEARNED DR SUBMITT ED THAT THERE WAS DIFFERENCE IN PHYSICAL STOCK AND RG-I REGISTER ON THE DATE OF SURVEY. THE LEARNED DR HAS ALSO RELIED UPON THE DEC ISIONS WHICH HAVE BEEN RELIED UPON BY THE CIT(A). 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE DECISIONS C ITED. THE ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 31 ADMITTED FACTS OF THE CASE ARE THAT THE ASSESSEE MA INTAINED REGULAR BOOKS OF ACCOUNT FOLLOWING RECOGNIZED METHOD OF ACC OUNTING. THE ASSESSEE HAS SHOWN 10.22% OF G.P. FOR THE YEAR UNDE R CONSIDERATION AS AGAINST 6.78% GP OF LAST YEAR. SE ARCH AND SEIZURE ACTIONS WERE CARRIED OUT ON 14.6.2006. DURING THE C OURSE OF SURVEY, A TENTATIVE TRADING ACCOUNT FOR THE PERIOD 01.04.2 006 TO 14.06.2006 WAS PREPARED APPLYING GP RATE, WHEREIN THE CLOSING STOCK WAS WORKED OUT FOR RS. 22,18,23,787/-.THE PHY SICAL STOCK FOUND ON THE DATE OF SURVEY WAS RS. 21, 91, 56,285/ -. THE SURVEY PARTY COMPARED THE PHYSICAL STOCK FOUND WITH THE FI GURES OF RG1 REGISTER MAINTAINED BY THE ASSESSEE. SOME DISCREPAN CIES WERE NOTICED AS PER RG-1 REGISTER AND PHYSICAL STOCK INV ENTORY PREPARED AT THE TIME OF SURVEY. THE CONTENTION OF THE ASSESS EE IS THAT THE ASSESSEE HAS RECONCILED THE DISCREPANCIES ITEM-WISE . THE DETAILED RECONCILIATION WAS SUBMITTED BEFORE THE AO VIDE LET TER DATED 26TH NOVEMBER, 2008. THE AO WAS OF THE VIEW THAT THE ASS ESSEE COULD NOT RECONCILE THE DIFFERENCES BEFORE THE SURVEY PAR TY. THE RECONCILIATION FILED BY THE ASSESSEE BEFORE THE AO COULD NOT BE VERIFIED WITH THE FACTUAL POSITION AS ON THE DATE O F SURVEY. WHAT EXACTLY SUBMITTED BY THE AO BEFORE THE CIT(A) IN TH E SECOND REMAND REPORT IS REPRODUCED BELOW FROM PAGES 21 & 2 2 OF CIT(A)S ORDER:- COMMENTS ON PARA 2(A): 6. BEFORE MAKING ANY COMMENTS ON THE ABOVE PARA OR SUBSEQUENT PARAS IT IS MENTIONED THAT THE SURVEY PA RTY HAS LISTED OUT 33 ITEMS AS SHOWN IN THE APPRAISAL REPOR T ON THE BASIS OF THE COPIES OF RG1 SHEETS (35 IN OIL) PROVI DED BY THE ASSESSEE. ON THAT BASIS ONLY THE CHART (ANNEXURE 3) WAS PREPARED SHOWING HOW THE RG1 SHEETS RELATE WITH EAC H ITEM MENTIONED BY THE SURVEY PARTY FOR BRINGING OUT THE DISCREPANCIES AND THE STOCK AS PER INVENTORY OF STO CK FOUND AND PREPARED BY THE SURVEY TEAM COVERING THE STOCK OF THE SAID RG1 SHEET. FROM THE SAME IT MAY BE NOTICED THAT THE SURVEY PARTY HAS COMPARED ALL THE 35 RG1 SHEETS GIVEN TO T HEM WITH THE STOCK FOUND AND AFTER THAT ONLY THEY HAVE ARRIV ED AT THE CONCLUSION THAT THERE WAS EXCESS STOCK VALUED AT RS . 41,16,798/- (RS. 1,49,05,100 RS. 1,07,88,302/-). IN REGARD TO THE SUBMISSION FOR ITEM NO. 21 AS PER ABOVE PARA IT IS STATED THAT THE SAME REPRESENTS THE RG1 SHEET 17 MEANT FOR REFINED OIL VANASPATHI RSBO AND AS ON THE SURVE Y DATE AS PER THE RG1 SHEET THE BALANCE STOCK WAS NIL. THE AS SESSEE ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 32 CLAIMS THAT THIS IS A REPETITION OF ITEM NO. 12 OF THE A.R. THIS IS NOT ACCEPTABLE BECAUSE THE SURVEY PARTY REFERRED RG 1 SHEET NO. 24 MEANT FOR RAW OIL SOYABEAN FOR ITEM NO. 12 . HENCE BOTH THE ITEMS ARE DIFFERENT IN TERMS OF RG1 SHEETS . THE SURVEY PARTY HAS TAKEN STOCK FROM FINISHED PRODUCTS WHICH WOULD BE FITTING FOR RG1 SHEET 17. BECAUSE RG! SHEET 24 IS O F RAW OIL. FOR THE DEFICIENCY OF STOCK MENTIONED AGAINST SR.NO . 12 THE ASSESSEE SUBMIT THAT THIS IS BECAUSE THE SURVEY PAR TY DID NOT CONSIDER PACKED ITEMS. ACCORDINGLY, IT CLAIMED THAT PACKED GOODS OF ITEMS 44 AND 45 OF INVENTORY ARE THE GOODS COVERED BY THE RG1 SHEET UNDER REFERENCE OF SR.NO. 12. HERE AGAIN THERE IS STILL DIFFERENCE AS PER TABLE GIVEN BELOW. THE ASSESSEES CLAIM AGAINST THE DIFFERENCE AS PER ANNE XURE 7 IS THAT THE DISPATCHED ITEMS UPTO 4.00 PM HAS TO BE CO NSIDERED AND THE INVENTORISED GOODS ARE AS AT 4.00 PM OF THE SURVEY DATE. THE SAME IS NEW SUBMISSION NOT AVAILABLE AT THE TIME OF ASSESSMENT OR AS PER SURVEY REPORT AND CANNOT BE CO NSIDERED. FURTHER ITEM NO. 12 IS OF RAW OIL AND THE PACKED FI NISHED GOODS CANNOT MATCH WITH SAME. IT FURTHER STATED TH AT THE SURVEY PARTY HAS USED THE TERM REFINED SB OIL WHILE MAKING THE PHYSICAL INVENTORY AND HENCE THERE IS CONFUSION STOCK CONSIDERED. IT CANNOT BE ACCEPTED BECAUSE WHENEVER PHYSICAL INVENTORY OF STOCKS ARE TAKEN AT A PREMISES, ASSESS EES HELPS ARE SOUGHT TO TAKE CORRECT NAME AND SERIAL NOS. AN D DETAILS OF THE ITEMS AS PER ASSESSEES GUIDELINES ONLY SUCH IN VENTORIES ARE PREPARED ALWAYS. IN THE CASE OF THE ASSESSEE IT CANNOT BE AN EXCEPTION. IN REGARD TO THE CLAIM OF PACKED GOOD S NOT CONSIDERED FOR THE DEFICIENCIES IT MUST NOT BE DELI BERATE ON THE PART OF THE SURVEY PARTY IN THE CASE OF THE ASSESSE E AND ONLY BECAUSE THE ASSESSEE THEN WOULD NOT HAVE MADE SUCH CLAIMS. AND THAT IS THE REASON THE SURVEY PARTY NOTICED THA T THE PACKED GOODS INVENTORISED TURNED OUT TO BE EXCESS S TOCK AND OUT OF STOCK REGISTER. IT IS A FACT THAT THERE IS N O WRITTEN RECORDING OF THE SURVEY TEAM OF THE FACTS FOUND AND UNDERSTOOD DURING SURVEY ACTION WHICH WOULD HAVE SUPPORTED HOW THEY COULD REPORT THE EXCESS STOCK. HOWEVER, THE ASSESSE ES SUBMISSION CAN ALSO BE ACCEPTED ONLY AFTER REJECTIN G THE FACTS FOUND AND REPORTED BY THE SURVEY TEAM AS TOTALLY WR ONG. THE SUBMISSIONS OF THE ASSESSEE THEREFORE COULD BE AN A FTER THOUGHT TO SAVE THE TAX FACILITIES ON SUCH EXCESS S TOCK WORKED OUT. HENCE THE ADDITION MAY BE TREATED AS CORRECT M ADE. 6.1 FROM THE ABOVE, WE FIND THAT THE CASE OF THE RE VENUE IS THAT ONCE DIFFERENCE IN STOCK IS NOTICED BY THE SURVEY T EAM AT THE TIME OF SURVEY THAT IS THE FINAL FINDING AND THE ASSESSMENT IS TO MAKE ACCORDINGLY. TO EXAMINE THIS ASPECT OF THE MATTER W E WOULD LIKE TO GO THROUGH THE SCHEME OF THE ACT REGARDING SURVEY A ND ASSESSMENT. 6.2 CHAPTER XIII C PROVIDES CERTAIN POWERS TO THE R EVENUE AUTHORITIES. SECTION 132 PROVIDES THE POWER OF SEAR CH AND SEIZURE. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 33 SECTION 132A PROVIDES POWERS TO REQUISITION BOOKS O F ACCOUNT, ETC. SECTION 133 OF THE ACT PROVIDES POWER TO CALL FOR I NFORMATION. SECTION 133A PROVIDES POWER OF SURVEY. SECTION 133A STATES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, AN INCOME-TAX AUTHORITY MAY ENTER ANY PLACE WI THIN THE LIMITS OF THE AREA ASSIGNED TO HIM, OR ANY PLACE OCCUPIED BY ANY PERSON IN RESPECT OF WHOM HE EXERCISES JURISDICTION, OR ANY P LACE IN RESPECT OF WHICH HE IS AUTHORISED FOR THE PURPOSES OF THIS SEC TION BY SUCH INCOME-TAX AUTHORITY, WHO IS ASSIGNED THE AREA WITH IN WHICH SUCH PLACE IS SITUATED OR WHO EXERCISES JURISDICTION IN RESPECT OF ANY PERSON OCCUPYING SUCH PLACE, AT WHICH A BUSINESS OR PROFESSION IS CARRIED ON, WHETHER SUCH PLACE BE THE PRINCIPAL PLA CE OR NOT OF SUCH BUSINESS OR PROFESSION, AND REQUIRE ANY PROPRIETOR, EMPLOYEE OR ANY OTHER PERSON WHO MAY AT THAT TIME AND PLACE BE ATTE NDING IN ANY MANNER TO, OR HELPING IN, THE CARRYING ON OF SUCH B USINESS OR PROFESSION TO AFFORD HIM THE NECESSARY FACILITY TO INSPECT SUCH BOOKS OF ACCOUNT OR OTHER DOCUMENTS AS HE MAY REQUI RE AND WHICH MAY BE AVAILABLE AT SUCH PLACE, TO AFFORD HIM THE N ECESSARY FACILITY TO CHECK OR VERIFY THE CASH, STOCK OR OTHER VALUABL E ARTICLE OR THING WHICH MAY BE FOUND THEREIN, AND TO FURNISH SUCH INF ORMATION AS HE MAY REQUIRE AS TO ANY MATTER WHICH MAY BE USEFUL FO R, OR RELEVANT TO, ANY PROCEEDING UNDER THIS ACT. AN INCOME-TAX AU THORITY ACTING UNDER THIS SECTION MAY, IF HE SO DEEMS NECESSARY, P LACE MARKS OF IDENTIFICATION ON THE BOOKS OF ACCOUNT OR OTHER DOC UMENTS INSPECTED BY HIM AND MAKE OR CAUSE TO BE MADE EXTRA CTS OR COPIES THERE FROM, IMPOUND AND RETAIN IN HIS CUSTODY FOR S UCH PERIOD AS HE THINKS FIT ANY BOOKS OF ACCOUNT OR OTHER DOCUMEN TS INSPECTED BY HIM: MAKE AN INVENTORY OF ANY CASH, STOCK OR OTHER VALUABLE ARTICLE OR THING CHECKED OR VERIFIED BY HIM, RECORD THE STA TEMENT OF ANY PERSON WHICH MAY BE USEFUL FOR, OR RELEVANT TO, ANY PROCEEDING UNDER THIS ACT. IF A PERSON UNDER THIS SECTION IS R EQUIRED TO AFFORD FACILITY TO THE INCOME-TAX AUTHORITY TO INSPECT BOO KS OF ACCOUNT OR OTHER DOCUMENTS OR TO CHECK OR VERIFY ANY CASH, STO CK OR OTHER VALUABLE ARTICLE OR THING OR TO FURNISH ANY INFORMA TION OR TO HAVE HIS STATEMENT RECORDED EITHER REFUSES OR EVADES TO DO SO, THE INCOME-TAX AUTHORITY SHALL HAVE ALL THE POWERS UNDE R SUB-SECTION ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 34 (1) OF SECTION 131 FOR ENFORCING COMPLIANCE WITH TH E REQUIREMENT MADE. THE MAIN REASON FOR ENACTING PROVISIONS REGAR DING SURVEY IN S. 133A OF THE ACT IS THAT SURVEY REPRESENTS A COMP ARATIVELY EASY METHOD FOR DETECTION OF EVASION OF TAX. THE OBJECTI VES IN CONDUCTING SURVEY ARE TO FIND OUT- 1) WHETHER THE PERSONS CARRYING ON BUSINESS MAINTAIN R EGULAR BOOKS OF ACCOUNT OR WHETHER THEY PREPARE ACCOUNT BO OKS AT THE END OF THE YEAR FOR THE PURPOSE OF FILING THE RETUR N, 2) WHETHER THEY MAKE CORRECT ENTRIES IN THOSE BOOKS O F ACCOUNT, 3) WHETHER CASH IN HAND AND STOCK-IN-TRADE TALLY WITH THE ENTRIES IN THE ACCOUNT BOOKS, 4) WHETHER THERE ARE DOCUMENTS INDICATING UNACCOUNTED PURCHASES AND SALES ETC., AND (V) WHETHER THERE EXI ST OTHER VALUABLE ARTICLE OF THINGS CONNECTED WITH BUSINESS WHICH ARE NOT DISCLOSED IN BOOKS OF ACCOUNTS. 6.3 SURVEY OPERATIONS ARE OF ASSISTANCE IN DETECTIN G NEW ASSESSEES AND TO VERIFY, IN A BROAD WAY, THE CORREC TNESS OF RETURNS OF EXISTING ASSESSEES. SURVEY OPERATIONS ARE CARRIE D ON IN BUSINESS PREMISES ONLY AND THAT TOO DURING BUSINESS HOURS AN D DO NOT INVOLVE SEIZURE OF BOOKS OF ACCOUNT, CASH, STOCK OR OTHER VALUABLE ARTICLE OR THING. IT ONLY INVOLVES PREPARATION OF F ACTUAL REPORT OF WHAT IS SEEN BY SURVEY OFFICERS IN BUSINESS PREMISE S AND SUCH FACTUAL REPORT IS OF ASSISTANCE IN MAKING FINAL ASS ESSMENT. IN RESPECT OF SURVEYS UNDERTAKEN FOR CHECK OF ACCOUNTS , CASH AND STOCK, IT IS NOT UNCOMMON FOR THE SURVEY OFFICERS T O NOTE THAT NO BOOKS ARE MAINTAINED OR THOSE BOOKS WHICH ARE MAINT AINED ARE INCOMPLETE. THERE ARE CASH AND STOCK DIFFERENCES OR THAT THERE IS NO TIMELY RECORD OF THE TRANSACTIONS. THIS WOULD CONST ITUTE VALUABLE INFORMATION FOR THEM TO REJECT THE ACCOUNTS WHICH M AY BE PRODUCED AT THE TIME OF HEARING. UNLESS A TAXPAYER IS ABLE T O SHOW THAT THERE ARE PRIMARY RECORDS FROM WHICH RELIABLE ACCOUNTS CO ULD BE WRITTEN, THERE IS VULNERABILITY ON THE PART OF THE TAXPAYERS . SURVEY IS NOT INTENDED TO BE A SUBSTITUTE FOR ASSESSMENT IN THE S ENSE THAT THERE IS NO POWER TO MAKE SUMMARY ASSESSMENT AS IS POSSIB LE IN CONSEQUENCE OF SEARCH BY WAY OF AN ORDER UNDER SECT ION 132(5) ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 35 EARLIER AND UNDER CHAPTER XIV-B. AS THE SURVEY IS D ONE WITHOUT ANY FORMAL NOTICE AND USUALLY INVOLVES AN ELEMENT OF SU RPRISE, IT IS POSSIBLE TO KNOW THE TRUE NATURE AND EXTENT OF THE BUSINESS ACTIVITIES OF THE ASSESSEE VIS--VIS HIS RECORDS. I T MEANS THAT WHERE IT IS FOUND THAT THERE IS NO DISCREPANCY; THE FACT FOUND IN SURVEY SHOULD SERVE AS AN OPPORTUNITY TO THE TAXPAYER TO P ROVE THE CORRECTNESS OF HIS ACCOUNTS AS FOUND IN A CONTEMPOR ANEOUS CHECK. ON THE BASIS OF ABOVE DISCUSSION, IT CAN BE SUMMARI ZED THAT AN APPRAISAL REPORT PREPARED AT THE TIME OF SURVEY PAR TY IS VALUABLE INFORMATION TO REJECT BOOKS OF ACCOUNT. THE APPRAIS AL REPORT IS NOT A FINAL ASSESSMENT BUT IT IS OF ASSISTANCE IN MAKIN G ASSESSMENT. 6.4 PROVISIONS RELATED TO ASSESSMENT ARE PROVIDED I N CHAPTER XIV OF THE ACT. SECTION 143 PROVIDES THAT WHERE A RETUR N HAS BEEN MADE UNDER SECTION 139, OR IN RESPONSE TO A NOTICE UNDER SUB-SECTION (1) OF SECTION 142,IF ANY TAX OR INTEREST IS FOUND DUE ON THE BASIS OF SUCH RETURN, AFTER ADJUSTMENT OF ANY TAX DEDUCTED A T SOURCE, ANY ADVANCE TAX PAID, ANY TAX PAID ON SELF-ASSESSMENT A ND ANY AMOUNT PAID OTHERWISE BY WAY OF TAX OR INTEREST, THEN, AN INTIMATION SHALL BE SENT TO THE ASSESSEE SPECIFYING THE SUM SO PAYAB LE SECTION 142 PROVIDES INQUIRY BEFORE ASSESSMENT FOR THE PURPOSE OF MAKING AN ASSESSMENT UNDER THIS ACT. THE AO ASSUMES JURISDICT ION IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY VIRTUE OF SECTION 145 OF THE INCOME-TAX ACT RELATING TO 'METHOD OF AC COUNTING WHICH READS AS UNDER:- 145 (1) INCOME CHARGEABLE UNDER THE HEAD PROFIT S AND GAINS OF BUSINESS OR PROFESSION OR 'INCOME FROM OTHER SO URCES' SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUN TING REGULARLY EMPLOYED BY THE ASSESSEE. PROVIDED THAT IN ANY CASE WHERE THE ACCOUNTS ARE CO RRECT AND COMPLETE TO THE SATISFACTION OF THE ASSESSING OFFIC ER BUT THE METHOD EMPLOYED IS SUCH THAT, IN THE OPINION OF THE ASSESSING OFFICER, THE INCOME CANNOT PROPERLY BE DEDUCED THER E FROM, THEN THE COMPUTATION SHALL BE MADE UPON SUCH BASIS AND I N SUCH MANNER AS THE ASSESSING OFFICER MAY DETERMINE. PROVIDED FURTHER.... PROVIDED ALSO..... (2) WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 36 WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECT ION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE AS SESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVID ED IN SECTION 144. 6.5 SUB-SECTION (2) ABOVE HAS FOLLOWING INGREDIENTS : (A) AO BEING NOT SATISFIED ABOUT THE CORRECTNESS O R COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE; (B) THE VERY MEANING OF THE CORRECTNESS AND COMPLET ENESS OF THE ACCOUNTS; AND (C) MAKING OF AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. 6.6 ABOVE TWO INGREDIENTS (A) AND (B) ARE RELEVANT FOR REJECTION OF THE ACCOUNTS OF THE ASSESSEE. IF THE ASSESSING OFF ICER COMES TO THE CONCLUSION THAT THERE IS UNDER ESTIMATION OF PROFIT , HE MUST GIVE FACTS AND FIGURES IN THAT TO DEMONSTRATE THAT IMPUG NED METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDER ESTIMATION OF PROFIT AND IS THEREFORE REJECTED. OTHERWISE THE PRE SUMPTION WOULD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. 6.7 IN THE LIGHT OF ABOVE DISCUSSIONS IF WE CONSIDE RED THE FACTS OF THE CASE UNDER CONSIDERATION WE FIND THAT THE AO HA S NOT REJECTED BOOKS OF ACCOUNT .ON PERUSAL OF RECORD, WE FIND FRO M TAX AUDIT REPORT, FORM 3CD THAT THE ASSESSEE WAS MAINTAINING REGULAR BOOKS OF ACCOUNT INCLUDING MAIN CASH BOOK FOR FACTORY, BA NK BOOK, PURCHASE REGISTER, SALE REGISTER, EXPENSES REGISTER , TRAVEL BOOK, LEDGER, STOCK RECORD, DEBIT NOTE REGISTER, CREDIT N OTE REGISTER AND SALE RETURNED REGISTER. SIMILAR BOOKS OF ACCOUNT WE RE MAINTAINED FOR BRANCHES ALSO. IN FORM NO. 3CD AS PER CLAUSE 28 , THE AUDITOR IS TO FURNISH QUANTITY DETAILS OF OPENING STOCK PURCHA SED DURING THE YEAR, SALES DURING THE YEAR AND CLOSING STOCK. THE AUDITOR HAS GIVEN SUCH QUANTITY DETAILS IN ANNEXURE-XIV OF HIS REPORT . AS PER THAT SCHEDULE, CLOSING STOCK WAS 3,634.672 MTS, WHICH IS TALLIED WITH THE QUANTITY DETAILS MAINTAINED IN RG-1 REGISTER I. E. THE ASSESSEE FURNISHED COPIES OF FORM 3CD AND COPIES OF RG-1 REG ISTER AND SUMMARY THEREON, WHICH HAVE BEEN PLACED ON RECORD. DURING THE ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 37 COURSES OF SURVEY NO MATERIAL FOUND WHICH SHOW THAT THE ASSESSEE HAS SOLD GOODS OUT OF BOOKS OF ACCOUNT. THE AO MADE ADDITION AS SOME DIFFERENCES WERE FOUND IN STOCK AT THE TIME OF SURVEY. IT CANNOT BE THE MATTER OF ARGUMENTS THAT SUCH DIFFERE NCES ITSELF REPRESENTS THE INCOME OF THE ASSESSEE UNLESS IT IS CORRELATED HOW THIS DIFFERENCE OF RAW MATERIAL AND FINISHED STOCK BECAME THE INCOME OF THE ASSESSEE. THE ASSESSEE FURNISHED THE EXPLANATION AND NECESSARY RECONCILIATION FROM TIME TO TIME BEFO RE THE AO AND THE CIT(A). A DETAILED RECONCILIATION SUBMITTED TO AO VIDE ASSESSEES LETTER DATED 26TH NOVEMBER, 2008, WHICH HAS BEEN REPRODUCED ABOVE IN PARA NO.4.8 OF THIS ORDER. A PE RUSAL OF RECONCILIATION FURNISHED BY THE ASSESSEE, WE NOTICE THAT QUANTITY OF CRUDE PALM KERNEL OIL TANK NO. 8 & 11 WAS WRONGLY M ENTIONED AS 1997.080 MT INSTEAD OF 996.891 MT. THE ASSESSEE HAD FURNISHED COPY OF RG1 REGISTER, IN SUPPORT OF THAT APPARENT M ISTAKE, WHICH IS APPEARING AT PAGES 224 & 225 OF ASSESSEES PAPER BO OK. FROM THE SAID RECONCILIATION, WE FIND THAT THERE WAS APPAREN T MISTAKE IN NOTING DOWN THE FIGURES. SIMILAR IS THE POSITION IN RESPECT OF QUANTITY OF CRUDE PALM KERNEL OIL. THE DIFFERENCE ( -) 0.050 EXPLAINED BY THE ASSESSEE BY SUPPORTING EVIDENCE FROM RG-1 RE GISTER, OF WHICH COPY PLACED AT PAGES 26 & 27 OF THE ASSESSEE S PAPER BOOK. THE ASSESSEE HAS ALSO EXPLAINED COCONUT OIL RAW ITE M ABOUT QUANTITY OF DIFFERENCE (-) 6.78 BY SAYING THAT CERT AIN ITEMS HAVE BEEN LEFT OUT FOR CONSIDERING IN THE CHART. THE ASS ESSEE HAS EXPLAINED EACH ITEM OF DIFFERENCE OF 6.718. IN RES PECT OF REFINED OIL, THE SUBMISSION OF THE ASSESSEE IS THAT CERTAIN ITEM S HAVE BEEN CONSIDERED TWICE. THE ASSESSEE HAS FURNISHED THE FU LL DETAILS OF THOSE ITEMS IN ITS RECONCILIATION. IN RESPECT OF SU NFLOWER REFINED OIL VIDE SL. NO. 9, THE ASSESSEE WHILE RECONCILING THE DIFFERENCE POINTED OUT THAT DUE TO OVERSIGHT THE QUANTITY AS PER PHYSI CAL VERIFICATION WAS WRONGLY TAKEN AS 11.24 INSTEAD OF 111.240.IT AP PEARS FROM THE RECORD THAT THE AO AND CIT(A) BOTH HAVE NOT CONSIDE RED THE EXPLANATIONS AND RECONCILIATIONS FILED BY THE ASSE SSEE BECAUSE THE AO WAS OF THE VIEW THAT THAT THE ASSESSEE SHOULD HA VE EXPLAINED THESE DIFFERENCES AND THE RECONCILIATION IN THE COU RSE OF SURVEYS ITSELF. THE AO OBSERVED THAT THE RECONCILIATION FU RNISHED DID NOT ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 38 HELP TO THE ASSESSEE AS THE SAME CANNOT BE VERIFIED BY STOCK AS ON THE DATE OF SURVEY. IN OTHER WORDS IT CAN BE SAID T HAT THE AO AND CIT (A) HAVE NOT CONSIDERED THE RECOMPILATION GIVEN BY THE ASSESSEE AND IF THEY HAD CONSIDERED, IT THERE ARE NO ADVERS E NOTINGS NOTED BY THEM REGARDING ASSESSEES EXPLANATION AND RECON CILIATION. IF THE REVENUE AUTHORITIES FAILED TO CONSIDERED OR CONSIDE RED AND NOT POINTED OUT ANY ADVERSE REMARKS OR FINDING OTHERWIS E, THE ADDITION CANNOT BE SUSTAINED. AS REGARDS AOS OBSERVATION TH AT DIFFERENCE OF SOCK FOUND AT THE TIME OF SURVEY WAS THE FINAL FIND ING, IN THIS REGARDS WE MAY STATE THAT FACTS NOTED AT THE TIME OF SURVEY, THESE MAY BE VALUABLE INFORMATION FOR THE AO TO REJECT TH E ACCOUNTS. THE APPRAISAL REPORT OF SURVEY TEAM IS OF ASSISTANCE IN MAKING FINAL ASSESSMENT BUT THAT ITSELF CANNOT BECOME A FINAL AS SESSMENT. SUCH REPORT AND FACTS COLLECTED AT THE TIME OF SURVEY AR E ALWAYS SUBJECT TO EXPLANATION AND RECONCILIATION BY THE ASSESSEE W HICH CAN BE EXPLAINED EITHER AT THE TIME OF SURVEY OR AFTER THE SURVEY BEFORE THE AO AT THE TIME OF ASSESSMENT. SURVEY IS NOT INTEND ED TO BE A SUBSTITUTE FOR ASSESSMENT. WE THEREFORE DO NOT AGRE E WITH VIEW OF REVENUE THAT THE DIFFERENCES IN STOCK POINTED OUT I N APPRAISAL REPORT OF THE SURVEY PARTY ARE FINAL FOR ASSESSMENT FOR THE AO; THIS CONTENTION OF THE REVENUE IS REJECTED. 6.8 IF WE CONSIDER THE ADDITION MADE BY THE AO FROM ANOTHER ANGLE, WE FIND THAT THE TENTATIVE TRADING ACCOUNT P REPARED AT THE TIME OF SURVEY FOR THE PERIOD 01.04.2006 TO 14.06.2 006, THE QUANTIFICATION OF THE CLOSING STOCK WAS COMES TO RS . 22,18,23,787/- AS AGAINST PHYSICAL STOCK FOUND WAS RS. 21,91,56,28 5/-. WHEN THE CLOSING STOCK WAS FOUND LESS, THEN THE CLOSING STOC K WORKED OUT ON THE BASIS OF TRADING ACCOUNT APPLYING GP RATE, THE ADDITION CANNOT BE MADE UNLESS IT IS FOUND THAT THE STOCK WAS SOLD OUT OF BOOKS OF ACCOUNT. AS STATED ABOVE, IN THE CASE UNDER CONSIDE RATION, DURING THE COURSE OF SURVEY AND SEARCH, NO MATERIAL WAS FO UND THAT THE ASSESSEE HAS SOLD THE GOODS OUT OF BOOKS OF ACCOUNT . THE ASSESSEE FURNISHED A BIFURCATED TRADING ACCOUNT FOR THE PERI OD 01.04.2006 TO 14.06.2006( I.E. SEARCH ) AND SURVEY FROM 15.06.200 6 TO 31.03.2007, THE SAME IS REPRODUCED BELOW:- ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 39 PARTICULARS FROM 1.4.06 TO 14.6.06 FROM 15.6.06 TO 31.3.07 FROM 1.4.06 TO 31.3.07 PARTICULARS FROM 1.4.06 TO 14.6.06 FROM 15.6.06 TO 31.3.07 FROM 1.4.06 TO 31.3.07 TO OPENING STOCK 176932516 219156285 176932516 BY SALES 614728953 28 38692960 3453421913 TO OIL PURCHASES 559357932 2295123479 2854481411 BY CLOSING STOCK 219156285 250858847 250858847 TO SALES TAX - 122705007 122705007 TO MARGINS 97594790 452567036 550161826 833885238 3089551807 3704280760 833885238 3089551 807 3704280760 MARGIN% 15.88 15.94 15.93 6.9 ON PERUSAL OF THE ABOVE BIFURCATED TRADING ACCO UNT, WE FIND THAT THE GP SHOWN UP TO THE PERIOD OF SEARCH AND SU RVEY IS 15.88% AND GP FOR SUBSEQUENT PERIOD THE SURVEY AND SEARCH FROM 15.6.06 TO 31.03.2007 IS 15.94%. THE CALCULATION OF CONSOLI DATED GP FOR WHOLE YEAR IS 15.93%. WE MAY MENTION HERE THAT AS S TATED EARLIER THAT THE REVENUE IS NOT DISPUTED ABOUT THE OPENING STOCK, PURCHASES AND SALES BUT THEY DISPUTED ONLY ABOUT TH E CLOSING STOCK. THEY ARE ALSO NOT DISPUTING GP SHOWN FOR THE POST SURVEY PERIOD 15.6.2006 TO 31.3.2007. UNDER THESE FACTS AN D CIRCUMSTANCES IF WE ACCEPT THE REVENUES CASE, THEN , THE TRADING FOR THE PERIOD 1.4.2006 TO 14.06.2006 SHOULD BE AS UNDER:- TRADING ACCOUNT 01.04.2006 TO 14.06.2006 TO OP. STOCK 176932516 BY SALES 614728953 TO PURCHASES 559357932 BY STOCK (PHYSICAL ON 14.6.2006) 219156285 TO GROSS PROFIT G.P. RATE 15.88% 97594790 833885238 833885238 6.10 THE GROSS PROFIT SHOULD BE RS. 15,34,38,918/ -( 9,75,94,790 GROSS PROFIT AS PER THE BOOKS OF ACCOUN T PLUS THE AMOUNT OF ADDITION OF RS. 5,58,44,128/-). THE PHYSI CAL STOCK FOUND AT THE TIME OF SEARCH AND SURVEY AS ON 14.6.2006, W HICH IS CLOSING STOCK FOR THE BIFURCATED TRADING ACCOUNT WAS RS. 21 ,91,56,285/-. ON THE BASIS OF THESE FIGURES ON RECASTING TRADING ACCOUNT THE CALCULATION OF THE GP RATE COMES TO ABOUT 70%, WHIC H IS APPARENTLY AN ABNORMAL GP. SUCH GP RATE WAS NEVER SHOWN BY THE ASSESSEE NOR DOES IT APPEAR FROM THE MATERIAL AVAILABLE ON R ECORDS THAT SUCH GP RATE WAS PREVAILING IN THE MARKET IN THE LINE OF BUSINESS OF THE ASSESSEE. THE REVENUE HAS ACCEPTED THE LOWER GP RAT E RANGES FROM 15 TO 16% ROUGHLY. THIS IS A CASE OF SURVEY AND SEA RCH AND IN ABSENCE OF MATERIAL FOUND IN SEARCH AND SURVEY OPER ATIONS, SUCH ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 40 GP CALCULATION AND THE ADDITION IS A NOTIONAL ADDIT ION. IF THE AO DID NOT ACCEPT THE ASSESSEES RECONCILIATION IN S UCH A CASE, THE AO HAS TO APPLY THE PROVISIONS OF SECTION INCLUDING RE JECTION OF BOOKS U/S 145 OF THE ACT AND MAKE THE BEST JUDGMENT ASSE SSMENT APPLYING SECTION 144. AFTER REJECTING OF BOOKS OF A CCOUNT ESTIMATION OF INCOME ON THE BASIS OF PREVAILING GROSS RATE IN THE SAME LINE OF BUSINESS OR GROSS PROFIT RATE DECLARED BY THE ASSES SEE IN PAST IS A REASONABLE BASIS. IF WE EXAMINE THE CASE FROM THIS ANGLE, WE FIND THAT THE ASSESSEE HAS SHOWN A REASONABLE & ACCEPTAB LE GROSS PROFIT, THEREFORE, NO FURTHER ADDITION IS WARRANTED . IT MAY ALSO BE NOTED THAT THE LEARNED AR POINTED OUT THAT THE AO W HILE COMPLETING THE BLOCK ASSESSMENT NO SUCH ADDITION WAS MADE. 6.11 APART FROM THE ABOVE, WE FIND THAT DURING THE COURSE OF SURVEY, THE PHYSICAL STOCKS WITH THE BRANCHES WERE TAKEN ON THE BASIS OF STATEMENT FURNISHED BY THE ASSESSEE FROM I TS BRANCHES. THE PHYSICAL STOCK INVENTORY TAKEN PARTLY BY PHYSIC AL COUNTING AND PARTLY ON THE BASIS OF DETAILS GIVEN BY THE BRANCHE S CANNOT BE SAID TO BE A CORRECT METHOD OF TAKING PHYSICAL STOCK D URING THE SURVEY. UNDER THE CIRCUMSTANCES, THOUGH THE ASSESSEE HAS NO T DISPUTED INVENTORY PHYSICAL STOCK FOUND FOR RS. 21,91,56,285 /- BUT CERTAINLY THE RECONCILIATION FURNISHED BY THE ASSESSEE IS REQ UIRED TO BE CONSIDERED IN THE LIGHT OF THE FACT THAT THE STOCK OF BRANCHES WERE TAKEN ON THE BASIS OF STATEMENT GIVEN BY THE ASSESS EE FROM BRANCHES. UNDER THE CIRCUMSTANCES, IT CAN BE HELD T HAT IT IS A CASE OF SURVEY WHERE THE NORMAL PROCEDURE WAS ADOPTED FO R TAKING PHYSICAL INVENTORY OF ALL ITEMS OF STOCK THOUGH THE ASSESSEE IS NOT DISPUTED THAT METHOD ADOPTED AND TO COMPARE WITH TH E STOCK REGISTER I.E. RG-1. IF THERE IS A DIFFERENCE AND TH E SAME COULD NOT BE EXPLAINED BY THE ASSESSEE, THEN ONLY, THE ADDITION IS WARRANTED BUT IN THE CASE UNDER CONSIDERATION, AS STATED ABOVE, T HE PHYSICAL STOCK OF BRANCHES TAKEN ITSELF ON THE BASIS OF STAT EMENT SUBMITTED BY THE ASSESSEE, WHICH CANNOT BE SAID TO BE A PHYSI CAL STOCK AS PER THE PROCEDURE. THEREFORE, THE COMPARISON ITSELF IS INCORRECT. HOWEVER, THE ASSESSEE HAS EXPLAINED EACH AND EVERY ITEM OF DIFFERENCE BY RECONCILIATION. THE AO AND CIT(A) BOT H HAVE FAILED TO ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 41 POINT OUT HOW THE RECONCILIATION SUBMITTED BY THE A SSESSEE WAS INCORRECT. IT CANNOT BE THE MATTER OF ARGUMENTS THAT SUCH DIFFERENCES ITSELF CAN NOT REPRESENT THE INCOME OF THE ASSESSEE UNLESS IT IS CORRELATED HOW THIS DIFFERENCE OF RAW MATERIAL AND FINISHED STOCK BECAME THE INCOME OF THE ASSESSEE. T HE ASSESSEE ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURIN G OF EDIBLE OIL AND VANASPATHI. THIS IS A CASE OF SEARCH U/S 132 AS WELL AS SURVEY U/S 133A OF THE ACT. DURING THE COURSES OF SURVEY A ND SEARCH, SOME MATERIAL MUST FOUND SHOWING THAT THE ASSESSEE HAS SOLD THE GOODS OUT OF BOOKS OF ACCOUNT. SINCE IN THE CASE UN DER CONSIDERATION, NO SUCH MATERIAL WAS FOUND, THEREFOR E, IT CANNOT BE SAID THAT THE ASSESSEE HAS SOLD THE GOODS OUT OF BO OKS OF ACCOUNT, THEREFORE, THERE IS ANY INCOME WHICH WAS NOT RECORD ED IN THE BOOKS OF ACCOUNT. MERELY ON THE BASIS THAT AT THE TIME OF SURVEY, SOME DIFFERENCES WERE FOUND IN STOCK THAT DOES NOT MEAN THAT THERE WILL BE AN AUTOMATIC ADDITION ON ACCOUNT OF DIFFERENCES. SUCH DIFFERENCES ARE ALWAYS SUBJECT TO EXPLANATION & REC ONCILIATION. IN THE CASE UNDER CONSIDERATION, THE ASSESSEE HAS RECO NCILED THE DIFFERENCES WITH REASONS AND THE REVENUE AUTHORITIE S DID NOT POINT OUT ANYTHING CONTRARY THAT HOW THE RECONCILIATION D ONE BY THE ASSESSEE WAS INCORRECT. IN THE LIGHT OF ABOVE DISCU SSION, WE ARE OF THE CONSIDERED VIEW THAT NO ADDITION IS WARRANTED, THEREFORE, WE DELETE THE ADDITION OF RS. 5,58,44,128/-. 7. GROUND NO. 3 IS IN RESPECT OF ADDITION OF RS. 3, 28,679/-AND RS 66,675/- MADE U/S 68/69A OF THE ACT IN RESPECT O F CASH FOUND IN THE COURSE OF SURVEY AT THE TIME OF FACTORY AT H EAD OFFICE AND IN RESPECT OF CASH FOUND IN THE COURSE OF SEARCH AT RE GISTERED OFFICE. THE ADDITION MADE BY THE AO HAS BEEN CONFIRMED BY T HE CIT (A) OBSERVING THAT THE ASSESSEE DID NOT TAKEN GROUND I N THE APPEAL FILED BEFORE HIM AND ALSO THE AR WAS ON ARGUED ON T HE MATTER. IN RESPECT OF THE ADDITION OF RS 3,28,44,128/- THE CIT (A) OBSERVED THAT THE ASSESSEE FAILED ESTABLISHED UNDER WHICH C IRCUMSTANCES THE ASSESSEE KEPT CASH OF THOSE PARTIES. THERE WERE NO NEXUSES BETWEEN THE CASH FOUND AND THAT PARTIES HAVING CASH BALANCE WITH THE ASSESSEE. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 42 8. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSE SSEE FURNISHED COMPLETE RECONCILIATION OF CASH FOUND AT THE TIME O F SURVEY FOR RS. 4,01,843, WHICH IS REPRODUCED BELOW:- NAME OF THE CONCERN AMOUNT (RS.) CHAWLA BROTHERS PVT. LTD. (PROPRIETOR OF M/S KAMANI OIL INDUSTRIES) PG. NO. 540) 333,179.00 BODARAM & SONS (PG. NO. 541) 20,755.56 INDU OIL & SOAP (BHANDUP) (PG. NO. 542) 44,968.75 H.B. CHAWLA CHARITABLE TRUST (PG. NO. 543) 3,000.00 TOTAL 401,903.31 9. IT IS THE SUBMISSION OF THE ASSESSEE THAT CASH B ALANCE AS PER PETTY CASH BOOK FOUND IN THE COURSE OF SURVEY HAS N OT BEEN CONSIDERED IN THE ABOVE RECONCILIATION AS THE SAME WAS FOUND IN ORDER. THE ASSESSEE FILED COPY OF CASH BOOK OF THE RELEVANT PAGES, WHICH HAS BEEN PLACED ON RECORD. THE LEARNED AR SUB MITTED THAT THE ASSESSEE DID NOT TAKEN THE GROUND BEFORE THE CI T (A) IN RESPECT OF ADDITION OF RS. 66,675/-, THEREFORE, THIS PART O F THE GROUND IS NOT PRESSED. 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PA RTIES AND PERUSED RECORD. THE ASSESSEE FILED EXPLANATION WITH EVIDENCE, UNDER THAT CIRCUMSTANCE THE REVENUE AUTHORITIES HAV E TO GO THROUGH THOSE E EVIDENCES AND RECORD THE REASONS WH Y THEY ARE NOT ACCEPTING THE EXPLANATION FILED BY THE ASSESSEE. IN THE CASE UNDER CONSIDERATION IT IS ADMITTED FACT THAT IT WAS EXPLA INED BY THE ASSESSEE THAT CASH OF THEIR OTHER CONCERNS WERE ALS O WITH THE ASSESSEE AT THE TIME OF SEARCH. THE ASSESSEE FILES RECONCILIATION ALONG WITH COPIES OF CASH BOOKS OF THOSE CONCERNS. THERE IS NO FINDING THAT THE CASH BALANCE SHOWN IN THE CASH BOO K WAS NOT WITH THE ASSESSEE OR THE CASH BALANCES WERE USED BY THOS E CONCERNS FOR SOME OTHER PURPOSE. UNDER THE CIRCUMSTANCE SUCH EVI DENCE CANNOT BE REJECTED MERELY ON THE BASIS OF PRESUMPTION. WE THEREFORE INCLINED TO DELETE THE ADDITION, HOWEVER THE LEARNE D AR HAS NOT PRESSED THE ADDITION OF RS. 66,675/-, THEREFORE, TH E SAME IS CONFIRMED AND THE BALANCE ADDITION IS HEREBY DELETE D. ITA NO. 6380/M/09 CHAWLA BROTHERS PVT. LTD. 43 11. GROUND NO. 4 IS IN RESPECT OF CHARGING OF INTER EST U/S 234B AND 234C. CHARGING OF INTEREST U/S 234B AND 234C I S CONSEQUENTIAL IN NATURE. THE AO IS DIRECTED ACCORDI NGLY. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF MAY, 2010. SD/- SD/- (D. MANMOHAN) A.L. GEHLOT) VICEPRESIDENT ACCOUNTA NT MEMBER DATED: 4 TH JUNE, 2010. COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV
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