H.Sarker & Co., Howrah V. ACIT, Cir-47, Kolkata, Kolkata

ITA 99/KOL/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 7858 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 19-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MIRAJ D. SHAH
• Section: 133A

Judgement Text

1 ITA NO. 99/KOL/2017 H. SARKAR & CO, AY 2013-14 , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 99/KOL/2017 ASSESSMENT YEAR: 2013-14 H. SARKER & CO. (PAN: AABFH6378K) VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-47, KOLKATA APPELLANT RESPONDENT DATE OF HEARING 18.09.2018 DATE OF PRONOUNCEMENT 27.09.2018 FOR THE APPELLANT SHRI MIRAJ D. SHAH, FCA FOR THE RESPONDENT SHRI SANJIT KUMAR DAS, ADDL. CIT , SR. DR ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST TH E ORDER OF LD. CIT(A)-14, KOLKATA DATED 31.10.2016 FOR AY 2013-14. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.5,74,100/- AND RS.3,28,380/- ON ACCOUNT OF ST OCK DISCREPANCY AS PER THE SURVEYOR REPORT. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON BUSINESS OF MANUFACTURING OF SLUICE VALVE AND OTHER VALVE ITEMS . A SURVEY U/S. 133A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WA S CONDUCTED AT THE ASSESSEES FACTORY CUM BUSINESS PREMISES AT HOWRAH ON 05.02.2013 AND THE A O OBSERVED THAT AS PER BOOKS OF ACCOUNT IT WAS SHOWN STOCK OF RS.16,69,120/-. HOWE VER, THE PHYSICAL STOCK FOUND AT RS.1,04,83,654/-, THEREFORE, DISCREPANCY IN THE STO CK, ACCORDING TO AO WAS TO THE TUNE OF RS.88,14,534/-. THE AO ASKED THE ASSESSEE TO RECON CILE. PURSUANT TO WHICH, ASSESSEE 2 ITA NO. 99/KOL/2017 H. SARKAR & CO, AY 2013-14 PRODUCED ITS RECONCILIATION ALONG WITH THE BILLS OF THE SUPPLIERS WHICH COULD NOT BE ENTERED IN THE BOOKS THOUGH THE FACT WAS THAT THE BILLS PER TAINING TO THE SAME WERE AVAILABLE AT THE TIME OF SURVEY. EVEN THOUGH THE ASSESSEE CONTENDED BEFORE THE AO THAT THE DISCREPANCY DETECTED IN THE FINISHED GOODS AND SEMI FINISHED GO ODS STOCK VALUATION CAN BE EXPLAINED BY WAY OF SUPPORTING DOCUMENTS, INVOICES AND GOODS MOV EMENT CHALLANS, THE AO DID NOT ACCEPT THE SAME, THEREFORE, HE CAME TO THE CONCLUSI ON THAT THE TOTAL STOCK DISCREPANCY WAS TO THE TUNE OF RS.56,57,332/- WHICH WAS ADDED TO THE I NCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO GRANT RELIEF OF RS.47,54,852/- ( RS.5,04,250 + RS.11,57,618 + RS.30 ,92,984/-) HOWEVER, SUSTAINED THE ADDITION OF RS.5,74,100/- AND RS.3,28,380/- TOTALLI NG RS.9,02,480/- AGAINST WHICH THE ASSESSEE IS BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE LD. CIT(A) HAS GIVEN A RELI EF OF RS.47,54,852/- WHICH WERE ADDED BY THE AO ON ACCOUNT OF DISCREPANCY IN STOCK (EXCESS S TOCK FOUND DURING SURVEY). WE NOTE THAT NO APPEAL HAS BEEN PREFERRED BY THE REVENUE AG AINST THE PARTIAL RELIEF/ DELETION ORDERED BY THE LD. CIT(A). OUR ATTENTION WAS DRAWN BY THE LD. AR TO THE FINDING OF FACT OF THE LD. CIT(A) THAT THE SURVEY PARTY DID NOT CONDUCT ANY PH YSICAL INVENTORY PROPERLY AND HAS DONE ONLY ROUGH ESTIMATE OF THE STOCK AND HAS NOT BOTHE RED TO PHYSICALLY ASSESS THE CORRECT STOCK POSITION. THUS, THIS FINDING OF FACT MADE BY THE L D. CIT(A) THAT THE SURVEY TEAM HAD ROUGHLY ESTIMATED THE STOCK DISCREPANCY HAS CRYSTA LLISED. IT HAS TO BE KEPT IN MIND THAT WHEN THE SURVEY TEAM ALLEGES THAT THERE IS STOCK DI SCREPANCY AT THE TIME OF SURVEY VIS--VIS THE STOCK SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACC OUNT, IT IS THE DUTY OF THE SURVEY TEAM TO PHYSICALLY VERIFY THE STOCK AND THEN ONLY IT CAN AL LEGE THAT THERE IS IN FACT DISCREPANCY IN THE STOCK (EXCESS STOCK). WE NOTE THAT THE STEEL MATER IAL IN THE ASSESSEES PREMISES WAS TO THE TUNE OF 47.36 TONS WHICH REQUIRES HIGH INTENSITY LA BOUR AND EQUIPMENTS TO WEIGH THE RAW MATERIAL OF SUCH A HUGE QUANTITY. WE NOTE THAT THE PARTNERS AT THE TIME OF SURVEY HAD OBJECTED TO THE MANNER OF ESTIMATION INDULGED BY TH E SURVEY TEAM WITHOUT ACTUALLY WEIGHING THE STOCK USING MACHINES, HOWEVER, THE SURVEY TEAM DID NOT BOTHER. THEREFORE, THE ACTION OF THE SURVEY TEAM TO ALLEGE STOCK DISCREPANCY BY ROUG HLY ESTIMATING THE STOCK OF THE ASSESSEE, WITHOUT PHYSICAL VERIFICATION OF STOCK CANNOT BE CO UNTENANCED AND SO ADDITION ON ACCOUNT OF 3 ITA NO. 99/KOL/2017 H. SARKAR & CO, AY 2013-14 EXCESS STOCK FOUND DURING SURVEY WAS WARRANTED. IN A SIMILAR CASE, THE HONBLE HIGH COURT IN THE CASE OF CIT VS. M/S. BALAJI WIRE P. LTD. (20 08) 304 ITR 393 (DEL), THE HONBLE HIGH COURT IN A SIMILAR CASE HAS ANSWERED THE QUESTION F RAMED BEFORE IT IN FAVOUR OF THE ASSESSEE AND UPHELD THE ORDER OF THE TRIBUNAL WHEREIN IN SIM ILAR FACTS IT WAS HELD AS UNDER: 16. THE SECOND QUESTION URGED BEFORE THE TRIBUNAL AND BEFORE US RELATES TO EXCESS STOCK BEING FOUND DURING THE COURSE OF THE SEARCH. THE AS SESSEE IS ENGAGED IN THE MANUFACTURE OF MILD STEEL GALVANIZED IRON WIRES. THE WIRES ARE STA CKED IN BUNDLES AND THEY APPARENTLY RUN INTO THOUSANDS OF BUNDLES. THE SEARCH PARTY DID NOT PHYSICALLY COUNT THE BUNDLES (AS IT WAS NOT POSSIBLE) BUT TOOK A VISUAL ESTIMATE. THERE WAS ALS O NO ACTUAL WEIGHMENT OF THE GOODS AND THE WEIGHT OF THE STOCK WAS TAKEN ON AN ESTIMATE BASIS. AS A RESULT OF THIS EXERCISE, IT WAS FOUND THAT THERE WAS A DISCREPANCY IN THE INVENTORY AS SH OWN IN THE BOOKS AND THE INVENTORY AS FOUND DURING THE COURSE OF THE SEARCH PROCEEDINGS. 17. THE ASSESSEE SOUGHT TO EXPLAIN THIS AND CONTEND ED THAT MAKING AN ESTIMATE OF THE NUMBER OF BUNDLES AND ESTIMATING THE WEIGHT OF THE GOODS V ISUALLY IS TOTALLY INADEQUATE. IT WAS CONTENDED BY THE ASSESSEE THAT DIFFERENT BUNDLES HA VE A DIFFERENT WEIGHT AND IT CANNOT BE SAID WITH ANY DEGREE OF CERTAINTY THAT THE AVERAGE WEIGH T OF THE GOODS WAS 65 KG PER BUNDLE. THAT THE ENTIRE EXERCISE WAS AN ESTIMATE IS CONFIRMED BY THE CIT(A) WHO ARRIVED AT AN AVERAGE WEIGHT AT 60 KG PER BUNDLE. SIMILARLY, IN RESPECT O F THE FINE WIRE PRODUCTS, THE ASSESSING OFFICER TOOK THE AVERAGE WEIGHT AT 20 KG PER BUNDLE AND THIS WAS REDUCED BY THE CIT (A) TO 16 KG PER BUNDLE. THIS FACT IS BEING MENTIONED ONLY TO SHOW THAT BOTH THE ASSESSING OFFICER AS WELL AS THE CIT(A) MADE A GUESS WITH REGARD TO THE AVERAGE WEIGHT OF EACH BUNDLE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) TOOK INTO C ONSIDERATION THE FACT THAT THE EMPLOYEES OF THE ASSESSEE ACCOMPANYING THE SEARCH PARTY DID NOT RAISE ANY OBJECTION WHEN THE ESTIMATES WERE MADE AND IN FACT THEY SIGNED THE PANCHNAMA IND ICATING THE NUMBER OF BUNDLES AND THE AVERAGE WEIGHT. 18. THE TRIBUNAL CAME TO THE CONCLUSION, WITH WHICH WE AGREE, THAT IT WOULD HAVE BEEN APPROPRIATE IF THE NUMBER OF BUNDLES AND THE AVERAG E WEIGHT WAS WORKED OUT ON SOME EMPIRICAL BASIS RATHER THAN THROUGH MERE GUESS WORK . IT APPEARS THAT DURING THE SEARCH, THE NUMBER OF BUNDLES AND WEIGHT ESTIMATE IN RESPECT OF HALF A DOZEN BUSINESS CONCERNS WERE MADE WITHIN A FEW HOURS. THE SEARCH PARTY EITHER DI D NOT HAVE THE NECESSARY TIME OR DID NOT HAVE THE NECESSARY EXPERTISE TO CORRECTLY ASSESS TH E STOCK POSITION. A SHORT CUT APPEARS TO HAVE BEEN TAKEN BY THE SEARCH PARTY WHICH CAME TO A CERT AIN CONCLUSION ON AN ESTIMATE BASIS. IN LAW, AS IN LIFE, A SHORT CUT IS OFTEN A WRONG CUT. 19. THE MERE FACT THAT SOME EMPLOYEES OF THE ASSESS EE SIGNED THE PANCHNAMA DOES NOT MEAN THAT THEY CERTIFIED THE CORRECTNESS OF THE NUMBER O F BUNDLES OR THE AVERAGE WEIGHT OF EACH BUNDLE. THEY ONLY CERTIFIED THAT THEY WERE WITNESSE S TO THE PROCEEDINGS. WHAT CONCLUSIONS HAVE TO BE DRAWN FROM THE PANCHNAMA IS OF NO CONCER N TO THOSE EMPLOYEES. 20. OF COURSE, THE BEST METHOD OF DETERMINING THE N UMBER OF BUNDLES AND THEIR AVERAGE WEIGHT WOULD BE TO ACTUALLY COUNT THE BUNDLES AND USE MACH INES/CRANES FOR WEIGHING EACH BUNDLE. THIS IS NO DOUBT A TEDIOUS EXERCISE BUT WHERE A LIA BILITY IS SOUGHT TO BE FOISTED UPON AN ASSESSEE, THE REVENUE HAS TO BE A LITTLE MORE SERIO US WHILE EXERCISING POWERS CONFERRED UPON IT UNDER THE ACT. MERE GUESS WORK OR AN ESTIMATE CANNO T BE AN ADEQUATE SUBSTITUTE FOR A SCIENTIFIC INVESTIGATION OR CARRYING OUT SOME EMPIR ICAL STUDY. THE OFFICERS WHO CONDUCTED THE SEARCH DID NOT WANT TO TAKE THE NECESSARY TROUBLE W HICH, OF COURSE, WOULD HAVE BEEN TIME CONSUMING, BUT THE IMPACT OF MAKING A GUESSTIMATE C AN BE QUITE DAMAGING IN SO FAR AS THE ASSESSEE IS CONCERNED. THE ASSESSEE CANNOT BE MADE TO SUFFER THE CONSEQUENCES OF LETHARGY ON THE PART OF THE OFFICERS OF THE REVENUE. ' 4 ITA NO. 99/KOL/2017 H. SARKAR & CO, AY 2013-14 21. UNDER THESE CIRCUMSTANCES, WE ARE OF THE OPINIO N THAT THE TRIBUNAL RIGHTLY CAME TO THE CONCLUSION THAT THE ALLEGED EXCESS STOCK CALCULATED BY THE REVENUE NEEDS TO BE DELETED. IT IS, OF COURSE, NOT POSSIBLE TODAY TO RE-DETERMINE THE STOC K SO THE QUESTION OF ANY REMAND DOES NOT ARISE. 5. IN THE PRESENT CASE ALSO THE CONTENTION/OBJECTIO N OF THE ASSESSEES PARTNER AT THE TIME OF SURVEY THAT THE ROUGH ESTIMATE MADE IN RESPECT O F THE STOCK IS NOT CORRECT AND THE FINDING OF FACT MADE BY THE LD. CIT(A) THAT THE SURVEY TEA M RESORTED TO ROUGH ESTIMATE OF THE STOCK IN THE PREMISE OF THE ASSESSEE SINCE HAS CRYSTALISE D BECAUSE THE REVENUE HAS NOT CHALLENGED THIS FACTUAL FINDING, THE ALLEGATION OF AO THAT THE RE WAS DISCREPANCY OF STOCK WHEN SURVEY WAS CONDUCTED AT THE PREMISE OF THE ASSESSEE CANNOT BE ACCEPTED AND NO ADDITION IS LEGALLY TENABLE ON THE BASIS OF EXCESS STOCK FOUND AT THE T IME OF SURVEY AS HELD BY THE HONBLE HIGH COURT OF DELHI IN M/S. BALAJI WIRE P. LTD. (SUPRA). THEREFORE, WE ARE INCLINED TO DELETE THE ADDITION OF RS.9,02,480/- ( RS.5,74,100/- AND RS.3, 28,380/-). 6. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 27TH SEPT EMBER, 2018. SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27TH SEPTEMBER, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT M/S. H. SARKER & CO., BALTIKURI, P.O . BAKULTALA, HOWRAH- 711113 2 RESPONDENT ACIT, CIRCLE-47, KOLKATA 3. 4. 5. CIT(A)-14, KOLKATA CIT, KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY