Indian Tanning Industries (P) Ltd., ... vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA [Before Shri P. K. Bansal, AM & Shri Mahavir Singh, JM]

I.T.A No.326/Kol/2012 Assessment Year: 2008-09 Income Tax Officer, Vs. Indian Tanning Industries (P) Ltd. Ward-11[1] Kolkata-69 44, Matheswartala Road, China Town Kol-46 (PAN: AAACI 6948Q) (Appellant) (Respondent)

Date of hearing: 12.05.2015 Date of pronouncement: 21.05.2015

For the Appellant: Shri P.B. Pramanik, JCIT For the Respondent: None

ORDER

Per Shri Mahavir Singh, JM:

This appeal by Revenue is arising out of order of CIT(A)-XIX, Kolkata in appeal No. 53/CIT(A)-XIX/ITO,Wd.11(1)/Kol./11-12 dated 26.12.2011. Assessment was framed by ITO Ward-11(1), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2008-09 vide his order dated 31.12.2010.

2. Only issue in this appeal of revenue is against the order of CIT(A) in deleting the addition made by the Assessing Officer in respect to suppress value of stock. For this, Revenue raised following two grounds:-

"1) Whether on the facts and in the circumstances of the case, Ld. CIT(A) was correct in deleting the suppressed stock valuing Rs.19,62,378/- found during the course of survey u/s. 133A and confirmed by the authorized representative during the course of hearing.

2) Whether on the facts and in the circumstances of the case, Ld. CIT(A)-XIX, Kolkata was justified in deleting the addition made by the AO after examining various documents filed by the assessee which were never produced before the AO."

2 ITA No.326/K/2012 Indian Tanning Inds. (P) Ltd. AY 2008-09

3. Brief facts leading to the above issue are that the assessee filed its return of income for the relevant AY 2008-09 on 30.09.2008. The AO completed assessment u/s 143(3) of the Act and made addition of undisclosed stock at Rs. 21,65,028/-. The assessee contested before CIT(A) addition in respect to recording of physical stock of finished leather on an estimated basis at 1.30 lakh sft. at the time of survey proceedings and making an addition of Rs.18,76,074/- on account of excess stock of finished leather of cow/buffalo. A survey action u/s. 133A of the Act was conducted at the business premises of the assessee on 27.02.2008. During the course of survey the physical inventory of the stock was prepared. According to AO there was huge discrepancy in the valuation of stock. The assessee has mainly maintained its accounts on computer. Certain books of account were impounded in the course of survey proceedings. According to the AO, at the time of assessment proceedings the assessee was asked to explain the discrepancy in the valuation of closing stock as per books of account vis-à-vis physical inventory prepared at the time of survey. In response, the assessee filed a submission along with details of stock. The AO has further mentioned that the submission of the assessee was examined and considered unacceptable for the reason that there was quantity-wise and value-wise difference in the stock as on 27.02.2008. It is revealed that there was discrepancy in the stock of cow hides leather, goat skin, Mathani and scrap etc. According to AO there was excess stock of finished leather of cow/buffalo at 867 pieces measuring 26031 sft. valued at Rs.18,76,074/-, excess stock of goat skin of 1765 pcs. valued at Rs.1,94,150/-, excess stock of Mathani at 3895 pcs. valued at Rs.86,304/- and excess stock of scrap of 5 lots valued at Rs.8,500/-. In this manner, according to the AO, there was excess stock of Rs.21,65,028/- and the assessee-company could not offer a satisfactory reply in this regard. Hence, the AO made the addition of aforesaid amount to the total income of the assessee-company. Aggrieved, assessee filed appeal before CIT(A).

4. The CIT(A) after considering submissions of the assessee, deleted the addition of undisclosed stock by observing as under:-

3 ITA No.326/K/2012 Indian Tanning Inds. (P) Ltd. AY 2008-09

"(4.2) I have considered the submission of the appellant and perused the assessment order. I have also gone through the assessment record and survey folder containing the inventory of the stock made in the course of survey action as well as the statement recorded by the authorized officer. On perusal of inventory of finished stock it is observed that the survey team had prepared the inventory in the following manner:

"Inventory of stock found in the office premises of Indian Tanning Industries Pvt. Ltd. at 44, Matheswartalla Road, Kol-46 (2nd floor) During the course of survey operation u/s 133A On 27/2/08.

Leather (finished) Cow/sheep/Split - 1,30,000 sq. ft."

From the perusal of inventory prepared by the survey team, it is apparent that the inventory was prepared in a casual manner without specifying the actual stock of finished leather. Further, in the said inventory, no value has been assigned to the stock of 1,30,000 sq. ft. Subsequently, the resultant value assigned to aforesaid stock of 1,30,000 sq. ft was only Rs.4,57,300/-. On verification of assessment records it is observed that in the course of assessment proceedings the appellant has provided the reconciliation statements of different categories of stock found during the course of survey. The reconciliation provided for the finished cow leather as on 27/2/2008 was as under:

Finished Cow Leather:

As per survey books 191-80.25 sq. ft

Less: Sales bills made but not entered in books as on 27.2.2008:

Name of the Bill No. Qty. in Party Date sq.ft. J.C. 515 138615 International 20.2.08 Ltd. Eastern General 531 62.75 Industries Ltd. 26.2.08 J.C. 534 54018 International 27.2.08 Ltd. Vinit Gloves 535 6999.50 Mfg. Pvt. Ltd. 27.2.08 199695.25 Less: Purchased of Cow finished Leather, but bill not recd.: Name of the Bill no. Party Date Kauser Traders 2 34,646.00 165049.25 12.2.08 26,031.00 sft

From perusal of above-mentioned reconciliation of cow finished leather as per books of account, it is apparent that as on the date of survey, i.e, 27/2/2008, the stock of finished cow leather was 26,031 sq ft. The AO has treated the aforesaid 4 ITA No.326/K/2012 Indian Tanning Inds. (P) Ltd. AY 2008-09

book stock as on 27/2/2008 as excess stock and added to the income of the appellant company. ON careful consideration of the facts, I find force in the submission of the appellant that in the course of survey proceedings, the stock of finished leather was taken on estimated basis and that stock of finished cow leather at 26,031 sq. ft. Which has been added to the income of the appellant as excess stock, was actually the book stock as on the date of survey. No addition on account of book stock could be made treating the same as excess stock. On perusal of assessment records it is also observed that in the course of assessment proceedings, the appellant-company has provided details of leather stock summary for the period ended on 27/2/2008. As per the said summary, there was finished leather of cow/ox/buffalo at 26,031 sq. ft. And finished leather of goat/sheep at 85,027 sq. ft. In the assessment order, the AO has not men tined as to how he has considered 26,031 sq. ft. of finished leather as excess stock and what was the basis of his calculation. In view of above, it is to be held that the AO was not justified in making the addition of Rs.18,26,074/- on account of excess stock of finished leather, whereas as per records there was no such excess stock and the addition made by the AO was actually the quantity of book stock as on the date of survey. Therefore, the AO is directed to delete the addition of Rs.18,76,074/-. The ground no. 2 and 3 are allowed."

Aggrieved, revenue preferred second appeal before tribunal.

5. We have heard Ld, Sr. DR and gone through facts and circumstances. We find that at the time of survey proceedings, the survey team had prepared the inventory of various chemicals, raw hides, semi-finished goods and finished goods found at the business premises of the assessee-company. The survey team had prepared inventory of finished leather on an estimated basis at 1.30 lakh sq.ft. without taking the actual measurement of various types of finished leather. From the inventory of finished leather prepared as on 27.02.2008, it may be observed that the survey team has mentioned as "leather (finished), cow/sheep/split 1.30 lakh sq. ft.". In the said inventory no value to the said finished leather was assigned by the survey party and they have not recorded the exact physical stock of finished leather of cow or sheep or buffalo or the stock of split. The survey team had valued the physical stock at Rs.4,95,56,454/- which consists of stock of chemicals at Rs.71,93,747/-, stock of semi-finished cow leather of 14,855 pcs. at Rs.94,40,352/-. Since the survey team arrived on total value of physical stock at Rs.4,95,56,454/-, the balance value (excluding the value of chemicals, semi-finished leather of cow and goat as mentioned above of Rs.4,57,300/- was assumed to be of finished leather 5 ITA No.326/K/2012 Indian Tanning Inds. (P) Ltd. AY 2008-09

measured by them at 1.30 lakh sq. ft. From above, it is clear that the survey team has neither taken the exact measurement of finished leather nor they have taken the correct value of the finished leather. The survey team considered the value of the stock as per the books of account at Rs.6,83,64,704/- and assumed that there was substantial difference in the quantity and value of the stock as per books of accounts vis-à-vis physical stock. At the time of survey, the statement of the Director of the assessee-company was recorded by the survey team and it was explained to them that there was certain material which has been sent for job work and not physically present in the business premises. The survey team was also told that a reconciliation of the stock would be submitted before them. Subsequently, the assess-company had filed the reconciliation statement after the date of survey as well as in the course of assessment proceedings. It is contended by the assessee that in the course of assessment proceedings and submitted before the AO that as far as the finished leather of cow/buffalo is concerned as on the date of survey, as per the books of account there was stock of 1,91,080 sq. ft.

However, as explained at the time of survey, the books of account were not complete and certain purchases and sales remained to be entered in the books of account. At the time of assessment proceedings the reconciliation statement of finished leather of cow/buffalo was submitted before the AO wherein it was explained that as on the date of survey, the stock of finished leather of cow/buffalo as per books was 26,031 sq. ft. As per the books of account found as on the date of survey, the stock of finished cow leather was shown at 1,91,080 sq. ft However, the purchases of 34,646 sq. ft. and sales of 1,99,695 sq. ft. remained to be entered in the books of account. Considering the aforesaid purchase and sales, the actual book stock as n the date of survey was 26,031 sq. ft. But in the assessment order, the AO has treated stock of 26,031 sq. ft. of finished cow leather as excess stock which was added by him to the total income of the assessee-company and valued by him at Rs.18,26,074/-. We find from the facts of the case that there was no excess stock of finished cow leather and what has been added by the AO in the assessment order, is the actual book stock of finished cow leather as on the date of survey.

From the above facts it is clear that at the time 6 ITA No.326/K/2012 Indian Tanning Inds. (P) Ltd. AY 2008-09

of assessment proceedings when reconciliation statement was filed before the AO, in support of its contention that certain purchase and sales made prior to the date of survey remained to be entered in the books of account, the assessee-company furnished copies of all such purchase and sales bills. The AO has accepted the reconciliation statement furnished by the assessee and also accepted the purchase and sales bills filed before him. However, arbitrarily he has treated the book stock of cow finished leather at 26,031 sq. ft as o the date of survey as excess stock and wrongly added to the income of the assessee-company. In view of above facts, we are of the view that there was no excess stock of finished cow leather of 26,031 sq. ft and it was the quantity of actual book stock as on the date of survey and hence the CIT(A) has rightly directed to delete the addition of Rs.18,76,074/-. We confirm the same.

6. In the result, appeal of Revenue is dismissed.

7. Order is pronounced in the open court on 21st May, 2015.

Sd/- Sd/- (P. K. Bansal) (Mahavir Singh) Accountant Member Judicial Member

Dated : 21st May, 2015

*Dkp/P.S

Copy of the order forwarded to:

1. APPELLANT - ITO, Ward-11[1], P-7. Chowringhee Square, 6th Floor, Kolkata-69 2 Respondent - M/s Indian Tanning Industries Pvt. Ltd., 44, Matheswartala Road, China Town, Kolkata-46

3. The CIT(A), Kolkata

4. CIT, Kolkata

5. DR, Kolkata Benches, Kolkata

/True Copy, By order,

Asstt. Registrar.