Mangal & Mathur Food P Ltd., Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 360/JP/2011 fu/kZkj.k o"kZ@Assessment Year : 2004-05 The A.C.I.T., cuke M/s Mangal & Mathur Food (P) Ltd. Circle-7, Jaipur. Vs. H685-A, Sitapura Industrial Area, Tonk Road, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCM 3762 B vihykFkhZ@Appellant izR;FkhZ@Respondent

izR;k{ksi.k@C.O. No. 63/JP/2011 (Arising out of vk;dj vihy la-@360/JP/2011) fu/kZkj.k o"kZ@Assessment Year : 2004-05

M/s Mangal & Mathur Food (P) Ltd. cuke The A.C.I.T., H 685-A, Sitapura Industrial Area Vs. Circle-7, Jaipur. Tonk Road, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCM 3762 B izR;k{ksid@Objector izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by: Smt. Neene Jeph. fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal

lquokbZ dh rkjh[k@ Date of Hearing : 06/01/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 03/03/2015 2 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

The appeal by revenue and cross objection by assessee arise from the

order 27/01/2011 of Ld. CIT (A)-II, Jaipur. Respective grounds are as under:-

Grounds in Revenue Appeal.

"On the facts and in the circumstances of the case, the Learned CIT(A) has erred in:-

(i) Restricting the addition to Rs. 32,66,694/- made for shortage of stock of wheat, to Rs. 35,000/- only, even though the discrepancy found in the survey were not explained in law/on facts."

(ii) Allowing the benefit of telescoping in respect of the unexplained investment in building against the addition of Rs. 7,62,833/- of the cash found short, even though this was not proved on facts."

Grounds in Cross Objection

1. The learned CIT(A) has erred in fact and in law in confirming the addition of Rs. 7,62,833/- on account of cash found short.

2. The learned CIT(A) has erred in fact and in law in confirming the addition of Rs. 2,00,729/- on account of unexplained investment in building.

3. The learned CIT(A) has erred in holding that assessee has shown the investment in P&M in excess by Rs. 2,81,099/- and thereby confirming the disallowance of depreciation of Rs. 70,724/- thereon.

4. The assessee craves right to add, amend, alter and modify any of the ground of cross objection.

3 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

2. Brief facts are that the assessee is engaged in the business of

manufacturing and sale of wheat flour. The assessee claims to have

maintained proper books of account including records about the stock of

wheat purchased, issued for processing, flour produced and sale thereof.

Quantitative details in respect thereof are claimed to be in the audit report.

3. A survey was conducted at the business premises of the assessee on

05/12/2003. During the course thereof, shortage of 1731 quintals of wheat

stock was indicated by the survey team. Statement of a Director Shri Basant

Mathur was recorded. However the explanation in this behalf was rejected.

The assessee agreed to surrender G.P. rate of 11% on short stock amounting

to Rs. 1,45,092/- which is claimed to be offered in the return of income and

taxed.

4. During the course of assessment proceedings, the AO observed that

assessee has produced 21,299 quintals of flour as per books of accounts

whereas it has consumed wheat of 19,467 quintals only. Considering the yield

of 90.41%, to produce 21,299 quintals of flour, the consumption of wheat

should be 23,855 quintal as against this consumption of wheat is 19,467

quintals only, indicating purchase of 2556 quintals of wheat (23855 - 19467)

outside the books of accounts. He further observed that in survey it was found 4 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

that 1731 quintal of wheat was recorded as goods returned back. Since no

payment is made for these purchases, it is also held to be unexplained

purchase. He accordingly considered 4287 quintals of wheat (2556 + 1731) as

unexplained expenditure and applying a rate of 762/quintal made addition of

Rs.32,66,694/-.

Rs.

Income from Business & Profession, as declared (-) 20,73,345/- Additions, as discussed above.

i) Unrecorded investment 3266694 ii) Addition on a/c of building 200729 iii) Depreciation Disallowed on P&M 70274 3537697 Less: Depreciation claimed for the year (current year loss) 1029351/- 25,08,346/- Net Taxable income 4,35,001/- R/o to Rs. 4,35,000/-.

4.1 The Ld. CIT(A) as per his findings given at Para 2.3.1 at Page 6

observed that in respect of 1731 quintals of the stock of wheat considered at

short, assessee has offered Rs.1,45,092/- for tax being G.P. rate of 11% on

Rs.13,19,022/- (1731 quintal @ Rs.762/quintal). He, therefore, deleted the

addition made by the AO in this account. In respect of addition made on

account of 2556 quintal of wheat, CIT(A) in Para 2.3.2 observed that assessee

could not explain the difference of about 35 quintals of flour found in excess 5 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

at the time of survey. He, therefore, confirmed addition of Rs.35,000/- and

deleted the addition of the balance amount.

5. Apropos the issue of shortage of cash; unexplained investment in the

building; telescoping of short cash and depreciation on plant and machinery,

learned CIT(A) decided these issues observing as under:-

"3. In ground No. 2, the appellant has disputed the finding of the A.O. in treating the cash found short (during the survey) as unexplained expenditure of the appellant. In this regard, it is seen from the assessment order that during the course of survey the cash was found at Rs. 10,356/- on physical verification, against the cash of Rs. 7,73,189/- as per the books of account. In the statements, the directors of the company stated that the remaining cash was lying at the residence of the directors. However, no supporting evidence for such claim was produced. Further, no imprest account in the name of any director was found. Therefore, the Assessing Officer treated the cash found short to the extent of Rs. 7,62,833/- (Rs. 7,73,189-Rs. 10,356) as unexplained expenditures of the assessee. However, the A.O. did not make any separate addition for the same, in view of the addition of Rs. 32,66,694/- made, as unexplained expenditure in the appellant's case, byt giving the benefit of telescoping. On the other hand, learned A.r. submitted that the addition on account of unexplained cash was made in the personal hands of both the directors i.e. of Rs. 3 lac in the case of Shri Naresh Kumar Gupta

6 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

and of Rs. 4 lacs in the case of Shri Basant Mathur, which have been deleted by the learned CIT(A)-1, Jaipur vide his order in appeal No. 156/2006-07 dated 27/11/2007 and in appeal No. 635/2006-07 dated 14/11/2007. It was argued that undisputedly the cash was available with the directors and it was unjustified on the part of the revenue to treat the same as unexplained expenditure, when two Assessing Officers were treating it as unexplained in the hands of the directors of the company. It was also pointed out that in the statement, the directors had informed the survey party that the remaining cash was lying at their residence, but thereafter, the survey party did not make any further verification. Hence, it was to be presumed that survey party had accepted the aforesaid explanation of the directors and therefore, the impugned addition was not justified. However, on consideration of the relevant facts, I do not find any merit in the aforesaid contention of learned A.R.. It is observed that there is no dispute regarding the fact that cash was found short, to the extent of Rs. 7,62,833/-, during the survey and also that no satisfactory explanation with supporting documentary evidences were produced by the appellant, to prove the claim that the remaining cash was kept at the residence of the directors. Therefore, the A.O. was justified in treating the same as unexplained expenditure of the appellant company. Hence, the said action of the learned A.O. is confirmed. Consequently, this ground of appeal is rejected."

7 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

4.3 "I have carefully considered the facts of the case and submissions of learned A.R.. However, on perusal of the relevant record, I find that the contentions of learned A.R. raised in support of these grounds of appeal, are not supported by any documentary evidence. Further, it is observed that, even if the contention of learned A.R. is accepted for argument sake, still the learned A.R. was not able to reconcile the figures of investment in the building and P&M, as per the books and as per the vouchers found during the survey. Therefore, on these facts, I find that the learned A.O. was fully justified in making the impugned depreciation disallowance of Rs. 70,274/- and also in making the impugned addition of Rs. 2,00,729/-, as unexplained investment in building and thus, the said actions of the learned A.O. are confirmed. However, considering the alternative plea of the learned A.R., the appellant is given benefit of telescoping in respect of the impugned addition of Rs. 2,00,729/- against the addition of Rs. 7,62,833/- confirmed on account of cash found short, which was treated as assessee's unexplained expenditure. Consequently, grounds N. 3 and 4 of the appeal are treated as partly allowed."

6. Aggrieved, both the parties are before us.

7. The learned counsel for the assessee contends that the AO has not

considered the purchase return of 1853 qtls. of wheat on 01-04-2003 in

arriving at the consumption of wheat at 19467 qtls. The claim of the wheat

return is clear from the following evidences:-

8 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

(i) The assessee is maintaining day to day stock register. Summary of stock

statement up to the date of survey placed at PB 26 clearly indicates that

there is purchase return of 1853 qtl of wheat.

(ii) In survey, Shri Basant Kumar in reply to Question No. 5 (PB 16) stated

that in April 2003 goods were returned which is having approximately

value of Rs. 13 lacs.

(iii) This wheat was purchased from Harish Trading Company on 31-03-

2003 for Rs. 13,27,000/- and the same was returned back on 01-04-

2003. This is supported by the copy of Harish Trading Company in the

assessee's books placed at PB 55.

In view of the above, the purchase return of 1853 qtls. of wheat was

required to be considered for arriving at the wheat issued for consumption.

7.1 The AO has wrongly taken the opening stock of wheat at 1472 instead

of 4672.62 qtl. This fact is verifiable from the opening stock statement placed

at PB 28. This is also evident from the tax audit report (PB 27) and questions

referred in the assessment order itself. Hence, the opening stock of wheat

needs to be considered at 4672.62 qtl.

7.2 If all the above mistakes are considered, the correct position of stock of

wheat and Flour works out as under:-

9 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

Particulars Wheat Remarks As per As per AO assessee Opening Stock as 4672.62 1472 In view of the explanation given on 01-04-2003 in Point No. 3 supra. Purchase till the 18906.60 18265 Difference is on account of not date of survey considering the purchases st th from1 to 4 December 23579.22 19737.00 Less: Purchase 1853 - In view of the explanation given return in point no. 2 supra. 21726.22 19737.00 Less: Issue for 21505.00 19467 The AO has taken the balancing production /sale figure Closing stock as 220.94 270 on survey as per books Physical stock as 270 270 on the date of survey

Particulars Flour Remarks As per As per AO assessee Opening Stock as 125.40 125 on 01-04-2003 Produced till the 19324.00 21299 This is only a differential figure date of survey worked out by the AO 19449.40 21424 Less: Sale 19363.30 21343 In view of the explanation given in point no. 1 supra. Closing stock as 86.10 81.25 on survey as per books Physical stock as 81.25 81.25 on the date of survey 10 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

7.3 The above chart depicts that the excess and shortage of the stock found

is nominal and may be result of counting mistake. However, no separate

addition of the same is required as assessee has already offered a sum of Rs.

1,45,092/- in the return. In view of the above, the addition of Rs. 32,66,694/-

made by the AO was uncalled for.

7.4 In respect of excess stock of wheat of 49.06 quintal, assessee has

already considered Rs.34,350 as purchase made out of cash available and

accounted for the same in the books of accounts (PB 24, Note No. 11). In

respect of flour, there is a shortage of 4.85 quintals [wrongly taken by CIT(A)

as excess stock of 35 quintals]. On this account, CIT(A) has confirmed the

addition of Rs.35,000/- which is otherwise not justified. Therefore, addition

made by the AO in respect of 2556 quintal of wheat for Rs.19,47,672/- is

otherwise not warranted.

7.5 So far as addition made by the AO in respect of 1731 quintal of wheat

for Rs.13,19,022/- is concerned, the survey party has worked out this quantity

as short stock. On such short stock, assessee has offered gross profit of

Rs.1,45,092/-, though it was explained that this difference is on account of not

considering the purchase return made in April 2013. In fact, assessee has

return 1853 quintal of wheat purchased from Harish Trading Co. on 11 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

31.03.2003 for Rs.13,27,000/- on 01.04.2003. After considering this purchase

return, there hardly remains any difference in the stock of wheat as per books

of accounts and that physically found. Still to buy peace of mind, assessee has

offered Rs.1,45,092/- in the return of income.

Ld. CIT(A) called for a remand report which was submitted by ld. AO on

8-9-2010, after considering the same and material available on record ld.

CIT(A) has rightly deleted the addition of Rs.13,19,022/- made on this

account. Order of Ld. CIT(A) on these issue is relied on.

8. Apropos revenue ground of telescoping benefit of Rs. and assessee's

cross ground no 1, it is pleaded that ld. CIT(A) failed to appreciate that plant

and machinery was installed in earlier years for which addition cannot be

made in this year. The short cash arose from the assessee and has been

declared in the hands of the directors, therefore, addition of Rs. 7,62,833/-

and his telescoping has been wrongly ordered by ld. CIT(A). Similarly additions

of Rs. 2,00,729/- on account of unexplained investment in building &

disallowance of depreciation of Rs. 70,724/- has no justification.

9. Ld. DR relied on the order of ld. AO and contends that the assessee

could not justify the retraction of survey statement; shortage in stock and 12 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

cash. Similarly unrecorded investment in plant and machinery has not been

properly explained. Ld. CIT(A) did not give cogent reasons for telescoping.

10. We have heard the rival contentions and perused the material available

on record. Ld. CIT(A) considered the assessee's explanation along with the

AO''s remand report. On consideration of entire material available on record

clear findings on facts have been given that there was clear error on the part

of AO about 20936 qtls. Till the end of Nov. 2003. It was actually consumption

which was erroneously held by AO as sale which is corroborated by director's

statement. We find no factual or legal infirmity in the order of Ld. CIT(A) in

respect addition relating to stock and production. Besides assessee has offered

additional amount of Rs. 1,45,092/- in the return of income in this behalf. In

view f entirety of facts and circumstances we uphold the order of ld. CIT(A) on

this issue, therefore, ground no. 1 of revenue is dismissed.

10.1 Apropos the remaining inter related cross grounds pertaining to short

cash, unexplained investment in Building, telescoping and depreciation, ld.

CIT(A) after considering the issues given clear findings of facts that the claim

about cash remaining at directors residence has not been substantiated.

Similarly the assessee could not reconcile the investment in Building, plant and

machinery as per books and vouchers found during the survey. During the 13 ITA 360/JP/2011 & C.O. 63/JP/2011_ ACIT Vs. Mangal & Mathur Food P. Ltd.

course of hearing before us also, these findings could not be controverted in

meaningful terms by assessee as well revenue. Consequently we uphold the

findings of ld. CIT(A) on these issue. In view thereof revenue ground no. 2

and grounds raised in assessee's CO are dismissed.

11. In the result revenue appeal as well as assessee's CO are dismissed.

Order pronounced in the open court on 03/03/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 03rd March, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The A.C.I.T., Circle-7, Jaipur.

2. izR;FkhZ@ The Respondent- M/s Mangal & Mathur Food (P) Ltd., Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr@ CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 360/JP/2011 & C.O. 63/JP/2011)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar