Umiya Industries Pvt.Ltd.,, ... vs Department Of Income Tax

Before S/Shri N. S. Saini, A.M. & S. S. Godara, J.M.

ITA No.2749/Ahd/2012 Asst. Year 2008-09

Asstt. CIT, Sabarkantha Circle, Vs Umiya Industries Ltd., Himatnagar At -Dolgadh, PO- Vaktapur, Himatnagar. (Appellant) (Respondent) PA No. AAACU 6788Q

Appellant by Shri Dinesh Singh, Sr. DR Respondent by Shri Tushar Hamani, AR

Date of hearing: 19.6.2015 Date of pronouncement: 25/06/2015

ORDER

PER N. S. SAINI, ACCOUNTANT MEMBER.

This is an appeal filed by the Revenue against the order of

CIT(A)VIII, Ahmedabad dated 28.09.2012. The sole ground of

appeal taken by the Revenue is that the CIT(A) erred in deleting the

disallowance made by the AO on account of excess stock of cotton

bales of Rs.44,28,368/- and excess cotton seeds of Rs.13,92,287/-

without appreciating the statement recorded under section 131 of the 2 ITA NO.2749/Ahd/2012 Asst. Year_2008-09 Income-tax Act during the course of survey and Director agreed with

the working of sock taken by survey team.

2. Brief facts of the case are that a survey was conducted in the

business premises of the assessee on 4.3.2008 and according to the

survey party quantity of physical stock of cotton bales in the premises

was 6,13,980 kgs. and as per books of account it was 5,34,902 kgs

and thus there was a difference of 79078 kg. Considering Rs.56/- per

kg. on difference weight of cotton bales, value was worked out at

Rs.44,28,368/-. Similarly physical stock of cotton seeds in the

premises was found to be 9,83,826 kgs and the stock as per books of

account was 8,72,451 kgs and the difference comes to 1,11,375 kg.

Considering the rate at Rs.12.50 per kg. on difference weight of

cotton seeds, value was worked out at Rs.13,92,187/-. It was

submitted before the AO that after verification of cotton bales sales

register it was found that the weight of each cotton bales was not

coming exactly 162 kg. and therefore without taking weight of each

cotton bales it was not possible to come to any conclusion and the

same was not done in case of the assessee. It was also submitted

that the average weight of 3790 cotton bales was 154.38 kg. only 3 ITA NO.2749/Ahd/2012 Asst. Year_2008-09 which was not accepted by the AO for the reasons that the weight of

the cotton bale can be reduced also and the same might have been

done by the assessee to justify his argument that the weight of cotton

bale was wrongly taken at 162 kg. per bale. The assessee further

submitted that subsequently the assessee had made sales of 3790

cotton bales and weight of each bale was average 154.38 kg. and out

of them 500 bales were exported and complete details of export sales

mentioned in bills of lading with quantity and weight were available. It

was submitted that survey party had not worked out actual stock and

made inventory as on date of survey. As per books of accounts of the

assessee the total stock was 1407353 kg. comprising of cotton seeds

87245 kg. and cotton bales 534902 and it was not possible to take

weight of loose cotton seeds of 872451 kg. and weight of 3790 bales

of 534902 kg. within 15 hours of survey. The survey team had taken

approximate weight of cotton bales and cotton seeds and they have

not maintained item wise and quantity wise inventory in Annexure B

of inventory report and worked out stock difference of Rs.5820555/-.

The AO had not accepted the explanation of the assessee and he

made addition for the difference mount of stock between the books of

accounts stock and stock taken by the survey party and addition of 4 ITA NO.2749/Ahd/2012 Asst. Year_2008-09 Rs.44,28,368/- was made on account of excess stock of cotton bale

and Rs.13,92,187/- on account of excess stock of cotton seeds.

3. Before the CIT(A) the assessee reiterated the submissions

made before the AO and further argued that if production loss at the

rate of 4.45 % was considered then no variation in closing stock for

the year under consideration would be there. The CIT(A) observed

that average production loss submitted by the assessee was 4.45%

in this business which was considered in the earlier years which are

in line with the guidelines of the report of Ahmedabad Textile

Industries Research Association. The CIT(A) observed that the

statement of the assessee is vindicated to some extent after going

through the orders of the earlier years. The production loss is on

higher side as the calculation by the assessee during the year is

2.93% for the year as has been calculated keeping in mind that other

factors are constant. Accordingly he directed the AO to give the

deduction of production loss at 2.93% for the year and accordingly

calculate the stock difference of the assessee found during the

survey time.

5 ITA NO.2749/Ahd/2012 Asst. Year_2008-09

4. Being aggrieved by this order of CIT(A) the Revenue is in

appeal before us. The DR supported the order of the AO whereas the

AR supported the order of CIT(A)..

5. We find that the AO made addition of Rs.44,28,368/- on

account of excess stock found of cotton bale and Rs.13,92,187/- on

account of excess stock found of cotton seeds during the survey at

the business premises of the assessee on 4.3.2008. On appeal the

CIT(A) held that in the earlier years the assessee was allowed

deduction for production loss which was in the line of guidelines of

Ahmedabad Textile Industries Research Association. The CIT(A)

observed that for the year as per the working production loss comes

to 2.93% and he directed the AO to allow production loss of 2.93%

and thereafter calculate the difference in stock found at the time of

survey and make addition. In our considered view if there was

production loss then the same will result in reduction of stock and the

same cannot be an explanation for which excess stock found on

physical verification during the course of survey. Thus the reasoning

given by the CIT(A) to accept a part of the excess stock found cannot

be appreciated in the circumstances. In our considered view it shall 6 ITA NO.2749/Ahd/2012 Asst. Year_2008-09 be just and in the interest of justice to restore the issue back to the

file of the CIT(A) for adjudication as per law by passing a speaking

order on the issue. It is needless to mention that the CIT(A) shall

allow reasonable opportunity of hearing to both the parties before

deciding the issue. This ground of appeal is allowed for statistical

purpose.

6. In the result, the appeal of Revenue is allowed for statistical purpose.

Order pronounced in the open Court on 25/6/2015

Sd/- Sd/-

(S. S. Godara) (N. S. Saini) Judicial Member Accountant Member

Dated 25/6/2015

Mahata/- Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy. Registrar, ITAT, Ahmedabad 7 ITA NO.2749/Ahd/2012 Asst. Year_2008-09

1. Date of dictation: 19/06/2015

2. Date on which the typed draft is placed before the Dictating Member: 22/06/2015 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk: 25/6/2015

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: