Ita/133/2011 Of The Commissioner Of Income Tax v. M/S.p.h.mohammed Kunju And Brothers

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 12TH DAY OF OCTOBER 2018 / 20TH ASWINA, 1940 ITA.No. 133 of 2011 AGAINST THE ORDER/JUDGMENT IN ITA 504/2009 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 31-03-2011 APPELLANT/S: THE COMMISSIONER OF INCOME TAX, (CENTRAL), COCHIN. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/S: M/S.P.H.MOHAMMED KUNJU AND BROTHERS,MARKET ROAD, KOCHI-682031. BY ADVS. SRI.JOSEPH MARKOSE (SR.) OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.10.2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT Vinod Chandran, J. The appeal is by the Revenue against the order of theTribunal, which set aside the limited addition permittedby the First Appellate Authority. The brief facts to benoticed are that the premises of the respondent-assesseein which the business of iron and steel was carried onwas inspected on 05.10.2005. The stock inventory was taken and there was discrepancy found. Afterexplanations were offered, the assessee admitted toexcess stock of 3,14,378 kgs. The Assessing Officer didnot accept the explanation and made further addition ofRs.2.1 crores, being the value of the excess stock found.In first appeal, the First Appellate Authority found thatthe assessee having included excess stock in its books ofaccounts, the expenses incurred for purchase of theexcess stock alone could be termed as unexplainedexpenditure under Section 69C. Hence, the addition waspermitted only with respect to Rs.78,59,450/-. 2.The assessee was in appeal before the Tribunal.The Tribunal found that since the stock has been added tothe books of accounts, the excess stock found has beencorrected in the books of accounts and the stock registerafter inspection reflects the excess stock also. TheTribunal also found that the gross profit between01.04.2005 to 05.10.2005 was 2.72%, while there was amarked variation in the gross profit at the rate of6.43%, after the search period, ie., after 06.10.2005 to31.03.2006. It was found that the Assessing Officer hasnot found any further expenditure having been made by theassessee during the previous year to purchase the excessstock. Hence, there was no nexus established on thebasis of the excess stock to find an unexplainedexpenditure under Section 69C of the Act, was thefinding. The Tribunal found that any addition made afterthe stock register has been corrected to its rightfulposition would be a duplication of the value of theexcess stock found. 3.The learned Standing Counsel appearing forGovernment of India (Taxes) would submit that ifassessments are set aside on mere inclusion of stock in the stock register, any assessee could wriggle out of theadditions made under Section 69C and in suchcircumstances, the addition or correction made to thestock register would be of no avail. The learned Counselfor the assessee, however, submits that when the excessstock was found and there was no other expenditure foundfrom the books of accounts, the value of the excess stockwould be reflected in the gross profit on further salebeing carried out from the stock available with theassessee; which includes the excess stock detected onphysical verification. 3.The learned Standing Counsel appearing forGovernment of India (Taxes) would submit that ifassessments are set aside on mere inclusion of stock in the stock register, any assessee could wriggle out of theadditions made under Section 69C and in suchcircumstances, the addition or correction made to thestock register would be of no avail. The learned Counselfor the assessee, however, submits that when the excessstock was found and there was no other expenditure foundfrom the books of accounts, the value of the excess stockwould be reflected in the gross profit on further salebeing carried out from the stock available with theassessee; which includes the excess stock detected onphysical verification. 4.We agree with the finding of the Tribunal thatthere would be duplication if further addition is made onthe basis of an unexplained expenditure. It is to benoticed that when a search was conducted on 05.10.2005,the excess stock was found on a physical inventory beingtaken of the stock. The excess stock is computed onadding the opening stock as per the stock register withthe purchases made in that previous year and thendeducting the sales carried out in the subject previousyear. The stock so arrived at was verified with thephysical inventory of stock, which revealed the excess. It is also to be noticed that what was revealed was thestock-in-trade and not a money, bullion, jewellery orother valuable articles as is spoken of in Section 69A.It is hence, the addition was made to the stock registerand there was found a marked increase in the gross profitafter such correction was made in the stock register. Thevalue of the excess stock would be reflected in theclosing stock of the year in which the search wasconducted. The computation of profit and loss for theyear would hence reflect the value of the excess stockfound as profit and the assessee would be obliged to paytax on the same. 5.There is absolutely no evidence as to theassessee having incurred any expenditure other than thatshown in the accounts. If an addition is made then thiswill lead to a duplication since the said value will bedefinitely reflected in the net profit at the end of theyear. The excess stock is said to be that remainingunsold over the years. But then the quantum found is sohuge that it belies the explanation offered coupled withthe fact that such huge quantity was not found in theopening stock as per the register maintained. But, however, it cannot be said to be an unexplainedexpenditure under Section 69C, which expenditure has notbeen detected. The assumption seems to be that therewould be money spent as consideration to acquire thisexcess stock, which is from undisclosed income. Then, itwould be an investment made but in stock-in-trade for thebusiness. The purpose is served when the stock isreflected in the closing stock of that year. We, hence,do not think that any interference can be caused to theorder of the Tribunal and there arises absolutely noquestion of law from the order. Therefore, theI.T.Appeal would stand rejected. However, the AssessingOfficer could verify whether in fact the assessee haddisclosed the excess stock in the subject year. No orderas to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE