Tca/765/2018 Of Svs Oil Mills v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURTOF JUDICATURE AT MADRAS DATED: 26.3.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case Appeal No.765 of 2018 M/s.SVS Oils Mills,8/12, T.H.Road,Thiruvottiyur,Chennai 600 019. ...Appellant-Vs- The Assistant Commissioner ofIncome TaxNon Corporate Circle - 6( 1)Chennai ...Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'A' Bench, Chennai, dated 20.3.2018 made in ITANo.474/Chny/2018, against the Order of the Commissioner ofIncome Tax, (Appeals) - 5, 121, Mahatma Gandhi Road,Nungambakkam, Chennai - 34, order dated 06.02.18 in ITANo.229/CIT(A)-5/16-17, for the Assessment Year 2014-15 againstthe order of the Assistant Commissioner of Income Tax, NonCorporate Circle - 6, Chennai order, dated 26.12.16 in PAN/GIRNo.AAKFS37512 D for the Assessment Year 2014 -15. The Assessee has filed this Tax Case (Appeal) under Section260-A of the Income Tax Act by raising the following purportedsubstantial questions of law arising from the order passed bythe Income Tax Appellate Tribunal on 20.3.2018, by which thelearned Tribunal dismissed the Assessee's Appeal for the https://hcservices.ecourts.gov.in/hcservices/ Assessment Year 2014-2015 and upheld the Additions of allegedexcess Stock to the extent of Rs.2,50,31,815/- found during thecourse of Survey effected at the business place of the Assesseeon 21.11.2013:- "i) Whether the provisions of section 69B/69C ofthe Act would justify the separate addition forthe value of the excess stock despite inclusion ofsuch excess stock by posting necessary entries inthe stock register and further despite theundisputed reporting of the sales effected inrelation thereto in its entirety by the Appellant?ii) Whether the Appellate Tribunal is correct inignoring the principles governing avoidance ofdouble taxation on the issue of correctness ofmaking separate addition for the value of theexcess stock despite the appropriate book entriesmade by way of entry in stock register along withcorresponding income offered in the form of salesmade to give effect to the admission made duringthe course of survey by the Appellant? iii) Whether the Appellate Tribunal was justifiedin law in sustaining the addition of stock and itspurported findings were arrived at by ignoring therelevant materials placed on record and werearbitrary, unreasonable and perverse?" 2. All the three Authorities below have given the finding offacts against the Assessee and on the admission of the Assesseeduring the statements recorded under Section 131 of the Actduring the course of Survey under Section 133A of the Act, theAuthorities below have found that the said excess stock wasliable to be added as undisclosed income of the Assessee underSection 69C of the Act. The relevant findings of the Tribunalare quoted below for ready reference:- "There is a clear admission by the assesseethat the difference in stock as on date ofsurvey was added in its stock register but nocorresponding entry was passed in the books ofaccounts. Stock cannot come in from vacuum.When stock is introduced in the stock register,there has to be a corresponding entry in thefinancial books of accounts. Either it has tobe a purchase or shown as paid out ofexplained or unexplained source. Once stock tothe extent of the surplus found at the date ofsurvey, is included in the stock register,assessee has to give an explanation for thesource from which it acquired such stock.Assessee having not passed any entry in "There is a clear admission by the assesseethat the difference in stock as on date ofsurvey was added in its stock register but nocorresponding entry was passed in the books ofaccounts. Stock cannot come in from vacuum.When stock is introduced in the stock register,there has to be a corresponding entry in thefinancial books of accounts. Either it has tobe a purchase or shown as paid out ofexplained or unexplained source. Once stock tothe extent of the surplus found at the date ofsurvey, is included in the stock register,assessee has to give an explanation for thesource from which it acquired such stock.Assessee having not passed any entry in financial books, addition of stock made by it,in its stock register, can only be consideredas made out of undisclosed source. The additionin our opinion was rightly done by the lowerauthorities. Coming to the decision ofAhmedabad Bench of the Tribunal in the case ofChokshi Hiralal Maganlal (supra), there is aclear finding that excess stock found duringthe survey was not separated or clearlyindentified, but, was part of mixed stock whichwas included in the declared stock, as perbooks of accounts. Facts here are entirelydifferent. There is no case for the assesseethat surplus stock was clearly indentified atthe time of surveyor entries passed in its cashbook, journal or ledger for the value of suchstock. In the circumstances, we do not find anyreason to interfere with the order of thelearned Commissioner of Income Tax (Appeals).Appeal of the assessee stands dismissed. 7. Since the appeal of the assessee isdismissed its stay petition has becomeinfructuous. 8. To summarize the result, appeal andstay petition of the assessee are dismissed."3. The findings of the Assessing Authority in the AssessmentOrder dated 26.12.2016 are also quoted below for readyreference:-"3. In this case, a survey under section 133A ofthe Income Tax Act, 1961 was conducted on21/11/2013. During the course of survey statementof Shri.S.V.Chandrapandian, Partner of the assesseefirm was recorded under Section 131 of the IncomeTax Act, 1961. In the said statement he has made adisclosure of Rs.2,50,31,815/- on account of excessstock. The value of the stock as per books ofaccounts was Rs.24,79,65,928/- whereas the value ofstockasperphysicalverificationwasRs.27,29,97,742/-. Thus, there was a difference ofRs.2,50,31,815/-. In this regard, he stated inanswer No.12 of the statement that he was unable togive the details for the above mentioned excessstock of Rs.2,50,31,815/- and requested that theabove mentioned amount may be treated as theunaccounted income of the M/s.S.V.S.Mills for theF.Y.2013-14. In addition to the above, he alsodeclared an amount of Rs.20,95,821/- on account ofexcess cash. Thus there was a total disclosure ofRs.2,71,27,635/-. 4. However, on examination of the ITR and 4. However, on examination of the ITR and final accounts submitted by the AR of the assesseeduring the course of scrutiny assessmentproceedings, it was noticed that there is noreference to this amount. Hence, the AR of theassessee was requested vide order sheet entry dated12/08/2016,interalia,tofurnishtheclarification as to how the amount declared asincome during the course of survey under Section133A of the Income Tax Act, 1961 conducted on21/11/2013 is reflected in the computation ofincome and the case was adjourned to 18/8/2016.However, there was no reply from the assessee onthe said date. Subsequently, the AR of the assesseevide his letter dated 07/11/2016 stated that "Inthis regard we would like to state that in theSchedule No.14 Other Income there is a head viz.,Sundry Income of Rs.20,00,000/- which is amountdecided during the survey."However, there was no reference to the incomedeclared under Section 133A of the Income Tax Act,1961 in respect of unaccounted stock amounting toRs.2,50,31,814/- in the said letter.".4. The learned Senior counsel for the Assessee, Mr.ArvindPandian, submitted before us that since the undisclosed incomewas added back to the closing stock of the Assessee in the Booksof Accounts, it was brought to tax at that point of time andtherefore, separate Addition under Section 69C of the Act hasresulted in double taxation of the same amount and therefore,the learned Tribunal has fallen into an error in upholding thesame Addition and therefore, it gives rise to substantialquestion of law. He relied upon the order passed by theAhmedabad Bench of Income Tax Appellate Tribunal in AmbujaGinning Pressing & Oil Co. P. Ltd. vs. IT, Ward-1(2) Bhavnagarin I.T.A.No.3618/Ahd/2015 for the Assessment Year 2012-2013dated 4.10.2018. The relevant portion of the order is quotedbelow for ready reference:- "7. A perusal of the above reply would indicatethat the assessee has included value of abovestock in the closing stock. At this stage, it ispertinent to observe that as far as first foldof contention is concerned, the learned counselfor the assessee did not make any arguments. Itis an admitted fact that during the course ofsurvey excess stock was found. It was admittedby the director. Now this discovery ofdiscrepancy cannot be brushed aside by merelysubmitting that on account of water contents inthe cotton bales, their weight has beenincreased resulting into excess stock. This aspect ought to have contested at the time ofsurvey by the directors. He should have notadmitted working of the excess stock andobjected the calculations made by thedepartment. Subsequently, it cannot be statedthat cotton was having water contents on accountof rain etc. There should be a specificcircumstances or specific reply. This ismissing. Therefore, we do not find any merit inthe first fold of contention. The assessee ishaving excess stock of Rs.58,02,095/-. Thisvalue of excess stock should suffer tax. Secondquestion is, whether by inclusion of this stockin the value of the closing stock, the assesseehas recognized income offered by it or not. TheAO without looking into the reply of theassessee extracted (supra) separately madeaddition. Therefore, in the given facts andcircumstances, we deem it appropriate to remitthis issue to the file of the AO to consider theabove reply of the assessee. It is to beascertained that excess stock found at the timeof survey valued at Rs.58,02,095/- should suffertax. If the assessee has already included thisamount in the value of closing stock, thenseparate addition would result double addition.We further make it clear that the AO wouldverify the fact about the enhancement of closingstock by a sum of Rs.58,02,095/- There shouldnot be any corresponding expenditure debited bythe assessee. In other words, the assessee willnot be entitled for corresponding expensesbecause this must have already been debited inthe regular course of business. It if it foundthat the assessee included a sum ofRs.58,02,095/- in the value of the closing stockand not debited any corresponding expenditure,then there should not be further addition,because this stock will ultimately suffer tax onaccount of sale without allowing correspondingexpenditure. With the above directions, theappeal of the assessee is partly allowed." 5. He, therefore, submitted that a corresponding purchase ofsuch closing stocks should be allowed to be reflected in theBooks of Accounts of the Assessee and a deduction to that extentshould be given to the Assessee or in the alternative the mattermay be remanded to the learned Assessing Authority as done bythe Ahmedabad Bench of Income Tax Appellate Tribunal. 6. Having heard the learned counsel appearing for theAssessee, we are satisfied that no substantial question of lawarises in the present case and the finding of facts of all thethree Authorities concurrently rendered against the Assessee inthe present case cannot be held to be perverse or wrong in anymanner. These orders, therefore, deserve to be upheld and we donot find any merit in the Appeal of the Assessee. 7. However, before parting with, we may observe thatthere is a series of five provisions viz., Section 69-Unexplained investments, Section 69A-Unexplained money, etc.,Section 69B-Amount of investments, etc., not fullydisclosed in books of account 69C-Unexplained expenditure,etc. and 69D-Amount borrowed or repaid on hundi which havebeen enacted in the Income Tax Act, 1961 from time to time tobring to tax the undisclosed income either as undisclosed incomeor the same found during the course of investigation eitherduring the Survey under section 133A or the search operationunder Section 132 of the Act or otherwise, investigation orscrutiny during the Assessment proceedings and thus, theunexplained investment or expenses are brought to tax in theform of undisclosed income by making the additions to the extentof such undisclosed income or expenditure straightaway. There isno justification or question of giving the correspondingdeduction to the extent of any purchase or source of incurringsuch expenditure or unexplained investments. 8. In our opinion, Section 69B providing for amounts ofinvestments in Bullion, Jewellery or other valuable articles(including excess Stocks as well) would have been moreappropriate Section to be indicated in the orders passed by theAuthorities below rather than Section 69C-UnexplainedExpenditure. Nonetheless, we are of the clear opinion thatmentioning of wrong section would not upset the Additions madeby the Assessing Authorities below in the present case. Allthese 5 provisions enumerated above have been enacted with aview to bring to tax the unexplained debit balances in theBalance Sheet of the Assessee either in the form of UnexplainedInvestments, Expenses or Stocks, etc., or unexplained Assets,Money, Bullion, Jewellery, etc., and therefore, such unexplainedinvestments and expenses intended to be brought to tax asUndisclosed Income, these provisions are not only clearlyworded but also indicated to plug the loopholes and check themenace of black money. Likewise, unexplained credits in theBalance Sheet are also brought to tax under Section 68 of theAct. 9. In the light of the above, the contention raised by thelearned counsel for the Assessee has essentially emanated from amisconception that the Additions made under Section 69B/69C have to be reduced to some extent by giving leverage to theAssessee to claim some deductions from these Additions as well.If the contention of the learned counsel for the Assessee was tobe accepted viz., by allowing the purchases corresponding to thealleged excess stock, the Assessee will have to now recordverifiable purchases in his Books of Accounts and for that hewill have valid purchase Invoices from genuine and existingSellers which is not possible. When the excess stocks were foundduring the Survey, there is no question of allowing the Assesseeto record any additional purchases because such purchases hadalready been recorded in the books of accounts of the Assessee.Therefore, the excess stock, per se, has to be naturally broughtto tax as 'undisclosed income' by itself and there is noquestion of any corresponding deduction from that in such cases. 10. In our opinion, the learned Tribunal as well as theAuthorities below were justified in bringing to tax theUndisclosed Income under Section 69B/69C of the Act and suchfindings of fact do not give rise to any substantial question oflaw. The order passed by the learned Income Tax AppellateTribunal, Ahmedabad Bench does not enure to the benefit of thearguments advanced by the learned Senior Counsel as there alsothe learned Tribunal has rightly held that the value of excessstock of Rs.58,02,095/- should suffer tax and by inclusion ofthose Stocks in the value of Closing Stock the Assessee hasrecognised income over and above recorded in its Books ofAccounts. Such Additions of the excess Stocks declared by theAssessee during the course of search in the closing stock doesnot amount to double taxation as contended. Mere remand of thecase by the Ahmedabad Bench of Income Tax Appellate Tribunal tothe Assessing Authority for verifying the figures, does not laydown any principle as contended by the learned Senior Counselfor the Assessee. 11. We do not find any merit in the present Appeal of theAssessee and the same is liable to be dismissed. Accordingly, itis dismissed. No order as to costs.ssk Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar To 1. The Assistant Commissioner of Income Tax Non Corporate Circle - 6 Chennai. Income Tax Non Corporate Circle - 6 Chennai. https://hcservices.ecourts.gov.in/hcservices/ 2. The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai Madras 'A' Bench, Chennai 3. The Commissioner of Income Tax (Appeals)-5, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai -34. Nungambakkam, Chennai -34. +1cc to Mr.S.Sridhar, Advocate, SR.No.28809 Kak(01/07/2019) TCA No.765 of 2018