HIGH COURT OF DELHI
Commissioner of Income-tax
versus
D.D. Gears Ltd.
IT APPEAL NO. 896 OF 2008
AUGUST 3, 2012
ORDER
R.V. Easwar, J.
This is an appeal by the Income Tax Department and it is directed against the order of the Income Tax Appellate Tribunal in IT(SS) No.258/Del/2003 dated 28.9.2007. The following questions are sought to be raised by the revenue :
“(a) Whether ITAT was correct in law in deleting the addition of Rs. 1.98 crores and Rs. 1.16 crores made by the Assessing Officer as unexplained investment in excess/shortage of stock?
(b) Whether order passed by ITAT is perverse in law and on facts when it held that the discrepancy was satisfactorily explained by the assessee and thus based its decision on irrelevant material ignoring the facts found during search and recorded by Assessing Officer?
(c) Whether deletion by the ITAT of addition of Rs. 1.98 crores and Rs. 1.16 crores being based on probability and possibility as well as irrelevant consideration is unsustainable in law?
(d) Whether finding of ITAT that the statement of Shri Sudershan Kumar should not be viewed in the context of total accuracy of the stock taking exercise, is perverse and not supported by any evidence?
(e) Whether ITAT was correct in law in directing the Assessing Officer to allow expenses of Rs. 9,62,801/- and of Rs. 17,931=48 vide computing undisclosed income by way of unaccounted sales?
(f) Whether ITAT was correct in law in cancelling levy of surcharge u/s 113 of the Act?
(g) Whether proviso to Section 113 inserted by Finance Act 2002 with effect from 01.06.2002 is clarificatory in nature and therefore retrospective?”
2. The assessee is a public limited company. On 29.8.1996, there was a search of its premises under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). In the course of the search a stock inventory of raw materials, semi-finished goods and finished goods was prepared. It may be noted that the assessee is engaged in the business of manufacturing of and trading in auto and tractor parts and components. The main products are shafts, pins, crown and pinion and gears of various kinds. On a comparison of the inventory and the regular books of accounts maintained by the assessee, it was noticed that there was a difference. In respect of certain stock there was excess and in respect of certain other stock there was shortage. A reconciliation was prepared and on that basis the assessment of the undisclosed income for the block period 1.4.1996 to 29.8.1996 was completed on 29.4.1998. The assessment was made under Chapter XIV-B of the Act.
3. The aforesaid assessment was taken up in appeal before the Tribunal in ITA(SS) No.69/Del./1998 and several contentions were taken. The Tribunal in its order dated 1.3.2001 found no merit in the contention vis-à-vis limitation for completing the assessment, reference to the special audit and the defects in the grant of approval by the CIT for completing the block assessment under Section 158BC. However, the Tribunal found merit in the assessee’s claim that the block assessment was completed without regard to the rules of natural justice. It therefore set aside the assessment order and restored the same to the Assessing Officer with directions to decide the case afresh and pass a fresh assessment order after giving adequate opportunity of being heard to the assessee and in accordance with law.
4. Pursuant thereto the Assessing Officer completed the block assessment on 26.3.2003. In the order, the undisclosed income of the assessee for the block period was computed at Rs. 3,45,32,275/- and this was spread over the various assessment years comprised in the block period. Aggrieved by the assessment, the assessee preferred an appeal before the Tribunal in ITA (SS) No.258/Del./2003 questioning the additions made in the block assessment order. The Tribunal deleted the additions of Rs. 1.98 crores and Rs. 1.16 crores made on account of stock discrepancy. The disallowance of the expenses of Rs. 9,62,801 and Rs. 17,93,148/-, recorded in the seized material and claimed as deduction in computing the undisclosed income, was also deleted by the Tribunal. The Tribunal also held that the surcharge levied under Section 113 of the Act was contrary to law and deleted the same. It is this order of the Tribunal that is challenged in further appeal before us under Section 260A of the Act.
5. As per the directions of this Court, the ld. standing counsel for the income tax department has filed a chart reframing the questions, stated to be substantial questions of law, as follows :
“(1) Whether ITAT was correct in the eyes of law in deleting the addition of Rs. 1.98 Crores and Rs. 1.16 Crores made by the AO on account of unexplained investment in excess/shortage of stock?
(2) Whether the ITAT was correct in the eyes of law in directing the AO to allow the expenses of Rs. 9,62,801/- and Rs. 17,931,48/-, while computing the undisclosed income by way of unaccounted sales?
(3) Whether the ITAT was correct in the eyes of law in cancelling the levy of the surcharge u/s 113 of the Act?
(4) Whether the impugned order passed by the ITAT is perverse both in law and facts of the case?”
We have heard him as well as the assessee, which was represented through its Director at length.
6. So far as the first question is concerned, the discrepancies in the stock as inventorised by the officers of the revenue are set out in the table below :
