Case Law Details
Brief of the Case
ITAT Ahmadabad held In the case of ACIT vs. M/s. Vipan Industries that where there are records available to show that the excess stock found during the survey not belong to the assessee but infact was of the other party who has taken said premises on lease, addition is not justified. It is clear in the current case that the job work stock of Rs.2,91,96,630/- pertains to M/s Colourtex Pvt. Ltd.
Facts of the Case
The assessee is a firm and member of Colourtex Group of Surat. A search under section 132 of the Income Tax Act was carried out at the Colourtex Group of Surat and its associated concern. The business premises of the assessee were covered under survey action under section 133A of the Income Tax Act, along with search carried out at other premises. This action was taken on 26.7.2006. The assessee has filed its return of income on 31.10.2007 declaring total income at NIL. The AO has passed the assessment order under section 143(3) of the Income Tax Act. He made addition of Rs.3,84,72,206/- on account of unexplained excess stock found during the course of survey.
However, while computing the total income, it has been accepted at NIL, because, Shri Jayantilal T. Jariwala who as the head of the group, according to the AO, made a disclosure of Rs.10 crores and set off of this addition be granted against that disclosure. Thus, the income of the assessee has ultimately been accepted at Rs.NIL.
Contention of the Assessee
The ld counsel of the assessee submitted that the business premises of the assessee was taken on lease by M/s Colourtex Pvt. Ltd. w.e.f. 10.7-2006. The job work stock of Rs.2,91,96,630/- pertains to M/s Colourtex Pvt. Ltd. Similarly, survey team had worked out the excess stock of Rs.92,75,576/- at Unit No.3, which was also with M/s Colourtex Pvt. Ltd. The assessee has pointed out the evidence collected during the course of survey and submitted during the assessment proceedings.
Contention of the Revenue
The ld counsel of the revenue supported the order of AO.
Held by CIT (A)
CIT (A) held that the assessee has filed all the evidence showing that entire manufacturing facility has been given on lease to M/s. Colourtex Industries Pvt. Ltd. w.e.f. 10-7-2006 i.e. prior to the date of survey. Even in the return filed and in the books of accounts the assessee has shown income from job charges only which is accepted by the AO himself. Hence, assessee was not having any stock of his own and all the stock belonged to M/s. Colourtex Industries Pvt. Ltd. Hence no addition is called for in the hands of the assessee.
Further, the assessee has explained the discrepancy in the valuation of stock found which was due to not considering the purity percentage by the survey team. The survey team has taken the gross weight of the raw material which is never pure but has some variation in purity percentage and after applying the purity percentage the net weight has to be taken for applying the rate. The appellant filed the copies of various purchase bills which confirmed this practice that in the bills first gross weight is- written and then purity percentage is written and then by multiplying the purity percentage net weight is written on which the rate is applied. Therefore, applying the rate to gross weight will give the erroneous valuation. Even at the time of survey, this was explained. The same explanation was given to the assessing officer during the assessment proceedings and also explained before the ADI in inquiry proceedings after survey but the same was ignored.
Held by ITAT
In order to explain the stock position found at the premises, the assessee has filed written submissions before the CIT (A) and produced evidences. The first evidence submitted by the assessee is a registration certificate in Form RC of the Central Excise Department. The second evidence submitted by the assessee is details of movement of inventory at the location. Object of referring these documents is for the reason to demonstrate that this premise was being actually used by M/s Colourtex Industries Pvt. Ltd. before the survey carried at the premises.
The copy of lease-deed has also been placed on record. The CIT (A) has considered all these materials, and thereafter deleted the addition. If we have a glance on these evidences, coupled with finding of the CIT (A) and compare it with the observations of the AO extracted above, then it would reveal that the AO has not applied his mind on any of the evidences or any of the explanation given by the assessee. The AO has not even noted the explanation submitted by the assessee. The assessment order is just a cut-and-paste from other assessment orders. We can observe so, because, we have seen more than twenty assessment orders of this group while hearing all these appeals. Standard language has been used more specifically from page no.4 to end. Thus, if we weigh reasoning given by the AO for making addition vis-à-vis reasoning given by the CIT (A) for deleting the addition in the light of the material produced in the paper book by the assessee, then, certainly scale would tilt in favour of the CIT (A).
As far as Cross appeal (CO) filed by the assessee is concerned, we are of the view that sub-section 4 of section 253 authorises the respondent to file cross-objection on receipt of notice in appeal. The CO is required to be filed within 30 days of receipt of notice and it is to be verified in the manner akin to an appeal, but, the CO is to be filed against any part of the order impugned in the appeal. In the CO filed by the assessee, he has nowhere demonstrated his grievances against any part of the order of the CIT (A), as such the CO is not maintainable in the present form.
Accordingly, appeal of the revenue as well as cross objection of the assessee both dismissed.
