✦ High Court of India · 08 Nov 2023

Vs.M/s.The Madras Pharmaceuticals v. / AppellantPrayer: Appeal under Section 260A of the Income Tax Act

Case Details High Court of India · 08 Nov 2023

Court

High Court of India

Decided

08 Nov 2023

Bench

C SARAVANAN

Length

2,954 words

Acts & Sections

Income Tax Act §143(3)Income Tax Act §260A Income Tax Act 1961

T.C.A.No.163 of 2024of the Profit & Loss Account filed by the assessee along with the ROI for the Assessment Year 2009-2010 is enclosed herewith for ready reference as per Annexure-2).iii.Further, it is submitted that during the course of the post search proceedings, value of the closing stock as on 31.03.2008 (i.e., Opening Stock as on 01.04.2008) of M/s.Madras Pharmaceuticals was worked out at Rs.7,58,61,222/- by adopting the actual G.P.% for various firms for previous years for the F.Y. 2007-2008 and actual purchases and sales for the F.Y. 2008-2009 [till the date of search (16.10.2008) i.e., for the period from 01.04.2008 to 15.10.2008]. Closing stock value as on the date of search was arrived at basing on valuation of the stock physically found. The working was made as under:For the Financial Period Ending 16.10.2008:Opening Stock7,58,61,222Sales42,80,35,104Raw Material31,87,05,659Closing Stock8,40,56,426Packing Material4,92,40,024Gross Profit (15.95%)6,82,84,62551,20,91,53051,20,91,530Purchase figures for “Raw Material” and “Packing Material” shown in the above table are nothing but purchases made by the assessee during the F.Y. 2008-09 till the date of search i.e., during the period from 01.04.2008 to 15.10.2008. In this connection, it is very much pertinent to mention here that the very said value of the opening stock of Rs.7,58,61,222/- so arrived was adopted by the assesee as opening stock in the Profit & Loss Account of the assessee for the purpose of filing of Return of Income for the relevant A.Y. 2009-10 as against the closing stock value of Rs.12,03,61,364/- shown in the P&L Account filed along with the Return of Income for the A.Y.2008-09. In this regard, the assessee vide para 7(ii) of its letter dated 31.08.2010 filed during the course of the 6/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 2024assessment proceedings, had stated that the opening stock figure as on 01.04.2008 was adopted at Rs.7,58,61,222/- as against the value of the closing stock as on 31.03.2008 of Rs.12.04 Crores disclosed in the ROI filed for the A.Y. 2008-09. Further, the assessee stated that the value of the opening stock as on 01.04.2008 would be revised basing on the seized material and that on the same basis, the value of closing stock as on 31.03.2009 would also be revised. (A copy of the letter dated 31.08.2010 of the assessee is enclosed herewith for ready reference as per the Annexure-3).iv.Further, it is submitted that during the course of the assessment proceedings, the assessee vide letter dated 30.12.2010 stated that it is not possible for the assessee to comment on this issue unless source of information is given to the assessee. However, the assessee filed two trading accounts for the periods “from 01.04.2008 to 20.10.2008” and “from 21.10.2008 to 31.03.2009” showing details of purchases, instead of furnishing trading accounts for the required periods “01.04.2008 to 16.10.2008 (Date of search)” and “17.10.2008 to 31.03.2009”. (A copy of the assessee's letter dated 30.12.2010 is enclosed herewith for ready reference as per Annexure-4). As seen from the Trading Account for the period from 21.10.2018 to 31.03.2019 filed by the assessee, the total of purchases works out to Rs.14,13,38,945/- as noted below:Raw Material :: Rs.6,84,51,080Packing Material :: Rs.1,80,94,493Excise Duty :: Rs.2,82,24,430Direct Expenses :: Rs.2,65,68,942 --------------------- Rs.14,13,38,945 ---------------------But, as per the list of invoices furnished by the assessee, the value of purchases for the period from 16.10.2020 works out to Rs.19,83,98,625. Thus, there is a difference in these two values by Rs.5,70,59,680 (Rs.19,83,98,625 – Rs.14,13,38,945). This aspect also needs to be cross verified with the purchase invoices for the relevant period/books of 7/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 2024the assessee. Further, it is submitted that as seen from Clause 28 of form 3CD, quantitative details of the principal items of raw materials, finished products and by-products, details of opening stock, closing stock etc., it was mentioned that details are attached as per Annexure-7. But, the said Annexure is not available on record. The same is also required to be obtained and verified. In the e-filed Return of Income for the A.Y. 2009-10 also, the said details were not furnished by the assessee in the relevant Schedule “Part A-QD”, whereas the said details were duly furnished by the assessee in the Schedule “Part A-QD” of the e-return filed for the previous A.Y. 2008-09.v.If the assessee furnishes trading accounts for the specific periods from 01.04.2008 to 16.10.2008 (till the date of search) and 17.10.2008 to 31.03.2009, then it is possible to cross-examine the issue of unexplained expenditure in purchases. Though the assessee was requested vide para 5 of this office letter dated 04.06.2013, the assessee has not furnished required information. (A copy of this office letter dated 04.06.2013) is enclosed herewith for ready reference as per Annexure-5). Vide letter dated 17.06.2013, the assessee stated in this regard that it is not possible to corelate the query to the issues raised in the appeal. (A copy of the assessee's letter dated 17.06.2013 is enclosed herewith for ready reference as per Annexure-6)”. 7. The Commissioner of Income-Tax (Appeals) ultimately dismissed the appeal based on the above Remand Report. On further appeal before the Appellate Tribunal by the respondent/assessee, the Appellate Tribunal held that the respondent/assessee has filed a reconciliation explaining total purchases including purchase of capital 8/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 2024goods and purchase returns and tallied with purchases recorded in the books of accounts of the assessee, which has been reproduced in reply filed to remand report of the Assessing Officer and same is available at page 64 of the ld. CIT(A) order. 8. The Appellate Tribunal has further held that even the Assessing Officer did not have the benefit of relevant workings of stock difference arrived at during the course of search by the Investigation Wing and that the Assessing Officer has completely erred in making additions towards difference in stock in trade as unexplained expenditure u/s. 69C of the Act. 9. Under these circumstances, the Assessing Officer was directed to delete the additions made towards difference in stock in trade u/s. 69C of the Act. Paragraphs 16 and 17 of the Appellate Tribunal Order reads as follows:-“16. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The sole basis for the Assessing Officer to make additional towards unexplained expenditure, being difference in stock in trade at Rs.5,69,68,520/- is on the basis of working of stock in trade as on the date of search after taking into account 9/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 2024purchase of raw material and packing material. The Assessing Officer has worked out difference in stock in trade at Rs.5,69,68,520/-, on the basis of total purchase of raw material and packing material up to the date of search, as per details submitted by the assessee and also purchases after the date of search and up to the end of financial year. The Assessing Officer, has considered total purchases as per list submitted by the assessee and then compared with purchases as per books of accounts of the assessee and worked out difference. The Assessing Officer, has reproduced the chart which contains the workings of difference in stock in trade. We have gone through the workings reproduced by the Assessing Officer in the assessment order and we find that there is no details as regards what is the basis for taking purchase figures up to 16.10.2008. Further, the Assessing Officer claims that purchases from 17.10.2008 to 31.03.2009, as per the purchase vouchers produced by the assessee. Further, the Assessing Officer has considered total purchase of raw material and packing material including excise duty and as per audited books of accounts of the assessee and then worked out a difference of Rs.5,69,68,520/-. The assessee has filed a reconciliation explaining total purchases including purchase of capital goods and purchase returns and tallied with purchases recorded in the books of accounts of the assessee, which has been reproduced in reply filed to remand report of the Assessing Officer and same is available at page 64 of the ld. CIT(A) order. We have gone through the purchase figures considered by the Assessing Officer in his assessment order at Para 4.1 and purchase figures adopted by the assessee in the table furnished in reply to remand report and reproduced at para 43 of Page 64 of the ld. CIT(A) order and we find that there is no difference in purchases considered by the Assessing Officer and the assessee up to the date of search. Further, the Assessing Officer has considered total purchases after the date of search and up to 31.03.2009 as per vouchers produced by the assessee at 10/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 2024Rs.19,83,98,625/- and the same is tallying with purchase figures considered by the assessee in reconciliation submitted before the ld. CIT(A). From the above, it appear that there is no difference in purchases considered by the Assessing Officer and the assessee for above periods. But, the Assessing Officer has worked out difference of Rs.5,69,68,520/-, by comparing net purchases declared by the assessee for the period 01.04.2008 to 31.03.2009, amounting to Rs.50,93,75,389/- to the total purchases worked out by the Assessing Officer at Rs.56,63,44,300/- without any details as to what is the opening stock, closing stock, purchase returns and purchase of capital goods, as considered by the assessee in its reconciliation. From the above, it is clear that as alleged by the assessee there is no basis for the working of difference computed by the Assessing Officer towards stock in trade and this fact has been further strengthened by a letter written by ACIT, Central Circle-1(1), to the CIT(A) on 16.04.2015, where the Assessing Officer categorically admitted that there is no details available with regard to stock difference worked out by the Investigation Wing and further he has written a letter to the Investigation Wing to clarify the basis for adopting stock difference of Rs.5,60,68,520/- in appraisal report. From the observations of the Assessing Officer in his letter dated 16.04.2015 submitted to the ld. CIT(A) during appellant proceedings, it is clear that the Assessing Officer has made additions towards difference in stock in trade/purchases as unexplained expenditure u/s. 69C of the Act, only on the basis of observation of the Investigation Wing in the appraisal report without any attempt to verify the quantification of stock difference worked out during the course of search. We further noted that, as explained by the Ld.Counsel for the assessee, the Assessing Officer did not furnish relevant basis for working out stock difference inspite the appellant made a repeated request. Even before us, the Department representative could not explain as to how said difference has been worked out to make additions u/s. 69C of the 11/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 2024Act. This position is further fortified by the statement of the Ld.Counsel for the assessee, in light of order of the ITSC and order passed by the Assessing Officer u/s.154 of the Act, giving effect to additions made towards difference in stock in trade by enhancing opening stock for the impugned assessment year, which resulted in income determined in final assessment order passed u/s. 143(3) of the Act. From the above facts, it is undoubtedly clear that the Assessing Officer has made additions towards stock in trade difference u/s. 69C of the Act purely on surmises and suspicion manner, without there being any supporting evidence to justify additions. Further, we have also noted in earlier part of this paragraph, even the Assessing Officer did not have the benefit of relevant workings of stock difference arrived at during the course of search by the Investigation Wing. Therefore, we are of the considered view that, the Assessing Officer has completely erred in making additions towards difference in stock in trade as unexplained expenditure u/s. 69C of the Act. The ld. CIT(A), without appreciating relevant facts simply sustained additions made by the Assessing Officer and thus, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete additions made towards difference in stock in trade u/s. 69C of the Act.17. In the result, appeal filed by the assessee is allowed.”10. The Courts are bound by the findings rendered on the facts by the Appellate Tribunal as the Appellate Tribunal is the ultimate fact finding authority. The Appellant Income Tax Department is seeking re-appreciation of evidence in the guise of the present appeal. 12/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 202411. As such, there is no substantial question of law that arises for consideration in the present appeal under Section 260A of the Income Tax Act, 1961. Therefore, the present appeal is not maintainable. 12. This Tax Case Appeal is therefore liable to be dismissed and is accordingly dismissed. No costs. [R.S.K., J.] [C.S.N., J.] 12.08.2024Index : Yes/NoInternet : Yes/NoSpeaking Order/Non-Speaking OrderNeutral Citation : Yes/NoarbToThe Principal Commissioner of Income Tax,Central Circle-1(1),Chennai – 600 034.13/15 https://www.mhc.tn.gov.in/judis T.C.A.No.163 of 2024R.SURESH KUMAR, J.andC.SARAVANAN, J.arbT.C.A.No.163 of 202414/15

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