ORDER
S.K. Yadav, Judicial M
Both these appeals pertain to the same assessee and involve consideration of some common points. Hence they were heard together and are being disposed of by this common order.
2. The assessee is a Private Limited Company engaged in the business of purchases and sales in non-ferrous metal scrap. Regular books of account are maintained and the Audit Report as required under section 44AB of the Income Tax Act has been furnished along with the Return of Income.
ITA No. 1605/Ahd./1995 for A. Y 1990-91 :
3. The Honble Gujarat High Court vide judgment dated 26-3-2002 in Tax Appeal No. 143 of 2002 has directed the Tribunal to re-consider the matter on merits in accordance with law. Thereafter, the appeal was fixed for hearing on several occasions and ultimately the same has been finally heard on 5-12-2003.
3.1 The only issue in this appeal is regarding the addition of Rs. 2,27,832 being the value of scrap sold outside the books of account. The assessing officer considered the shortage in copper, lead, M.G. Silicon at 0.5% as reasonable and made the additions as under :
Type of scrap
Actual shortage
Shortage allowed
Excess%
Qty.
Price Rs.
Value Rs.
Copper
1.38
0.50
0.88
1833
58.7
1,07,597
Lead
1.26
0.50
0.76
151
17.5
2,642
MG Silicon
5.13
0.50
4.63
3402
31.5
1,06,482
Tin Anods
41
271.0
11,111
2,27,832
He made the additions on the ground that in the case of the assessees for assessment year 1989-90 the shortage in copper was allowed to the extent of 0.5% only by the CIT (A) and, therefore, for this year the same should be considered as reasonable not only for copper but also for other items. He also held that the assessee has sold the excess shortage claimed outside the books of account and by taking average sale price of the different items arrived at the total value as under :
Copper
Rs. 1,07,597
Lead
Rs. 2,642
MG Silicon
Rs. 1,06,482
Tin Anode
Rs. 11,111
Rs. 2,27,832
3.2 The matter was carried in appeal before the First Appellate Authority, wherein it was submitted that the finding of the assessing officer is erroneous because he has not considered the facts and evidence produced during the course of assessment proceedings in proper perspective. It was also submitted that the finding of the learned CIT (A) for assessment year 1989-90 was only in respect of copper as there was no trading in lead, MG Silicon and Tin Anode in that year. The CIT (A) held 0.5% as reasonable as against the actual of 0.7%. No appeal was preferred because of the smallness of the quantum and with a view to avoid prolonged litigation. It was submitted that there were various factors for the variation in the shortage from year to year depending upon the quality of metal scrap and the shortage occurring at various stages. Various reasons for shortage were given as under :
(a) There is or there cannot be any uniform yardstick for assessing the quantum of shortage as shortage depends upon the quality of grades of scrap metals.
(b) The shortage varies from consignment to consignment-like Nickel v. Silicon : Ingot v. Scrap.
(c) From the samples produced, it will be seen that there is presence of moisturized content in the form of mud and also the plastic coating on its wires which need to be removed to make an acceptable lot in the market through the process of burning in the open atmosphere and it is subsequently made to coal by pouring water on it whereby the material is subject to oxidization. This follows the cleaning, sorting and handling manually by labourers.
(d) In the case of manganese metal, the material is received in the form of flakes in uneven sires and its physical properties will not have uniform quality standards. This material finds its use in the production of stainless steel aluminium bronze alloys, etc., and one has to keep this indefinitely for its sales as demand is very few and limited. This item is also subject to oxidisation in open places whereby the flakes are formed into powder which has any commercial value.
(e) With regard to brass scrap, there are two different grades, brass scrap and brass turning scrap. The turning scrap has the content of iron in it which can be noticed by “Magnet Couch”. The exact chemical composition has a bigger say in shortage especially when the goods are received in the form of scraps, flakes, lumps etc.
(f) In the case of Silicon, the supply is received in the form of one like coking coal and sizes are uneven and without any uniform chemical composition. This form of materials is certainly lead to shortage due to friction of one piece to the other due to the formation of “powder” in the course of loading/unloading, handling and transportation.
(g) In the case of imported tin ingots and nickel, the assessee did not claim any shortage as such material is received in prime form which involves either any proceedings or any processing or any sorting as such. No shortage by way of unwarned foreign elements like mud, dust etc.
(h) As regards tin anode, it was only 41 kgs., which was mixed up with other items and therefore, could not be separated and sold, It was for this reason there was no separate sale of tin anode during the year.
(i) The calculation of shortage criteria should be based on purchases and not on sale and the adoption of shortage with reference to the sale is erroneous.
(j) In the case of lead scrap/the goods will always have attachments like coal tar, greasy paper coating used or iron strapped copper cable consumed by electricity sector. The impurities can be separated only through the process of burning and manually cleaning process. The shortage in lead cannot be compared with shortage of other metals because the factors resulting in shortage are not common.
(k) All the import consignment are subject to random checking, custom examination at the point of dispatch port and the quantum of cargo for inspection varies from 25% to 100% for the purpose. In order to comply with such directions/instructions, the cargo has to be emptied from the containers for the purpose of examination and thereafter is to be repacked. The consignment is again off-loaded from the containers for onward despatch from the port to the warehouse/factory. This will definitely load to shortage due to pilferage in transit and repeated handling.
(l)In assessment year 1989-90, there was only copper scrap business, and shortage of 0.7% claimed was not fully allowed without appreciating the facts in proper perspective. No appeal was preferred considering the quantum but at any rate the factual position has to be taken into account, in deciding the issue. On the basis of the facts and evidences, the shortage of 1.38% in copper is neither excessive nor unreasonable.
3.3 The learned CIT (A) observed that the assessing officer has made the estimate of shortage on the basis of the shortage held as reasonable in copper in the assessees case for assessment year 1989-90 by the CIT (A). The CIT (A) has further observed that the assessing officer has not considered the relevant factors which lead to the shortage and whether the shortage in this year of 1.38% in copper is excessive and if so the reason for the same. It was admitted position that in assessment year 1989-90 there was no trading in lead and MG Silicon and therefore, no comparison can be made in this regard to the shortage in this item with that of assessment year 1989-90. The materials are also totally different and, therefore, shortage cannot compare with that of copper. The learned CIT (A) has also observed that the assessing officer has not brought any evidences on record in support of the estimate of 0.5% as reasonable in regard to shortage for lead and MG Silicon. On the other hand, the assessee in support of the submission produced before the CIT (A), the samples of copper, manganese, brass and silicon and after observing those samples, the CIT (A) was in agreement that there is presence of moisturised content in the form of mud and plastic coaling which need to be removed to make them acceptable let in the market through the process of burning and subsequently made to coal by pouring water whereby material is subject to oxidization. It was also found correct that this has to be followed by cleaning, sorting, handling manually by labourers. He observed that they are in uneven sizes as claimed and its physical properties will not have uniform quality standards. Moreover, it is also subject to oxidization whereby the flakes are formed into powder. From the samples of lead scrap, it is found that the goods will have attachment like Coal tar, greasy paper coating used on iron strapped copper cable consumed by Electricity Board and the impurities could be separated only through the process of burning and manually cleaning process. Ultimately the CIT (A) agreed with the assessee that calculation of shortage criteria should be based on purchases and not on sales. Considering these relevant facts and evidences produced before the CIT (A), the CIT (A) was of the view that the shortage as claimed under various items was neither excessive nor unreasonable.
3.4 As regards stock of tin anode of 41 kgs. Not shown separately by the assessee, the CIT (A) accepted the contention of the assessee that the small item in quantity might have got mixed up with the other items and it was for this reason there was no separate sale. In the light of these facts and evidences, the CIT (A) was of the view that the addition made by estimation the shortage at 0.5% for all the items and holding that the excess claimed is sold outside the books of account is only on unfounded presumption of the assessing officer which is not supported by any materials. Therefore the assessing officer was not justified in making addition of Rs. 2,27,832 as value of scrap sold out of books of account. Accordingly the addition of Rs. 2,27,832 was deleted.
3.5 Before us the learned Departmental Representative submitted that in assessment year 1989-90 0.5% has been accepted in case of copper. So the same percentage of shortage in other non-ferrous metal as discussed above, is justified. The learned Departmental Representative also objected that certain regarding shortage have been made on the basis of material produced before the CIT (A) and no opportunity of the same was given, which is violative of principles of natural justice and ultimately supported the order of the assessing officer.
3.6 On the other hand, the learned authorised representative submitted that the assessment for assessment year 1990-91 dated 16-2-1992 and in assessment year 1991-92 dated 30-3-1994 is made by the same assessing officer. In this regard the assessee drew our attention that the assessee was not merely trading in non-ferrous metal but he was engaged in sorting, cleaning and processing the material before making them commercially viable products. In this regard our attention was drawn towards the balance sheet wherein fixed assets have been mentioned which include factory building, plant and machinery, material and expenses, electricity expenses, shed repairing expense, water charges etc. All these factors discussed above, lead to the fact that the assessee is not simply a trader but processing various products to make them commercially consumable products. The learned AR also submitted that in assessment year 1989-90 the assessee was trading in copper and shortage of 0.5% was admitted because of involvement of small amount of additions and to avoid prolonged litigation. The learned authorised representative also reiterated that the shortage should be calculated on the basis of purchase and not on sales.
3.7 After going through the rival submissions and material on record, we are not inclined to interfere with the findings of the CIT (A) as the very basis for additions is shortage of 0.5% in assessment year 1989-90. It is pertinent to mention that in assessment year 1989-90 the assessee was dealing only in copper while in assessment year before us the items are in addition to copper. In case the assessee has accepted certain shortage in assessment year 1989-90 it will not act as res judicata against him because the facts and circumstances vary. Without being prejudiced to our observations, at the most 0.5% can be taken in copper, but in the year under consideration the assessee is dealing in lead, MG Silicon and tin anode, in addition to copper. The shortage in all these non-ferrous metals will vary depending on physical and chemical composition of each item. We are in agreement with the CIT (A) who has deleted the additions on account of shortage by observing that the shortage as claimed under various items is neither excessive nor unreasonable. The same is upheld.
4. In ITA No. 1606/Ahd./1995 for assessment year 1991-92, the first issue is regarding foreign travelling expenses of Rs. 41,286 out of total foreign travelling expenses of Rs. 1,23,838. The assessing officer disallowed the expenditure on foreign travelling Rs. 1,23,838 observing that the trip undertaken by the Director to meet the prospective suppliers is not supported by any evidences and cannot be accepted as a business trip. It was also observed by the assessing officer that the Director has gone with and his family and it was basically meant for personal trip. He accordingly hold that the expenses are not wholly and exclusively for business purpose and disallowed the same under section 37(1) of the Act.
4.1 The matter was carried in appeal before the First Appellate Authority wherein the list of parties in UK and US was submitted, with whom the assessee had dealings as a result of trip undertaken and reflected in the subsequent year, which is as under :
United Kingdom-List of Parties
IMPA Overseas 80-82 Greenfield Road, London FI IET
Jacob Metals Ltd. Clareville House, 25-27, Oxendon Street, London SWIY 4EL
United States of America-List of Parties
Ruby Metal Traders Inc. 12303, Edwina Blvd
Houston, Texas 77045 Sri Ji Coimbatore Enterprises Inc. 258 Park Avenue Willinston Park New York 11596
It was also submitted that on the basis of facts and circumstances the trip undertaken is for the purpose of business and since it is not for acquiring any capital asset it is of a revenue nature. The CIT (A) after taking into consideration that apart from the cost of the tickets no other expenses have been claimed, observed that the expenditure for the tickets of his wife and minor children cannot be considered for the purpose of business. Therefore the CIT (A) restricted the disallowance to Rs. 82,552 and allowed only Rs. 41,276 and rest was disallowed. The assessee has accepted the same. However, the revenue is agitating this relief before us.
4.2 The main contention of the learned Departmental Representative was that the assessee has not substantiated its claim. The learned authorised representative drew our attention to assessees paper book page No. 3 which shows Invoice dated 4-7-1991 wherein Zinc has been mentioned which supports the business transact lion with IMPA as mentioned above. The learned authorised representative submitted list of places visited by the assessees director along with business deals. It was submitted that on the basis of business trip in the year, zinc was traded in the next year. The assessee filed the details in this regard, which were not disputed by the learned Departmental Representative. In the facts and circumstances of the case, we are of the view that the CIT (A) has granted relief in respect of cost of ticket of the assessees director, who has contacted various parties abroad including IMPA with whom the assessee had business dealings in subsequent years. This justify the visit of the Director as business trip. Even if the items are not traded in the year of business of visit, it makes no difference. But in the instant case the deals were finalised and business transactions took in subsequent years. So we do not find any infirmity in the order of the CIT (A) in relation to this ground and same is upheld.
5. The next issue is regarding the addition of Rs. 8,40,646 as excess wastage claimed and considered as sold outside the books of account. We have dealt with this issue in assessment year 1990-91. The assessing officer considered the shortage to be allowed at 0.5% as reasonable and held that in the case of Silicon 3.61% of shortage weighing 11,279.6 kgs. and in the case of manganese 6.27% of shortage weighing 8.376 legs. not allowable. He has held that these quantities have been sold by the out of its books of account and have not been reflected in the Return of Income. By taking the average selling price of Silicon of Rs. 36.3 and manganese of 51.48 he made addition of Rs. 4,09,450 and Rs. 4,31,196 totalling Rs. 8,40,646. He also observed that in assessees case for assessment year 1989-90 the shortage of copper is estimated at reasonable by the CIT (A) and therefore, the same should be considered as reasonable for shortage in silicon and manganese.
The learned CIT (A) after detailed discussion and following the background of assessment year 1989-90 and 1990-91, deleted the addition by observing as under :
“10.4 I have considered the submission and the facts. This issue was examined by me in the appellants case for assessment year 1990-91. The estimation of shortage made by the assessing officer on the basis of shortage in copper in assessment year 1989-90 is incorrect and the presumption that the shortage claimed in manganese and silicon is excessive is without any evidence and unfounded. He has not brought on record any evidence or material in support of his presumption either. On the facts and evidences and from the samples produced it is apparent that there are various factors to be considered in arriving at the shortage and apparently the assessing officer has not applied his mind to these factors. On the facts and evidences, I am of the view that the shortage claimed is not excessive and I also agree with the counsel that the shortage is to be worked out on purchases and not on sales. In the circumstances, the addition made is untenable and unjustifiable. Accordingly I delete the addition of Rs. 8,40,646.”
5.2 The learned Departmental Representative supported the order of the assessing officer. On the other hand, the learned authorised representative supported the order of the CIT (A).
5.3 After going through the rival submissions and in view of the fact that the facts and arguments are identical with those in assessment year 1990-91, wherein this issue has been decided vide para No. 7 of this order. Same is not repeated for sake of brevity. In view of this, we are not inclined to interfere with the findings of the CIT (A) in relation to this ground and same is upheld.
6. The next two grounds in this appeal relate to addition of Rs. 1,59,033 on account of excess stock treated as purchase out of purchase out of unaccounted money and addition of Rs. 2,22,618 on account of deficit stock found during the course of search treated as sold outside the books of account.
The assessing officer has taken the excess stock found during the course of search at Rs. 4,59,033 in various items of scrap as purchases made by the assessee out of an unaccounted income and after deduction of the amount of Rs. 3 lakhs which is disclosed and shown in the Return of Income added the balance of Rs. 1,59,033 as sold by holding that the excess stock of Rs. 4,59,033 found during the search was purchased by the assessee out of its unaccounted income and accordingly it was added in the total income of the assessee. Similarly addition of Rs. 2,22,618 was made on account of deficit stock found during the course of search, treated as sold outside the books of account.
6.1 Both the issues were taken before the First Appellate Authority. Regarding the first issue, the learned First Appellate Authority after considering the submissions made by the assessees counsel, held as under in para 11.3 of his order :
“11.3 I have considered the submission and the facts in detail. The authorised officer during the course of the search made physical verification of the stock and it is a fact that because of the mixing up there was excess stock in some items and deficit in some other items. After reconciling the authorised officer came to the conclusion that the unaccounted stock is about Rs. 3 lakhs and this amount was disclosed under explanation to section 271(1)(c) in the statement recorded under section 132(4) of the Act of Shri R.L. Kabra, Director. The finding of the assessing officer that the excess and deficit are to be considered separately and the excess as purchase from unaccounted income and the deficit sold outside the books of account, is incorrect because in the absence of any evidence in support of such a presumption is unfounded. As the appellant has made the disclosure after the authorised officer was satisfied with, the unaccounted stock on physical verification the same should have been accepted by the assessing officer. On the facts and evident, I am of the view that there is no justification in making the addition of Rs. 1,59,033 as excess stock purchased out of unaccounted income. The addition does not sustain and is accordingly deleted.”
6.2 While regarding the addition of Rs. 2,22,618 the learned CIT (A) has Vide para 12.1 held as under :
“12.1 I have considered the submission and the facts. The assessing officer is in error in considering the deficit and excess separately and making two separate additions. The factual position as worked out by the authorised officer is the correct method to be adopted and the enclosure of Rs. 3 lakhs cover the excess/deficit stock. There are no new facts brought about by the assessing officer in support, that the appellant has sold deficit stock without recording in the books of account. In fact no such evidence was found during the course of the search. In the circumstances, I am of the view that the addition made is on unfounded presumption and cannot sustain. The addition of Rs. 2,22,618 is accordingly deleted.”
6.3 Before us the learned Departmental Representative supported the order of assessing officer and the learned authorised representative supported the order of the CIT (A).
6.4 After going through the orders of the authorities below and hearing both the parties, we are of the view that the CIT (A) has rightly deleted the additions because assessee was keeping the stock of all non-ferrous metal together, so there are chances of inter mixing resulting into deficit in certain & also excess in other items. We are of the view practically it is difficult to maintain details of each item with their identity. After taking into consideration all facts and circumstances we upheld the order of CIT (A) on both the issues.
7. The next 2 grounds relate to addition of Rs. 4,19,497 for excess stock of copper found at Bombay acquired out of unaccounted income and Rs. 18,89,985, the deficit stock found at Bombay treated as sold outside the books of account. The assessing officer found from the stock register that on the date of survey on 28-11-1990 the following stock should have existed at Bombay:
Tin
3000.0 Kgs.
Silicon
25611.4 Kgs.
Nickel
2500.0 Kgs.
As against this the stock found at Bombay godown was as follows :
Copper
54,390 Kgs.
Silicon
714 Kgs.
Nickel
1,927 Kgs.
The assessing officer accordingly held that at Bombay there was excess of copper by 54,390 Kgs. and shortage of tin by 3,000 Kgs., nickel by 573Kgs. and silicon by 24,897 Kgs. He held that out of the stock found at the godown No. 3 Sumhita Warehousing Complex, assessees godown, the stock belonging to the assessee company was as follows :
Stock Found
Stock belonging to Madhav Metal
Stock belonging to “A” Company
Copper
54,390
48,892
5,498
Nickel
1,927 (2533-2482)
51
1,876
Silicon
714
680
74
Tin
Nil
–
–
Now, if the stock found is taken as given above the discrepancy in the stock of various types of scraps at Bombay will be as follows :
Stock Found(Kgs)
Stock on 28-11-1990 as per stock register(Kg)
Excess(+)Deficit(-) (Kg)
Copper
5,498
Nil
(+)5,498
Nickel
1,876
2,500
(-)624
Silicon
34
25,611
(-)25,577
Tin
Nil
3,000
(-)3,000
By taking the average sale price of the above items, he worked out the value of excess deficit stock as under :
1. Rs. 4,19,497 = 5498 X 76.3 are added for the unaccounted income invested in the excess stock of copper found.
2. Rs. 18,89,885 = (624 X 322.5 + 25,497 X 36.3 + 3000 X 253.4) are added for the unaccounted proceeds of the deficit stock of Nickel, Silicon and Tin.
Accordingly, the excess stock was considered as purchases out of books and the deficit stock as sold outside the books of account and the assessing officer made additions of Rs. 4,19,497 and Rs. 18,89,885 respectively.
7.1 Before the learned CIT (A) the assessee advanced lengthy arguments, which the learned CIT (A) has considered in para 14.2 of his order. The learned CIT (A) after considering the submission made on behalf of the assessee, held as under in paras 14.3, 14.4 and 14.5 :
“14.3 I have considered the submission and the facts, in there is discrepancy of stock of Madhav Metal Distributors, the discrepancy is to be explained by them and I do not understand as to why the excess is considered as that of the appellant. In fact from the materials on record, I do not find any evidence in support that part of the copper found belongs to the appellant. As Shri Vijay N. Maheshwari has failed to point out at the time of every about the defect in the weighment, the appellant cannot beheld responsible because the statement of Shri Vijay N. Maheshwari recorded by the authorised officer and it was for him to put the relevant question. At any rate, from the facts and evidences, there is no evidences in support that 5,498 kgs. of copper is the excess stock of the appellant purchased out of his unaccounted income. In view of this the addition made of Rs. 4,19,497 as the appellants unaccounted income is untenable and unjustifiable. The addition therefore, does not sustain. I accordingly delete the addition of Rs. 4,19,497.
14.4 As regards the addition of Rs. 18,89,855 relating to the deficit stock the counsel for the appellant submitted that the stock of nickel, silicon and tin found during the course of search was inventorised as appearing on pages 41 and 42 of the paper book submitted during the course of appeal hearing. As per the stock register of the appellant, the stock of tin, silicon and nickel was as under :
Tin
3,000 kgs.
Silicon
25,611.4 kgs.
Nickel
2,500.0 kgs.
As against this stock of silicon and nickel weighing 714 kgs. and 1,927 kgs. is considered to be belonging to Madhav Metals Distributors. Accordingly, this was not found during the course of search/survey. During the course of the assessment proceedings, the appellant vide letter dated 21-1-1994 and 8-2-1994 informed the assessing officer that the above mentioned stock was lying in room No. 3 at 43/63, Sitaram Podermal, Bombay-2 which place was never searched or surveyed by the authorised officer. The finding that this is an after thought of the appellant is without any basis and unfounded presumption of the assessing officer. It is also submitted that this stock cannot be said to have been sold outside the books since the subsequent sales have been made from this stock after the date of survey till the close of the accounting year and even the closing stock shown in the balance sheet includes this stock found during the course of survey. He also submitted that the finding of the assessing officer that the appellant has acquired another stock out of unaccounted income from which sales have been effected and closing stock, shown, is purely on guess work and against the principles of pre-ponderance of probabilities. In fact no prudent businessman would ever resort to such a device. Further, it is also submitted that the finding of the assessing officer is totally contradictory to the finding given on page 14 para 4 of the assessment order as a similar submission was made by the appellant in respect of taxing the net of the excess and deficit stock for Ahmedabad godown and he has considered the argument as “illogical”. It is also such submitted that from the statement recorded of Shri Vijay N. Maheshwari (copy furnished in the paper book), it can be seen that no question has been put forward in regard to the stock lying at some other godown. It was submitted that on the facts and evidences, the addition of Rs. 18,89,885 as deficit stock by the appellant outside the books of account is untenable and requires to be deleted.
14.5 I have considered the submission and the facts. From the facts and the evidences produced, the estimation made by the learned assessing officer is without any evidences or basis and, therefore, it is an unfounded presumption that the appellant does not have the stock and the same has been sold outside the books of account. The theory of the assessing officer that the appellant has purchased fresh stock sold the same and shown the balance in the balance sheet is also based on the surmises and conjectures and I fully agree with the counsel for the appellant that no prudent businessman will ever resort, to such a procedure when it is totally disadvantage to him. At any rate, the assumption of the assessing officer is without any evidences and if, therefore, unfounded. On the basis of the facts and evidences produced during the course of the assessment proceedings and in the absence of any material brought on record it was incorrect on the part of the assessing officer to assume that the appellant has sold stock valued at Rs. 18,89,885 outside the books of account and that he has replaced the stock from which subsequent sales and balance shown in the closing stock. On the facts and evidences produced of the sale and stock shown there is no deficit as assumed and the sale of the same outside the books of account. In the circumstances, the addition made of Rs. 18,89,885 does not sustain and I accordingly delete the same.”
7.2 Before us, regarding the addition of Rs. 4,12,497 on account of unaccounted excess stock of copper considered as purchases out of the books, the learned Departmental Representative mainly relied on the order of the assessing officer and to strengthen the same our attention was drawn to assessees paper book page 80 which contains legible copy of statement of Shri Vijayraj N. Maheswari-an employee of the assessee to show the discrepancy in copper stock of the assessee. Our attention was also drawn towards pages 73 and 74 of the paper book to justify the reasoning for addition in question. Our attention was also drawn towards various documents placed in the paper book to show that the assessee has not given convincing reasons as to justify deletion of the addition in question. Accordingly the addition of Rs. 4,12,497 made by the assessing officer on account of excess stock considered as purchases out of the books should be sustained.
7.3 On the other hand, the learned authorised representative pointed out towards page 16 para 12. It was submitted that during the course of survey carried out at Bombay and Ahmedabad, physical inventory was prepared as per Panchnama and weighment was made by considering the estimated weight of copper brass. Again our attention was also drawn by the learned authorised representative towards page 80 of this paper book as mentioned above wherein in response to question Nos. 1 and 2, abovesaid Vijayraj N. Maheshwari as under :
1. Kindly state as to what exactly are the business activities of M/s. Mercury Metal (P) Ltd. and what is your relation with the above firm ?
Ans. M/s. Mercury Metals (P) Ltd., carrying on the business of manufacturing Non-Ferrous Metal Rods/Ingots at C/1/3, Odhav, Ahmedabad and imported and purchase on Highseas Basis. I am an employee of the said concern for the last 3 years and my job is to handle the Bombay Office particularly looking after the clearing of the goods from the docks and forwarding the goods from Bombay to Ahmedabad-our Head Office.
2. Kindly state as to what are the other business run from your above mentioned office premises ?
Ans. Besides the above mentioned concern, I am running a small business called Madhav Metals Distributors, which is the Proprietary Concern of Vijayraj N. Maheshwari HUF assessed under GIR No. 52-V/AC/25(2).
Our attention was also drawn towards page 74 of the assessees paper book wherein at Sr. No. 1 physical stock of copper brass is considered at 54390 kgs. (461 pieces in 118 kgs. which is as Panchnama). It was also reiterated that the weight of copper brass cannot be uniform as considered by the authorised officer and accepted by the assessing officer that copper brass belonged to Madhav Metals Distributors wherein 48392 kgs. are included therein. Therefore the resultant 5498 kgs. (54390-48892) is considered to be the stock of the assessee. It was further submitted that when the majority of the copper belonged to Madhav Metals Distributors, it will be wrong to assume that the stock of assessee was also included in the stock of copper brass mentioned in the inventory. Our attention was drawn towards letter dated 31-3-1994 addressed to Principal Officer, M/s. Mercury Metals (P) Ltd. from Shri Sunil Mathur, Assistant Commissioner, Central Circle 1 (1), Ahmedabad which is placed at page 68 of the paper book. The said Shri Sunil Mathur, Assistant Commissioner makes it clear that the assessee was maintaining separate stock register for Bombay and Ahmedabad. The learned authorised representative submitted that the addition made by the assessing officer was on the basis of presumptions and contrary to the evidence available. He accordingly supported the order of the CIT (A).
7.4 After going through the rival submissions and material on record, we are not inclined to interfere in the findings of the CIT (A). The addition has mainly been made on account of discrepancy in the case of Madhav Metals Distributors. In case Madhav Metals Distributors has not explained its excess stock, it should not be presumed to be belonging to the assessee. The revenue authorities have not brought anything on record to justify the addition in the hands of the assessee. The addition has been made on the basis of statement of Shri V.N. Maheshwari and the assessee was not confronted with the said statement, which is not justified. In the facts and circumstances, the order of the CIT (A) is upheld.
7.5 As regards the addition of Rs. 18,89,865 relating to deficit stock, the learned Departmental Representative supported the order of the assessing officer and our attention was drawn towards the statement of above said Shri V.N. Maheshwari, towards question No. 5 which reads as under :
5. On going through your purchase and sales record of Madhav Metals Distributors, it is seen that you should be in possession of around 680 kgs. of Silicon Metal, 2635 kgs. of Nickel and around 49 tones of Copper Electrolyte Wire. Kindly give the details of the where about of the said stock ?
Ans. The said stock is partly lying, at the Office-cum-Godown premises of Madhav Metal at. 91, K-9, Koliwali, Fanaswadi, Bombay1 and partly lying at the godown premise of M/s. Mercury Metals (P) Ltd. at Godown No. 4, Building 16A, Samhire Warehouses Complex, Andheri (E) Bombay.
Our attention was also drawn towards page 74 to point out the address of godowns. The learned Departmental Representative submitted that the assessee has not pointed the correct details of its godowns at appropriate time. Accordingly he urged that the addition should be sustained. On the other hand the learned authorised representative reiterated the stand taken by the assessee before CIT (A) that the stock of nickel, silicon was inventoried during the course of search which is matter of record. As per the stock register of the appellant, the stock of tin, silicon and nickel was as under :
Tin 3,000 kgs., silicon 25,611.4 kgs. and Nickel 2500.0 kgs. As against this stock of silicon and nickel weighing 714 kgs. and 192 kgs. is considered to be belonging to Madhav Metals Distributors and same was not found during course of search. This fact was conveyed to the assessing officer vide letter dated 21-1-1994 and 8-2-1994 that above mentioned stock was lying in room 3 at 43/63 Sitaram Podermal, Bombay-2. The said place was never searched or surveyed by concerned authorities of Income Tax Department. The stand of learned authorised representative was that stock cannot be said to have been sold outside the books since subsequent sales have been made from this stock after date of survey till close of accounting year and even the closing stock shown in balance sheet includes this stock found during the course of survey. According to learned authorised representative there is nothing on record to suggest from statement of said Vijay Maheshwari that no question was put across as regards to stock lying at some other godown. Accordingly it was submitted that the addition of Rs. 18,89,885 as deficit stock sold outside the books by the appellant is not justified and same be deleted.
8. After considering the rival submissions and going through the material on record, we find that addition of Rs. 18,89,885 has been made for unaccounted proceeds of deficit of stocks and details as mentioned above. Assessing officer has made estimation without support of cogent evidences and firm foundation. Revenue has not been able to bring on record even after the search that there is sale outside books of account. The theory of sale that the assessee had purchased fresh stock and sold the same and shown in the balance sheet is based on surmises and conjectures. On the basis of facts and evidence produced during the course of assessment proceedings and in absence of any material on record, it is not justified on the part of revenue to assume that the assessee has sold stock valued at Rs. 18,89,885 outside books of account and that he has replaced the stock from which subsequent sales and balances as shown in closing stock. In the facts and circumstances of the case, no interference is called for in the order of CIT (A). Same is upheld.
9. The last ground in this appeal relates to addition of Rs. 63,735 on account of stock bardan found during the course of search. The assessing officer has held that the appellant has not offered any explanation for the gunny bags of 9105 found during the search and by estimating the value of each gunny bag at Rs. 7 lakhs made the addition of Rs. 63,735. The learned CIT (A) has restricted the addition to Rs. 5,000 by observing as under :
“13.2 I have considered the submission and the facts. Apparently the estimate of the value of the gunny bag used for packing of scrap cannot fetch Rs. 7 as assumed. Further the explanation that some of the bags which are in good condition are to be re-used cannot be brushed aside. It is also fact that the bag cannot fetch more than 50.00 ps. per bag. Therefore, after considering the factual position, I feel that an addition of Rs. 5,000 by estimating 50 per cent bag it would be reasonable to estimate the addition to be made at Rs. 5,000. The addition is restricted to Rs. 5,000 and the appellant gets relief of Rs. 58,735.”
10. After considering the rival submission and going through the material on record, we are not inclined to interfere with the findings of CIT (A), who has restricted the addition of Rs. 63,735 on account of stock Vardana found during the course of search for the reasons given above. Same is upheld.
11. In the result, both the appeals are dismissed.