Commissioner of Income Tax vs Narmada Ginning and Pressing Factory

A.K. Patnaik, C.J.—This is an appeal u/s 260A of the IT Act, 1961, filed by the CIT, Bhopal, against the order dt. 31st March, 2006, of the Tribunal, Indore Bench, Indore, for the block period 1st April, 1995, to 30th Nov., 2001.

At the time of admission of the appeal, the following substantial question of law was formulated by this Court by order dt. 24th Nov., 2006:

Whether the Tribunal was justified in rejecting the addition made by the AO on account of variation in stock found in course of search and seizure operation and further the opinion that no surcharge was leviable in respect of search conducted during financial year 2001-02 even when the levy of surcharge has been provided by Part I of the First Schedule to the Finance Act, 2000 (10 of 2000) [first proviso to Section 2(3) of the Act 10 of 2000] ?

We have heard Mr. Rohit Arya, learned senior counsel for the appellant and Mr. Sumit Nema, learned Counsel for the respondent and we find that the AO had made an addition of Rs. 30,59,822 on account of variation in stock found in the premises of the respondent in the course of search. In appeal filed by the respondent, the CIT(A) found that in the business premises of the respondent, stocks of other sister-concerns of the respondent, namely, M/s Narmada Ginning & Pressing Factor, M/s Vivek Kumar Gopaldas, M/s Vinayak Ginning Factory and M/s Vishwanath Flour Industries, were also kept and the CIT(A) held that the combined stock of the respondent as well as of its sister-concerns available in the premises of the respondent should have been taken into consideration for the purpose of finding out whether there was any variation of the stock compared to the stock shown in the books of account of the respondent as well as other sister-concerns. After taking into account the combined stock, the CIT(A) held that only Rs. 4,96,021 could be added in the hands of the respondent on account of variation of the stock.

On further appeals by the Department, as well as by the assessee/ respondent, the Tribunal found in the impugned order that the CIT(A) had rightly held that the variation in stock should have been worked out after taking into account the entire stock of all the group concerns found in the course of search commodity-wise. The Tribunal also held that the addition of Rs. 4,96,021 on account of such variation in stock as held by the CIT(A) was also not justified for the following reasons : (i) accurate weight of wheat, soyabean, unpressed cotton, cotton seeds, Chana and cotton bales (Rui) is not practically possible to estimate; (ii) due to weight loss, etc., there are chances of minor difference; (iii) the method adopted for weighment of stock by search party was not proper; (iv) no incriminating material was found during search which could prove that the respondent-assessee had purchased or sold the goods outside the books; (v) the difference in shortage was due to wrong estimation of loose commodities; (vi) so far as shortage in bale (Rui) is concerned, the difference in stock was on account of 256 quintals which was loaded in the trucks and 506.15 quintals which was received from Radha Ginning Factory, Harsood and this was evident from the sale bills and transport vouchers of cotton bales, affidavit, account and certificate of Radha Ginning Factory and other documents in respect of the sale of cotton bales which were in the paper book filed before the Tribunal. It is, thus, clear that on the materials available before it, the Tribunal found that the addition of Rs. 4,96,021 in the hands of the respondent on account of variation of stock as sustained by the CIT(A) was not justified. In our considered opinion, the conclusion of the Tribunal that the addition made by the AO on account of variation of stock found in the course of search was based on the assessment of facts by the Tribunal and no substantial question of law as such arose from the order of the Tribunal for decision in the appeal.

Regarding surcharge under the proviso to Section 113 of the IT Act, 1961, the Tribunal has held that the proviso to Section 113 under which the surcharge is levied was inserted by the Finance Act, 2002, w.e.f. 1st June, 2002, and since the search took place on 30th Nov., 2001, i.e., before introduction of the proviso to Section 113 of the IT Act, 1961, the CIT(A) had rightly deducted the surcharge levied by the AO. It is not in dispute; that the search took place on 30th Nov., 2001, and that the Finance Act, 20021 introduced the proviso to Section 113 w.e.f. 1st June, 2002, and, therefore, no surcharge was leviable under the proviso.

For the aforesaid reasons, we hold that the Tribunal is justified in rejecting the additions made by the AO on account of variation in stock and in forming an opinion that no surcharge is leviable.

The appeal is, thus, dismissed.