Girish Agrawal ORDER
Sonjoy Sarma, Member (J)
1. This appeal filed by the assessee against the order of ld. CIT(A) - Burdwan dated 11.03.2019 arising out of assessment order passed u/s. 143(3) of the Act relevant to assessment year 2011-12. The assessee has taken the following grounds of appeal:
"i. For that estimation and confirmation of higher G.P. on unaccounted sales by the appellate authority is baseless and on surmise since appellant actual audited G.P. rate is lower.
ii. For that ld. appellate authority failed to appreciate the fact that the said higher estimation of GP by AO has been done without rejecting the books of accounts. Hence, it is grossly incorrect.
iii. For that confirmation of addition on excess stock is unjust and bad in law since the said amount is the business income of the appellant. Hence only the audited G.P. rate is applicable on said amount.
iv. For that since the excess stock found on survey is the part and parcel of the identical goods manufactured by the appellant and since it is separately identifiable, therefore such excess stock is the business income of the appellant.
v. For that there has been no tax evasion by the appellant on excess stock found in survey as the appellant paid huge advance tax of Rs. 36,99,000/-.
vi. For that confirmation of the TDS addition on freight charges is unjust and incorrect since there has been no written agreement with the transporter and appellant is not the transport contractor.
vii. For that appellant may modify the grounds."
2. Brief facts of the case are that the assessee is a private limited company engaged in rice bran (solvent) and rice bran oil refinery. A survey was conducted u/s. 133A of the Act in the case of assessee on 27.01.2011. The case of the assessee was selected for scrutiny. Accordingly, notices u/s. 143(2) and 142(1) of the Act were issued upon the assessee and in response to such notice, the ld. AR of the assessee appeared time to time before the ld. AO. During search operation, the books of accounts of the assessee were impounded and explanation of these impounded books it reveals that some books of accounts were not explained and certain transactions were not reflected in the books of accounts. The ld. AO while examining the various documents and other transactions connected to the said survey proceedings and after due consideration of the submission of the assessee and examining the necessary documents as well as books of accounts, the additions were made under various heads.
3. Aggrieved by the above order passed by the ld. AO, assessee preferred an appeal before the ld. CIT(A) but the appeal of the assessee was partly allowed. The ld. CIT(A) in his order observed that the addition made by the ld. AO on account of excess stock of Rs. 53,94,245/- has been justified under the provisions of law and sustained the addition of Rs. 53,94,245/- in the hands of assessee. He further sustained the addition of Rs. 4,30,000/- on account of non deduction of TDS on freight charges.
4. Dissatisfied with the above order, assessee preferred an appeal before the Tribunal against confirmation of addition of Rs. 53,94,245/- and Rs. 4,30,000/- respectively by the ld. CIT(A).
5. At the time of hearing, ld. AR submitted before us that the ld. CIT(A) in his order accepted the fact that alleged excess stock as income from the business. Therefore, the addition made by the authorities below on account of excess stock should be restricted only to the profit element in the stock and prayed that addition should be made @ 12% on alleged amount. On the other hand, ld. DR submitted before us stating that the assessee has miserably failed furnish any details during the course of assessment proceedings and even assessee did not make any endeavour to file revised trading account by incorporating the excess stock found during the course of survey. In such a situation, the claim of the assessee is not maintainable and liable to be dismissed.
6. We have heard rival submission/contention of the parties on this issue and on perusal of the material available on record. We noticed that the instant issue of addition of excess stock of Rs. 53,94,245/- made by the AO in the hands of assessee during the course of survey and the fact remain undisputed that the alleged stock is part of business income and the fact that it has been confirmed by the ld. AO in his order also. However, it is judicially settled principle that only profit element in such excess stock should be brought under the purview of the tax. Keeping into consideration, the gross profit rate and net profit rate disclosed by the assessee in the audited financial statements and also taking into consideration the submissions made by the ld. AR before us that the assessee is ready to offer 12% profit on excess stock and with a view to end of dispute between the parties sustained the addition on account of undisclosed stock of Rs. 6,47,310/- i.e. 12% of undisclosed stock of Rs. 53,94,245/- and partly allowed ground no. 1 & 2 raised by the assessee. Therefore, the impugned addition made by the ld. CIT(A) is hereby set aside in terms of our observation made above.
7. Ground no. 6 raised by the assessee regarding the confirmation of TDS addition on freight charges as the assessee being aggrieved by the order of ld. CIT(A) as carried the matter before us.
8. On this issue, the ld. AR submitted that as the payments were made towards hiring charges to the parties by obtaining PAN details of the transporters. He further contended that in terms of provisions of section 194C(6) stated that once the transporters provide the PAN details to deductor then no deduction required to be made on freight payment to such transporters as per section 194C of the Act. The ld. AR also relied on the decision of co-ordinate bench in the case of Somarani Ghosh vs. DCIT in ITA No. 1420/Kol/2015 where the Tribunal held that section 194C(6) or 194C(7) are independent to each other when condition as mentioned in section 194C(6) has been satisfied and need not required to comply with the provisions of section 194C(7) of the Act. Therefore, the impugned addition made by the ld. CIT(A) required to be set aside. On the other hand, ld. DR vehemently argued to the matter and contended that the provisions of section 194C(6) and 194C(7) are inter dependent and in assessee's case non-compliance by filing of TDS return, the ld. CIT(A) rightly set aside the claim of assessee. Therefore, the order passed by the ld. CIT(A) is a reasoned order on this issue.
9. We after hearing the rival submission of the parties and going through the various decisions of the co-ordinate benches, it is worth to state here that in the case of ACIT vs. Mr. Mohammed Suhail in ITA No. 1536/Hyd/2014 order dated 13.02.2015 specifically held that provisions of section 194C(6) is independent of section 194C(7) and just because there is violation of provisions of section 194C(7) disallowance of u/s. 40(a)(ia) does not arise if the assessee complies with the provisions of section 194C(6) of the Act.
10. In view of the above judgment rendered by the co-ordinate bench and following the judicial reasoning delineated in the above judgment, we find that the assessee complies with the provisions of section 194C(6) disallowance u/s. 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) of the Act.
11. Consequent to our findings in the preceding paragraph, we lead a conclusion that the authorities below are not justified in treating the expenses incurred by the assessee for freight charges as disallowable u/s. 40(a)(ia) of the Act and adding back Rs. 4,30,000/- claimed as expenses towards freight charges and such addition shall stand deleted.
12. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16.03.2023.
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