Judgment:
D.A. Mehta, J.
1. The appellant revenue has proposed the following question :
Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 8,24,762/- made by the Assessing Officer in respect of excess stock of fabric found during search by preventive Wing of the Central Excise Department?
2. Heard Mr. M.R. Bhatt, the learned senior standing counsel appearing for the appellant. It is submitted by him that the Tribunal has failed to assign any reasons as to why the order of CIT (Appeals) was incorrect in any manner whatsoever and in absence of the Tribunal having dealt with the reasons given by the Commissioner (Appeals), the Tribunal could not have reversed the findings recorded by CIT (Appeals) so as to grant relief to the assessee concerned. In support of the proposition, he has placed reliance on decision of this Court rendered in case of Rajesh Babubhai Damania v. Commissioner of Income Tax : [2001]251ITR541(Guj) .
3. ADMIT. The following substantial question of law arises for determination.
Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not dealing with the reasons assigned by Commissioner (Appeals) for sustaining the addition made by the assessing officer especially in absence of any material to dislodge the said findings having been placed on record by the assessee?
2. Upon issuance of notice, Mr. H.M. Talati, the learned advocate appears on behalf of respondent assessee. With the consent of the learned counsel, the appeal is taken up for final hearing and disposal.
3. Mr. Talati has vehemently supported the impugned order of Tribunal by inviting attention to the observations made by Tribunal in paragraph No. 5 of its order dated 9/2/2004. He also referred to the extract of assessee's communication dated 18/2/1995 reproduced by the assessing officer in paragraph No. 7 of the assessment order. It was submitted by Mr. Talati that once the excise authorities had recorded that there was excess stock as well as shortfall in stock, the net figure, which was very small, could be explained by referring to the rate of gross profit. That Tribunal had accordingly undertaken such an exercise by referring to the gross profit rate for the year under consideration while comparing the same with the gross profit rate for the earlier year and come to the conclusion that the addition made by the assessing officer was not warranted merely because there was slight fluctuation in the gross profit rate which was bound to vary from year to year.
4. On going through the entire order of Tribunal, it transpires that paragraph No. 3 of the Tribunal's order reproduces the facts and the conclusion as recorded by the assessing officer. The last line of the said order states. The CIT (Appeals) confirmed action of the assessing officer.. Thereafter, in paragraph No. 9, the submissions made on behalf of the assessee have been reproduced and the last portion of the said paragraph reproduces the contentions raised on behalf of the department. As already noticed hereinbefore, paragraph No. 5 of the impugned order goes on to delete the addition on the basis of the total income declared by the assessee, the turnover and the rate of gross profit without there being a single sentence to even suggest as to how and in what manner the order of Commissioner (Appeals) is incorrect in any manner whatsoever.
5. The Commissioner (Appeals) has held that :
8. After going through the facts of the case and submissions of the appellant, I am of the opinion that the addition of Rs.8,24,762/- has been rightly made. There is no dispute that Officers of the Excise Department carried the stock verification. There is no reason to believe that the verification was wrongly done since the same was done in the presence of representative of the assessee. The stock was verified and recorded in the presence of assessee's employees and independent witness too. Shri Mohanlal Agarwal, Mg. Director in his statement also admitted the fact of excess stock and gave various reasons for its possibility. The arguments for variation of stock were put before the Collector of Central excise, Ahmedabad who confirmed the facts of excess and shortage and also confirmed the levy of penalty. It is a fact that no production record such as lot register, folding reports etc., were produced before the Assessing Officer, nor did the assessee file any reconciliation as to what was the stock of books and how the same was tallying with the actual physical stock. If the assessee was in a position to reconcile the difference, at least that was desirable on the part of the assessee to put the reconciled version on record of the Assessing Officer for his verification. The records of the Excise Authorities are a good piece of evidence and Assessing Officer's reliance on that cannot be called unjustified. The information relied upon was in the knowledge of the assessee who was duly asked to re-concile the excess of stock. It is not, therefore, correct to say that information collected from Excise Department was not confronted to the assessee. The Excise Authorities had gone into complete version of the assessee and only then have rejected the same. Reliance on that information and findings of the excise authorities cannot be termed improper. When stock is found in excess, onus can hardly be put on the revenue to prove that out of books purchases were made. This is an implied proposition which hardly needs further evidence. Mere fact that assessee's appeal is pending before the Excise Tribunal is no bar in completing the assessment by the Assessing Officer. In view of foregoing, the addition as made is confirmed.
2. The approach adopted by Commissioner (Appeals) is perfectly in order. The stocks of produced goods were found from the assessee's premises and the assessing officer rightly called upon the assessee to explain the discrepancy, namely, excess stock as recorded by the excise authorities vis-a-vis the stock as per books. Apart from tendering a bald explanation that there could be variation in mentioning of stocks of one quality as against stocks of another quality, the assessee has not chosen to discharge initial onus which lay on it to explain with reference to its own books of account as well as statutory records the assessee was required to maintain under the provisions of the Central Excise Act and the Rules. The Tribunal has failed to singularly deal with this aspect of the matter as to how the Commissioner (Appeals) was not justified, in calling upon the assessee to explain the discrepancy and on failure of the assessee to tender a cogent explanation drawing an adverse inference, is not shown by the Tribunal.
3. The contention on behalf of the assessee which has been accepted by the Tribunal that there was both excess and shortage of stock as recorded by the excise authorities fails to take into consideration the fact that the assessing officer himself has recorded in the assessment order in the following manner :
As regards the shortage of stock in certain lots found by the excise authorities, the assessee has stated that the sale of these goods are included in his books of accounts. This quantitative details furnished by the assessee are complete. I agree with the assessee that though the goods were not found in the factory during the search, the sales of these goods are entered in the books.
2. Thus, the so-called shortage was in fact relatable to sales of goods which had already been entered in the regular books of account maintained by the assessee. This aspect itself ought to have given an indication to the Tribunal that when the assessee is in a position to explain the discrepancies as to so-called shortage, the assessee must be called upon to explain the so-called excess in similar manner by reference to the regular books and the records maintained by the assessee.
3. The Tribunal has, therefore, failed to approach the issue in a proper manner. In other words, the order of the Tribunal does not reflect that the Tribunal was in fact aware of the controversy before it or what was the issue that was to be decided by it, what were the factors and evidence for and against the assessee, and in what manner, the assessee, on whom the burden lay, had discharged the same. The impugned order of Tribunal, therefore, cannot be sustained and is required to be quashed and set aside. However, it would be in the interest of justice if the matter is restored to the file of the Tribunal so as to enable the assessee to tender its explanation after placing necessary evidence on record.
4. The question is, therefore, answered in the negative, that is to say, the Tribunal was not justified in law in not dealing with the reasons assigned by the C.I.T. (Appeals) while reversing the decision of C.I.T. (Appeals).
5. Accordingly, the impugned order of Tribunal dated 9/2/2004 rendered in I.T.A. No. 1124/Ahd/1997 for assessment year 1992-93 is quashed and set aside and the appeal is restored to the file of the Tribunal for being decided afresh after giving reasonable opportunity of hearing to both sides.
6. The appeal is, accordingly, allowed. The respondent assessee shall pay the costs quantified at Rs. 2,500/-.