Sh. Anil Kumar Garg, New Delhi V. ITO, New Delhi

CO 206/DEL/2014

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2133 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANOJ K CHOPRA SENIOR
• Assessee Lawyers: J S PANNU; S B MEHTA S
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.6127/DEL./2012 (ASSESSMENT YEAR : 2009-10) ITO, WARD 35 (4), VS. SHRI ANIL KUMAR GARG, NEW DELHI. CM 403, ABHIMANYU APARTMENTS VASUNDHARA ENCLAVE, DELHI 110 096. (PAN : AGUPG2247F) CO NO.206/DEL/2014 (IN ITA NO.6127/DEL./2012) (ASSESSMENT YEAR : 2009-10) SHRI ANIL KUMAR GARG, VS. ITO, WARD 35 (4), CM 403, ABHIMANYU APARTMENTS, NEW DELHI. VASUNDHARA ENCLAVE, DELHI 110 096. (PAN : AGUPG2247F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI J.S. PANNU & S.B. MEHTA, ADVO CATES REVENUE BY : SHRI MANOJ K. CHOPRA, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJEC TION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT (APPEALS)-XXVII, NEW DELHI DATED 18.09.2012 FOR THE ASSESSMENT YEAR 2009-10. 2 ITA NO.6127/DEL/2012 CO NO.206/DEL/2014 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL WHICH READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ORDER OF LD. CIT(A) IS BAD IN LAW AND NOT IN CONSONANCE W ITH FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE , THE LD. CIT(A) HAD ERRED IN LAW BY DELETING THE ADDITION OF RS.39,20,490/- IN RESPECT OF SUPPRESSED SALES AND INFLATED CLOSING STOCK IN HIS P&L A/C. 3. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE , THE LD. CIT(A) HAS IGNORED THE OBSERVATION/RECALCULATION OF CLOSING STOCK AT RS.1,63,14,265/- AGAINST DECLARED VALUE OF CLOSI NG STOCK BY THE ASSESSEE AT RS.2,04,85,000/-. 4. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE , THE LD. CIT(A) HAS IGNORED THE OBSERVATION OF THE A.O. FOR APPLYING NET PROFIT @ 6% AGAINST @ 5.35% SHOWN BY THE APPELLANT. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALLOW OR AMEN D ANY/ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F HEARING OF THE APPEAL.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION BUSINESS. THE RETURN OF INCOME WAS FILED ON 20.09. 2009 DECLARING NET TAXABLE INCOME OF RS.9,80,890/-. THE AO COMPLETED THE ASSE SSMENT U/S 143(3) OF THE ACT AT AN INCOME OF RS.64,31,564/- AFTER MAKING VAR IOUS ADDITIONS. ON APPEAL, THE LD. CIT (A) PARTLY ALLOWED THE APPEAL. 4. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFOR E US BY TAKING THE AFORESAID GROUNDS. 3 ITA NO.6127/DEL/2012 CO NO.206/DEL/2014 5. GROUNDS NO.1 & 5 ARE GENERAL IN NATURE AND DO NO T REQUIRE ANY ADJUDICATION. 6. GROUNDS NO.2 TO 4 ARE INTER-CONNECTED AND ARE AG AINST THE DELETION OF ADDITION OF RS.39,20,490/- IN RESPECT OF SUPPRESSED SALES AND INFLATED CLOSING STOCK IN HIS P&L ACCOUNT, WHICH ARE AGAINST THE OBS ERVATION/RECALCULATION OF CLOSING STOCK AT RS.1,63,14,265/- AGAINST DECLARED VALUE OF CLOSING STOCK BY THE ASSESSEE AT RS.2,04,85,000/- AND AGAINST THE OBSERV ATION OF THE AO FOR APPLYING NET PROFIT @ 6% AGAINST @ 5.35% SHOWN BY THE ASSESS EE. 7. THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN NET PROFIT OF RS.10,80,890/- ON SALE OF RS.2,02,02,000/- GIVING A NET PROFIT RAT E OF 5.35%. THE AO APPLIED THE NET PROFIT RATE OF 6% AND WORKED OUT THE VALUE OF CLOSING STOCK AT RS.1,63,14,265/- AS AGAINST DECLARED VALUE OF CLOS ING STOCK BY THE ASSESSEE AT RS.2,04,85,000/-. THEREFORE, THE AO TREATED THE DI FFERENCE OF RS.41,70,735/- AS INFLATED CLOSING STOCK AND SUPPRESSED SALES. ACCORD INGLY, THE AO WORKED OUT THE PROFIT ON THESE SUPPRESSED SALES AT RS.39,20,49 0/- BY APPLYING THE RATE OF 94% AND ADDED THE SAME TO THE INCOME OF THE ASSESS EE. 8. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE TH E LD. CIT (A) WHO DELETED THE ADDITION BY OBSERVING AS UNDER :- 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE FACTS OF THE CASE AND THE POINTS MADE BY THE AO IN THE ASSESSMENT ORDER. THE OBSERVATION OF THE AO WITH RE GARD TO THE ADDITION OF RS.39,20,490/- ARE AS UNDER.- 4 ITA NO.6127/DEL/2012 CO NO.206/DEL/2014 HE HAS SOLD FLATS VALUED AT RS. 2,02,02,0001- OUT OF OPENING STOCK OF RS.2,38,41,000/-. THE NET PROFIT W ORKED OUT BY THE AUDITOR IS @ 5.35%, IF THIS IS TAKEN @6% ON EXPENDITURE INVOLVED ETC. THE VALUE OF FLATS SOLD A MOUNTED TO @ 94% OF SALES I.E., RS. 1,89,89,880/-. THE BALANCE STOCK AVAILABLE AS ON 31.3.2009 WILL BE RS.48,51,120/-. I F THE CONSTRUCTION EXPENSES OF RS.1,14,63,145/- IS ADDED THE CLOSING STOCK WILL BE RS.1,63,14,265/- WHEREAS THE ASSESSEE HAD DISCLOSED CLOSING STOCK AT RS.2,04,85,000/-. TH IS SHOWS THAT HE HAD INFLATED CLOSING STOCK BY RS.41,70,735/ -. THIS AMOUNT IS THE SUPPRESSED SALE AND NET PROFIT IS ADO PTED AT 94% OF SUPPRESSED SALES I.E., RS.39,20,490/-. THIS WILL BE ADOPTED AGAINST RS.10,80,890/- DECLARED IN THE PROF IT AND LOSS ACCOUNT.' 8. FROM THE ABOVE OBSERVATIONS OF THE A.O. IT IS S EEN THAT WHILE WORKING OUT THE VALUE OF THE CLOSING STOCK HE HAS A PPLIED THE NET PROFIT MARGIN OF 6% AS AGAINST 5.35% SHOWN BY THE A PPELLANT. NO REASONS HAVE BEEN GIVEN BY THE A.O. FOR ADOPTING TH E NET PROFIT RATE OF 6%. FURTHER, WHILE WORKING OUT THE VALUE OF CLOS ING STOCK THE A.O. HAS TAKEN INTO ACCOUNT ONLY THE CONSTRUCTION E XPENSES AND ALL THE OTHER EXPENSES HAVE BEEN IGNORED, WHEREAS THE A PPELLANT HAD FILED A CONSOLIDATED TRADING AND P&L A/C I.E. ON TH E CREDIT SIDE THE APPELLANT HAD INCLUDED SALES, INTEREST INCOME, RENO VATION INCOME AND CLOSING STOCK AND ON THE DEBIT SIDE THE APPELLA NT HAD INCLUDED OPENING STOCK, CONSTRUCTION EXPENSES, OTHER PROFIT AND LOSS EXPENSES AND THE NET PROFIT. THE VALUE OF THE CLOSI NG STOCK HAD BEEN SHOWN BY THE APPELLANT AT RS.2,04,85,000/- ON THE BASIS OF THIS CONSOLIDATED TRADING & P&L A/C. 9. THE A.O. WORKED OUT THE VALUE OF THE CLOSING STO CK AT RS.1,63,14,265/- BY - - APPLYING A NET PROFIT OF 6% AS AGAINST THE NP RAT E OF 5.35% SHOWN BY THE APPELLANT RESULTING INTO A DIFFERENCE OF RS.(-) 1,31,313/- (65% ON SALES OF RS.2,02,02,000/- ) - BY IGNORING THE P&L EXPENSES EXCEPT FOR CONSTRUCT ION EXPENSES RESULTING IN THE DIFFERENCE OF RS.45,45,35 1/- 5 ITA NO.6127/DEL/2012 CO NO.206/DEL/2014 - BY IGNORING TWO CREDIT SIDE AMOUNTS OF RS. (-) 2, 43,585/- I.E. RS.1,35,000/- SHOWN ON ACCOUNT OF RENOVATION / CUST OMIZATION RECEIPTS AND RS.1,08,585/- ON ACCOUNT OF INTEREST I NCOME. 10. BY THUS APPLYING HIS OWN CALCULATIONS THE AO A RRIVED AT THE VALUE OF THE CLOSING STOCK AT RS.1,63,14,265/- RESU LTING IN A DIFFERENCE OF RS.41,70,735/- BETWEEN THE CLOSING ST OCK SHOWN BY THE APPELLANT AND AS WORKED OUT BY THE A.O. THE AO HAS NOT MENTIONED ANY REASON AS TO WHY HE APPLIED THE NP RA TE OF 6% TO THE APPELLANT'S RESULTS AS AGAINST THE NP RATE OF 5 .35% SHOWN BY THE APPELLANT. SIMILARLY HE HAS NOT GIVEN ANY REASON AS TO WHY HE IGNORED THE P&L EXPENSES ON THE DEBIT SIDE AND TWO ITEMS OF INCOME SHOWN BY THE APPELLANT ON THE CREDIT SIDE. I F CERTAIN ITEMS OF EXPENDITURE AND INCOME MENTIONED IN THE TRADING AND P&L ACCOUNT ARE EXCLUDED ARBITRARILY WHILE WORKING OUT THE VALUE OF THE CLOSING STOCK THE RESULT IS BOUND TO BE DIFFERENT F ROM THE RESULT SHOWN BY THE APPELLANT ON THE BASIS OF THE TRADING AND P&L ACCOUNT. 11. IN VIEW OF THE DISCUSSION MADE ABOVE, IT IS HE LD THAT THE CALCULATIONS ADOPTED BY THE A.O. FOR ARRIVING AT TH E VALUE OF THE CLOSING STOCK ARE ARBITRARY AND NOT BASED ON ANY AC COUNTING PRINCIPLES. MOREOVER, THE APPELLANT HAS SHOWN CLOSI NG STOCK AT RS.2,04,85,000/- WHEREAS THE AO WORKED OUT THE SAME AT RS.1,63,14,265/- I.E. THE APPELLANT HAD SHOWN HIGHE R CLOSING STOCK. THE DIFFERENCE OF THE TWO FIGURES CANNOT BE TREATED AS SUPPRESSED SALES AS THE DIFFERENCE HAD ALREADY GOT ACCOUNTED I N THE P&L ACCOUNT. EVEN IF THERE WERE SOME SUPPRESSED SALES, THEN ALSO NET PROFIT RATE OF 5.35% (TAKEN AT 6% BY THE AO) WOULD HAVE BEEN APPLICABLE TO THEM FOR WORKING OUT THE TAXABLE PROF ITS AND NOT 94% AS APPLIED BY THE AO (WHICH ACCORDING TO THE AO'S O WN WORKING IS THE COST OF SALES). THEREFORE, THE ADDITION OF RS.3 9,20,490/- MADE BY THE A.O. ON ACCOUNT OF NET PROFIT ON SUPPRESSED SALES IS DELETED. 9. THE LD. DR RELIED ON THE ORDER OF THE AO AND SUB MITTED THAT THE AO HAS RIGHTLY MADE THE ADDITION, WHICH HAS BEEN DELETED B Y THE CIT (A), SO HE WANTS US TO REVERSE THE ORDER OF CIT (A) AND UPHOLD THE O RDER OF THE AO. 6 ITA NO.6127/DEL/2012 CO NO.206/DEL/2014 10. ON THE OTHER HAND, THE LD. AR FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT (A) AND SUBMITTED THAT THE AO HAD NOT PROVIDED ANY REASON FOR ADOPTING THE NET PROFIT RATE OF 6% AND T HE METHOD ADOPTED BY THE AO FOR WORKING OUT THE VALUE OF CLOSING STOCK AT RS.1, 63,14,265/- WAS INCOMPREHENSIBLE AND WAS NOT BASED ON ANY RECOGNIZE D ACCOUNTING PRINCIPLE. HE SUBMITTED THAT WHILE WORKING OUT THE VALUE OF TH E CLOSING STOCK, THE AO HAD IGNORED THE EXPENSES DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT AND HAD ONLY ACCOUNTED FOR THE CONSTRUCTION EXPENSES. HE FURTHER SUBMITTED THAT THE CLOSING STOCK SHOWN BY THE ASSESSEE WAS MORE THAN THAT WORK ED OUT BY THE AO. HE SUBMITTED THAT THE DIFFERENCE BETWEEN THE TWO HAD B EEN ARBITRARILY TREATED BY THE AO AS INFLATED CLOSING STOCK AND SUPPRESSED SALES. FURTHER, HE SUBMITTED THAT THE AO HAD APPLIED THE PROFIT MARGIN OF 94% ON THE SO C ALLED SUPPRESSED SALES HAD NOT BEEN EXPLAINED BY THE AO IN THE ASSESSMENT ORDE R. THEREFORE, HE PLEADED THAT THE LD. CIT (A) RIGHTLY DELETED THE ADDITION A ND WANTS US NOT TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. 11. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL. WE FIND THAT THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 5.35%. HOWEV ER, AO ADOPTED NET PROFIT RATE OF 6%. NO REASON HAS BEEN GIVEN BY THE AO TO ADOPT THIS FIGURE. AND AO WHILE WORKING OUT THE CLOSING STOCK HAD IGNORED ALL OTHER EXPENSES DEBITED BY THE ASSESSEE IN P&L ACCOUNT AND ONLY INCLUDED THE C ONSTRUCTION EXPENSES. THE AO ERRED IN ADOPTING NET PROFIT RATE AT 6% WITHOUT VALID REASONS AND EXCLUSION 7 ITA NO.6127/DEL/2012 CO NO.206/DEL/2014 OF OTHER EXPENSES AS POINTED OUT TO VALUE THE CLOSI NG STOCK, MAKES THE ORDER OF THE AO ERRONEOUS AND NOT SUSTAINABLE. WE CONCUR WI TH THE FINDING AND REASON GIVEN BY THE LD. CIT (A) TO DELETE THE SAID ADDITIO N OF RS.39,20,490/-, SO WE UPHOLD THE ORDER OF THE CIT (A) AND DISMISS THESE G ROUNDS OF REVENUES APPEAL. 12. AT THE TIME OF HEARING, THE LD. AR FOR THE ASSE SSEE HAS NOT PRESSED THE CROSS OBJECTION, HENCE THE SAME IS DISMISSED AS NOT PRESSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY OF 2 ND FEBRUARY, 2016. SD/- SD/- (J.S. REDDY) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 2 ND DAY OF FEBRUARY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.