M/s. Milly Creation, Jetpur V. The Assistant Commissioner of Income Tax, Central Circle-1, RAJKOT-GUJARAT

ITA 1/RJT/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6650 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 01-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: DM RINDANI
• Keywords: Income from undisclosed sources
• Section: 133A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA.NO.01/RJT/2014 ASSTT.YEAR : 2011-12 M/S.MILLY CREATION OPP: GEB SUB-STATION DHORAJI ROAD JETPUR, DIST: RAJKOT. VS ACIT, CENT.CIR.1 RAJKOT. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI D.M. RINDANI, AR REVENUE BY : SHRI LALIT P. JAIN, SR.DR / DATE OF HEARING : 20/02/2017 / DATE OF PRONOUNCEMENT: 20 /03/2017 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-IV, AHMEDABAD DATED 27.11.2013 PASSED FOR THE ASSTT.YEAR 2011- 12. 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES , 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF , GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.15,27,232/- BEING PROFIT AT THE RATE OF 15% OF VALUE OF DEFICIT IN ST OCK AMOUNTING TO RS.1,01,81,545/-. ITA NO.01/RJT/2014 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 14.9.2011 DECLARING TOTAL INCOME OF RS.28,87,780 /-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) WAS ISSUED ON 24.8.2012. IT EMERGES OUT FROM THE R ECORD THAT A SURVEY UNDER SECTION 133A OF THE INCOME TAX ACT, 1961 WAS CARRIE D OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 25.2.2011. DURING THE COURSE OF SURVEY PHYSICAL STOCK OF RS.2,01,03,365/- WAS FOUND. AS AGAINST TH IS, SURVEY TEAM HAS WORKED OUT STOCK AS PER BOOKS AS ON THE DATE OF SURVEY AT NIL. THE WORKING HAS BEEN NOTED BY THE LD.CIT(A). IT READS AS UNDER: SALES 8.29 CRORES LESS - GP 1.25 CRORES OPENING STOCK 3.37 CRORES PURCHASES 4.26 CRORES -0.59 CRORES ADD: SALES RETURN -0.59 CRORES CLOSING STOCK NIL 4. THE LD.AO HAS CONFRONTED THE ASSESSEE ABOUT THIS UNACCOUNTED STOCK. THE ASSESSEE GAVE EXPLANATION POINTING OUT THAT SAL ES RETURNS OF RS.0.59 CRORES OUGHT TO HAVE BEEN REDUCED FROM THE SALES AND NOT B E ADDED. THE LD.AO WAS SATISFIED WITH REGARD TO SUCH TYPE OF MISTAKE AND U LTIMATELY WORKED OUT EXCESS STOCK AS PER BOOKS OF RS.83,03,365/- AND HE ADDED T HE ABOVE AMOUNT IN THE TOTAL INCOME OF THE ASSESSEE. 5. DISSATISFIED WITH THIS ADDITION, ASSESSEE CARRIE D THE MATTER IN APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY. IT HAD FI LED DETAILED WRITTEN SUBMISSIONS WHICH HAS BEEN REPRODUCED BY THE LD.CIT (A) FROM PAGE NOS.3 TO 7 OF THE IMPUGNED ORDER. THE LD.CIT(A) THEREAFTER ANALYZED THE DETAILS AND ITA NO.01/RJT/2014 3 ARRIVED AT A CONCLUSION THAT IN RESPECT OF WORKING OUT EXCESS STOCK, IT IS TO BE CONSTRUED THAT THE ASSESSEE HAS SHORTAGE OF STOCK W HICH HAS BEEN SOLD OUT BY IT. ACCORDINGLY, GP AT THE RATE OF 15% ON UNRECORD ED SALES IS TO BE ASSESSED AS INCOME OF THE ASSESSEE. FINDING RECORDED BY THE CIT(A) READS AS UNDER: 4.2.6 FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE STOCK AS PER BOOKS OF THE APPELLANT AS ON 25-02-2011 WAS NOT 'NIL' AS CALCULATED BY THE SURVEY TEAM BUT IT WAS OF RS.3,02,84,910/- AS CALCU LATED BY THE APPELLANT IN ITS SUBMISSION. NOW, APPELLANT ITSELF HAS CALCUL ATED STOCK AS PER BOOKS AS ON 25-02-2011 AT RS.3,02,84,910/-. AS AGAINST TH IS, PHYSICAL STOCK OF RS.2,01,03,365/- WAS FOUND. THE CORRECTNESS OF INVE NTORY OF STOCK PREPARED AT THE TIME OF SURVEY AND ITS VALUATION HA S NOT BEEN CHALLENGED BY THE APPELLANT. THUS, THERE WAS SHORTAGE OF STOCK TO THE EXTENT OF RS. 1,01,81,545/- (3,02,84,910 - 2,01,03,365). CLEARLY, APPELLANT HAS SOLD ITS STOCK OUT OF BOOKS WITHOUT RECORDING SALES IN THE R EGULAR BOOKS WHICH HAS RESULTED IN SHORTAGE OF PHYSICAL STOCK. RESULTA NTLY, THE PROFIT EARNED ON THIS UNRECORDED SALES OF RS.1,01,81,545/- HAS NO T BEEN DISCLOSED BY THE APPELLANT IN THE REGULAR BOOKS OF ACCOUNT. THE APPELLANT HAS SHOWN GROSS PROFIT @ 15%. THEREFORE, APPELLANT HAS EARNED UNRECORDED PROFIT OF RS. 15,27,232/- (15% OF RS.1,01,81,545/-). THIS PRO FIT HAS NOT BEEN RECORDED BY THE APPELLANT IN ITS REGULAR BOOKS OF A CCOUNTS AND APPELLANT HAS NOT PAID THE TAXES ON THIS UNRECORDED PROFIT. T HEREFORE, THE ADDITION MADE BY THE AO OF EXCESS STOCK OF RS.83,03,365/- IS HEREBY DELETED. AS NOW THE ADDITION IS BEING MADE ON ANOTHER REASON I. E. PROFIT EARNED ON UNACCOUNTED SALE OF STOCK, VIDE ORDER SHEET ENTRY D ATED 29-10-2013, THE PARTNER OF APPELLANT FIRM SHRI LALIT RATHI AND THE AUTHORIZED REPRESENTATIVE WERE INFORMED AND THEY WERE ASKED TO EXPLAIN WHY 15% PROFIT EARNED ON UNACCOUNTED SALE OF STOCK SHOULD N OT BE TREATED AS UNACCOUNTED INCOME OF THE FIRM. THEY WERE ASKED TO GIVE EXPLANATION ON THIS ISSUE BY 25-11 -2013. HOWEVER, TILL DATE NO EX PLANATION HAS BEEN RECEIVED FROM THE SIDE OF THE APPELLANT. THIS SHOW THAT APPELLANT DO NOT HAVE ANY FURTHER EXPLANATION TO OFFER ON THIS ISSUE . IN VIEW OF THIS, IT HELD THAT APPELLANT HAS EARNED GROSS PROFIT OF RS.15,27, 232/- ON UNACCOUNTED SALES OF STOCK AND, THEREFORE, RS.15,27,232/- SHOUL D BE ADDED TO THE INCOME OF THE APPELLANT. AS A RESULT, RS.15,27,232/ - IS ADDED TO THE INCOME OF THE APPELLANT. THIS GROUND IS PARTLY ALLO WED. 6. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE HAS P LACED THIRD CALCULATION SHOWING RECONCILIATION OF STOCK POSITION. IT IS PE RTINENT TO MENTION THAT THERE IS NO VARIATION WITH REGARD TO PHYSICAL STOCK OF RS .2,01,03,365/- FOUND AT THE ITA NO.01/RJT/2014 4 TIME OF SURVEY. WHOLE EXERCISE OF SUBMITTING DIFFE RENT RECONCILIATION STATEMENTS RELATES TO POSITION OF THE STOCK IN THE BOOKS OF ACCOUNTS ON THE DATE OF SURVEY. ACCORDING TO THE INITIAL EXERCISE, SUCH STOCK WAS NIL AS EXTRACTED ABOVE. THEREAFTER, THE ASSESSEE HAS EXPLAINED THAT MANUFACTURING EXPENSES AND OTHER ASPECTS HAVE NOT BEEN CONSIDERED WHILE WO RKING OUT BOOK STOCKS. IT WAS ALSO CONTENDED THAT BOOKS WERE WRITTEN UPTO 31 ST DECEMBER, 2010 WHEREAS SURVEY TAKEN PLACE ON 25.2.2011. THERE IS SUFFICIENT TIME LAG OF ROUGHLY TWO MONTHS AND BOOK STOCK OUGHT TO BE CALCU LATED AFTER TAKING INTO CONSIDERATION VARIOUS DETAILS LYING IN THE OFFICE. ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE, IF THESE FACTORS ARE TAKEN INTO C ONSIDERATION, THEN IT WOULD COME OUT THAT THERE WAS NO EXCESS STOCK OR SHORTAGE OF STOCK ON THE DATE OF SURVEY. ON THE OTHER HAND, THE LD.DR RELIED UPON T HE ORDER OF THE LD.CIT(A). 7. WE HAVE DULY CONSIDERED RIVAL CONTENTION AND GON E THROUGH THE RECORD CAREFULLY. THE AO PROCEEDED TO MAKE THE ADDITION O N THE GROUND THAT ON THE DATE OF SURVEY PHYSICAL STOCK WAS FOUND WHEREAS IN THE BOOKS, STOCKS WAS SHOWN AT NIL. HE MADE ADDITION OF THE UNEXPLAINED STOCK FOUND IN THE PHYSICAL FORM. THE LD.CIT(A) DID NOT APPROVE THIS THEORY OF THE AO. SHE ARRIVED AT A CONCLUSION THAT THE ASSESSEE HAS CALCU LATED THE STOCK AS PER BOOKS AS ON 25.2.2011 AT RS.3,02,84,910/-. AS AGAINST TH IS, PHYSICAL STOCK OF RS.2,01,03,365/- WAS FOUND. THUS, ACCORDING TO THE LD.CIT(A) ASSESSEE WAS NOT ABLE TO EXPLAIN THE DISCREPANCY I.E. NON-AVAILA BILITY OF STOCK HAVING VALUE OF RS.1.01 CORES. THE LD.CIT(A) ASSUMED ITS SALE O UT OF BOOKS AND ESTIMATED THE PROFIT FOR ARRIVING AT AN ADDITION OF RS.15,27, 232/-. THUS, THE RATE OF 15% WAS TAKEN ON THE BASIS OF PAST RECORDED SALES, GP D ISCLOSED BY THE ASSESSEE ON THE RECORDED SALES. AFTER GOING THROUGH THE ORDER OF THE LD.CIT(A) WE DO NOT FIND ANY ERROR IN IT, BECAUSE THE ASSESSEE FAILED T O EXPLAIN THE DISCREPANCY IN ITA NO.01/RJT/2014 5 POSSESSION OF STOCK FOUND AT THE TIME SURVEY VIS-- VIS AVAILABLE IN THE BOOKS. THE APPEAL OF THE ASSESSEE IS DEVOID OF ANY MERIT, HENCE, IT IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 20 TH MARCH, 2017 AT AHMEDABAD. SD/- SD/- ( PRADIP KUMAR KEDIA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER