ACIT, Madurai V. M/s. Sree Krishna Cut Piece Collection, Madurai

ITA 1037/CHNY/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6584 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 06-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: B RAMAKRISHNAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 1037/MDS/2010 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX , CIRCLE-II, MADURAI V. M/S. SREE KRISHNA CUT PIECE COLLECTION, NO.94, WEST TOWER STREET, MADURAI-625001. (PAN : AAGFS7074N) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL RESPONDENT BY : SHRI B. RAMAKRISHNAN O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-I, MADURAI IN ITA NO. 0164/08-09 DATED 17-03-2010 FOR THE ASSESSMENT YEAR 2006-07. 2. SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL REPR ESENTED ON BEHALF OF THE REVENUE AND SHRI B. RAMAKRISHNAN, CA REPRESENTED ON BEHALF OF THE ASSESSEE. 3. IT WAS SUBMITTED BY THE LEARNED DR THAT THERE WA S A SURVEY ON THE PREMISES OF THE ASSESSEE ON 30-01-2006 AND IN THE COURSE OF SURVEY PHYSICAL STOCK WAS I.T.A. NO.1037/MDS/2010 2 TAKEN WHICH WAS CALCULATED AT ` 1,31,08,671/-. IT WAS THE SUBMISSION THAT THERE WAS AN ERROR IN THE CALCULATION AND THE SAME WAS SU BSEQUENTLY REDUCED TO ` 1,25,54,417/-. IT WAS THE SUBMISSION THAT IN THE C OURSE OF ASSESSMENT THE ASSESSING OFFICER HAD COMPUTED THE CLOSING STOCK FO R THE TWO BROKEN PERIODS, BEING THE PERIOD BEFORE THE SURVEY AND THE PERIOD A FTER THE SURVEY. IT WAS THE SUBMISSION THAT AS PER THE RE-CAST OF THE TRADING A CCOUNT UNACCOUNTED PURCHASES RESULTING IN A CLOSING STOCK OF ` 18,51,160/- WAS ARRIVED AT. IT WAS THE SUBMISSION THAT THE ASSESSEE WAS NOT MAINTAINING ANY STOCK BOO K. IT WAS THE SUBMISSION THAT THE ASSESSEES TURNOVER WAS DISCLOSED AT ` 5,13,23,087/-. IT WAS THE SUBMISSION THAT THE DIFFERENCE IN THE CLOSING STOCK WAS ARRIVED AT BY TAKING INTO CONSIDERATION THE PURCHASES, LESS THE SALES AND LES S THE ESTIMATED GROSS PROFIT AT 20%. IT WAS THE FURTHER SUBMISSION THAT THE LEARNE D CIT(A) HAD DELETED THE ADDITION BY HOLDING THAT THERE WAS NO DIFFERENCE IN THE CLOSING STOCK IF THE GROSS PROFIT WAS TAKEN AT 24%. IT WAS ALSO THE SUBMISSIO N THAT THERE WAS A SEARCH IN THE PREMISES OF THE ASSESSEE BY THE SALES-TAX AUTHO RITIES AND THE TURNOVER OF THE ASSESSEE HAD BEEN ESTIMATED AT ` 5,27,13,563/- FOR SALES-TAX PURPOSES. IT WAS THE SUBMISSION THAT AT LEAST THE DIFFERENCE IN THE SALES TURNOVER AS DISCLOSED BY THE ASSESSEE AND AS ESTIMATED BY THE SALES-TAX AUTH ORITIES WAS LIABLE TO BE CONFIRMED. HE VEHEMENTLY SUPPORTED THE ORDER OF TH E ASSESSING OFFICER. 4. IN REPLY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE PHYSICAL STOCK AFTER THE DATE OF SEARCH WAS ARRIVED AT ` 1,25,54,417/- BY APPLYING A GROSS I.T.A. NO.1037/MDS/2010 3 PROFIT RATE OF 18%. IT WAS THE FURTHER SUBMISSION THAT FOR ARRIVING AT THE CLOSING STOCK WHILE PREPARING THE TRADING ACCOUNT FOR THE B ROKEN PERIODS, THE GROSS PROFIT RATE APPLIED WAS 20%. IT WAS THE SUBMISSION THAT T HE ASSESSEE ITSELF HAD DISCLOSED A GROSS PROFIT RATE OF 24% FOR THE PERIOD BEFORE THE DATE OF SUR4VEY AND 31.53% FOR THE PERIOD AFTER THE SURVEY. IT WAS THE SUBMISSION THAT IF THE GROSS PROFIT RATE AT 24% WAS TAKEN, THERE WOULD BE NO ADD ITION ON ACCOUNT OF ANY UNACCOUNTED PURCHASES RESULTING IN THE INCREASE IN THE CLOSING STOCK. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER HIMSELF HAD F OR THE PURPOSE OF ARRIVING AT THE PHYSICAL STOCK APPLIED ONE RATE OF GROSS PROFIT AND FOR COMPUTING THE CLOSING STOCK IN THE TRADING ACCOUNT PREPARED APPLIED A DIF FERENT RATE OF GROSS PROFIT AND THIS HAD BEEN CONSIDERED BY THE LEARNED CIT(A). IT WAS THE SUBMISSION THAT THE LEARNED CIT(A) HAD ALSO CONSIDERED THE FACT THAT TH E GROSS PROFIT DECLARED BY THE ASSESSEE WHICH IS THE ACTUAL GROSS PROFIT TO BE APP LIED WAS 24% AND IF THE 24% RATE WAS CONSIDERED THERE WOULD BE NO ADDITION. IT WAS THE FURTHER SUBMISSION THAT THE SALES-TAX AUTHORITIES HAD INCREASED THE TU RNOVER BY MAKING AN ESTIMATED ADDITION WHICH HAD RESULTED IN AN ADDITIONAL SALES- TAX LEVY OF ABOUT ` 27,000/-. IT WAS THE SUBMISSION THAT THE SALES-TAX INSPECTION WA S ON 4.10.2005 AND THE SURVEY BY THE INCOME-TAX AUTHORITIES WAS ON 30-01-2 006. IT WAS THE SUBMISSION THAT IT WAS AFTER SALES-TAX DEPARTMENTS INSPECTION THAT THE SURVEY HAD TAKEN PLACE AND THE PHYSICAL STOCK HAD ALSO BEEN VERIFIED AND QUANTIFIED BY THE SURVEY AUTHORITIES. IT WAS THE SUBMISSION THAT NO UNACCOU NTED PURCHASES OR SALES HAD I.T.A. NO.1037/MDS/2010 4 BEEN DETECTED IN THE COURSE OF THE INSPECTION BY TH E SALES-TAX AUTHORITIES OR AT THE TIME OF SURVEY BY THE INCOME-TAX AUTHORITIES. IT WAS THE SUBMISSION THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE CONFIR MED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ORDER OF THE LEARNED CIT(A) CLEARLY SHOWS THAT THE LEARNED CIT(A ) HAS TAKEN INTO CONSIDERATION THE FACT THAT THE ASSESSING OFFICER HAS APPLIED TWO DIFFERENT RATES FOR ARRIVING AT TWO DIFFERENT GROSS PROFIT RATES. ADMITTEDLY, THER E IS NO STOCK BOOK. WHEN THERE IS NO STOCK BOOK, THEN THE BEST GROSS PROFIT THAT C AN BE APPLIED IS THE GROSS PROFIT RELEVANT TO THE BROKEN PERIOD BEFORE THE DATE OF SU RVEY. IN THE PRESENT CASE THE GROSS PROFIT DISCLOSED BY THE ASSESSEE FOR THE BROK EN PERIOD BEFORE THE DATE OF SURVEY IS 24%. IT IS NOTICED THAT THE LEARNED CIT( A) HAS APPLIED THE GROSS PROFIT RATE OF 24% TO ARRIVE AT THE CLOSING STOCK WHICH TA LLIES SUBSTANTIALLY WITH THE CLOSING STOCK AS DISCLOSED BY THE ASSESSEE IN ITS R ETURN. FURTHER THE QUESTION RAISED BY THE LEARNED CIT(A) AS TO WHAT IS THE RATI ONALE FOR ADOPTING TWO RATES FOR THE SAME PERIOD IS NOT AVAILABLE EITHER IN THE ASSE SSMENT ORDER OR IN THE WORKING FURNISHED BY THE ASSESSING OFFICER IN HIS LETTER DA TED 29-01-2010 AND REMAINS UNANSWERED. THERE OBVIOUSLY CANNOT BE A RATIONALE FOR APPLYING TWO DIFFERENT RATES OF GROSS PROFIT FOR THE SAME PERIOD FOR WORKI NG OUT THE CLOSING STOCK. A PERUSAL OF THE SALES-TAX ASSESSMENT ORDER ALSO CLEA RLY SHOWS THAT THE INSPECTION BY THE SALES TAX AUTHORITIES WAS MUCH BEFORE THE SU RVEY BY THE INCOME-TAX AUTHORITIES AND THE SALES-TAX AUTHORITIES HAVE APPL IED GROSS PROFIT RATES OF I.T.A. NO.1037/MDS/2010 5 19.39%, 21.51% AND 22.27% TO ARRIVE AT A DIFFERENCE IN THE CLOSING STOCK. IT IS ALSO NOTICED THAT THE INCREASE IN THE TURNOVER IS O N ACCOUNT OF AN ESTIMATED ADDITION OF 100% OF THE ALLEGED DIFFERENCE IN THE E STIMATED CLOSING STOCK AND THE RESULTANT GROSS PROFIT. THERE IS NOTHING TO INDICA TE THAT EITHER BY THE SALES TAX AUTHORITIES OR IN THE SURVEY BY THE INCOME TAX AUTH ORITIES ANY PURCHASES OR SALES HAVE BEEN SUPPRESSED. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FINDING OF THE LEARNED CIT(A) IN DELETING THE ADDITION BY A PPLYING A GROSS PROFIT RATE OF 24% AS DISCLOSED BY THE ASSESSEE FOR THE BROKEN PER IOD BEFORE THE DATE OF SURVEY IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INT ERFERENCE. IN THE CIRCUMSTANCES, THE APPEAL OF THE REVENUE IS DISMISSED. 6. THE ORDER WAS PRONOUNCED IN THE COURT ON 08/07/2 011. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 08 TH JULY, 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE