The ACIT, Gandhidham Circle, GANDHIDHAM V. Shri Jayantilal Ratilal Soni, GANDHIDHAM

ITA 107/RJT/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2981 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 15-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L MEENA
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO. 107/RJT/2008 (ASSESSMENT YEAR 2004-05) ACIT, GANDHIDHAM CIRCLE VS SHRI JAYANTILAL RATILAL SONI GANDHIDHAM PROP MANALI JEWELLERS, WARD.12-B GANDHIDHAM PAN : AGNPS9766N (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SL MEENA ASSESSEE BY : SHRI KALPESH DOSHI O R D E R A.L. GEHLOT : THIS IS AN APPEAL FILED BY THE REVENU E AND IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, RAJKOT DATED 30-11-2007 FOR THE ASSESSMENT YEAR 2004-05. THE FOLLOWING ARE THE EFFECTIVE GROUNDS OF APPEAL T AKEN BY THE REVENUE: 1. THE LEARNED CIT(A) HAS ERRED IN LAW IN RESTRICT ING THE ADDITION TO RS.15,88,561/- AS AGAINST ADDITION OF RS.30,41,250/- ON ACCOUNT OF PROFIT ON UNACCOUNTED SALES. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.21,72,321/- ON ACCOUNT OF UNACCO UNTED INVESTMENT IN PURCHASE / STOCK FOR UNACCOUNTED SALE S. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.41,96,071/- ON ACCOUNT OF UNACCO UNTED INVESTMENT IN EXCESS STOCK. 2. THE SERIAL NUMBER OF GROUNDS OF APPEAL HAS BE EN DECIDED AS PER OUR CONVENIENCE AS UNDER:- BRIEF FACTS OF GROUND NO.3 ARE THAT A SURVEY U/S 13 3A CARRIED ON 21-10-2003. AS A RESULT, EXCESS STOCK OF RS.41,96,072/- WAS FOUND WH ICH WAS ADDED BY THE AO. THE BIFURCATION OF EXCESS STOCK NOTED IN CIT(A)S O RDER IN PARAGRAPH 4.2 AS UNDER: ITA NO.107/RJT/2008 2 SR.NO. PARTICULARS AS PER BOOKS (RS) PHYSICAL FOUND (ERS.) EXCESS (RS) 1 GOLD 6367494 10156901 3789407 2 SILVER 142133 447735 305602 3 DIAMOND -- 101063 101063 TOTAL 6509627 10705699 4196072 3. AS REGARDS EXCESS STOCK OF DIAMOND FOR RS.1,01,0 63 , THE ASSESSEE AGREED FOR ADDITION, THEREFORE, CIT(A) CONFIRMED TH IS ADDITION AGAINST WHICH THE ASSESSEE DID NOT FILE ANY APPEAL. 5. IN RESPECT OF EXCESS STOCK OF SILVER, IT WAS POI NTED AND NOTED BY THE CIT(A) IN HIS ORDER THAT EXCESS STOCK OF SILVER WAS RS.3,5 5,600 INSTEAD OF RS.3,05,602. THE ASSESSEE SHOWN THAT AMOUNT OF RS.3,55,600 AS AD DITIONAL INCOME CREDITED TO PROFIT & LOSS ACCOUNT. THE CIT(A) ACCORDINGLY D ELETED THE SAID ADDITION AFTER VERIFICATION. 6. IN RESPECT OF EXCESS GOLD STOCK OF RS. 37,89,407 , THE CIT(A) CONSIDERED ASSESSEES SUBMISSION. THE CIT(A) AFTER VERIFICATI ON OF RECORD DIRECTED THE AO TO TAKE OPENING STOCK AT RS.76,50,625 INSTEAD OF RS.57 ,30,460. THE CIT(A) HAS ALSO EXAMINED THE RATE OF VALUATION OF EXCESS STOCK AND HE FOUND SOME ARITHMETICAL ERRORS. THE CIT(A) DELETED ADDITION T O THE EXTENT OF RS.27,93,863. THE RELEVANT FINDING OF THE CIT(A) ARE REPRODUCED A S BELOW: 6.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER, MATE RIAL ON RECORD AND SUBMISSION OF THE APPELLANT. IT IS SEEN THAT THE SURVEY U/S 133A WAS CONDUCTED ON BUSINESS PREMISES OF THE APPELLANT I.E. SHOP NO.4, PLOT NO.240, SECTOR-12B, GANDHIDHAM, WHI CH HAPPENS TO BE BRANCH PREMISES AS STATED BY THE APPELLANT. T HE APPELLANT CLAIMS THAT HE IS PROPRIETOR OF TWO CONCERNS VIZ. M /S JAYANTILAL RATILAL GUSANI I.E. HEAD OFFICE AND M/S MANALI JEWE LLERS I.E. BRANCH OFFICE. BOOKS OF ACCOUNTS OF BOTH THE CONCERNS ARE KEPT SEPARATELY. AUDIT REPORT AND INCOME TAX ACCOUNTS O F BOTH THE CONCERNS WERE FILED AFTER CLUBBING THE FIGURES OF H EAD OFFICE AND ITA NO.107/RJT/2008 3 BRANCH. THE APPELLANT CLAIM THAT THE FIGURES OF HE AD OFFICE ARE NOT CONSIDERED AT THE TIME OF CALCULATING THE BOOK STOC K. FIGURES OF OPENING STOCK, PURCHASE UPTO THE DATE OF SURVEY, SA LES UPTO THE DATE OF SURVEY AND CLOSING STOCK AS ON THE DATE OF SURVEY WERE SUBMITTED AS STATED ABOVE. IN SUPPORT OF FIGURES F OR OPENING STOCK, THE APPELLANT HAS SUBMITTED INCOME TAX RETURN, AUDI T REPORT AND ASSESSMENT ORDER PASSED U/S 143(3) FOR ASSESSMENT Y EAR 2003- 2004. THE BALANCE SHEET AS ON 31.03.2003 REVEALS C LOSING STOCK OF RS.17,946.600 GMS I.E. RS.76,50,625. IN SUPPORT OF FIGURES OF PURCHASE AND SALES THE APPELLANT HAS PRODUCED AUDIT ED BOOKS OF ACCOUNTS AND TRADING ACCOUNT FROM SAID BOOKS UPTO T HE DATE OF SURVEY. THE CLOSING STOCK IS RESULTANT FROM FIGURE S OF OPENING STOCK, PURCHASES AND SALES. ON THE BASIS OF THIS A CREDIT OF RS.6216.55 GMS I.E. RS.37,89,407 BEING BOOK STOCK O F HEAD OFFICE IS CALLED FOR. THE VERACITY OF FIGURES OF PURCHASE AND SALES FROM THE 1 ST APRIL UPTO THE DATE OF SURVEY FOR HEAD OFFICE CANN OT BE ASCERTAINED AT THIS STAGE. THERE ARE STRONG POSSIB ILITIES THAT THE SAID PURCHASES AND SALES WERE MANIPULATED, HENCE CL AIM OF THE APPELLANT IS HEREBY REJECTED. HOWEVER, WITH REGARD S TO OPENING STOCK IT IS SEEN THAT WHILE WORKING OUT BOOK STOCK AS MENTIONED ON PAGE NO.21 OF ASSESSMENT ORDER THE OPENING STOCK OF GOLD WAS TAKEN AT 13804.100 GMS I.E. RS.57,30,460 AND IN THE AUDIT REPORT OF PREVIOUS YEAR I.E. AY 2003-2004 THE CLOSING STOCK O F GOLD WAS 17946.600 GMS I.E. RS.76,50,625.00. HENCE THERE IS A DIFFERENCE OF 4142.500 GMS OF GOLD. SINCE THE AUDIT REPORT FO R AY 2003-2004 WAS FILED BEFORE ASSESSING OFFICER AND THE SAID YEA R WAS DULY SCRUTINIZED U/S 143(3) THE CLAIM OF APPELLANT WITH REGARDS TO DIFFERENCE IN OPENING STOCK IS ALLOWED. THE ASSESS ING OFFICER IS DIRECTED TO TAKE OPENING STOCK AT RS. 17946.600 GMS I.E. RS.76,50,625.00 INSTEAD OF 13804.100 GMS I.E. RS.57 ,30,460. 7.1 I HAVE DULY CONSIDERED THE SUBMISSION MADE AND GONE THROUGH THE RECORDS. THE CONTENTION OF AR THAT THE EXCESS STOCK SHOULD BE WORKED OUT IN TERMS OF QUANTITY FIRST AND THEN TO APPLY VALUATION RATE ADOPTED IS PURELY BASED ON ARITHMETI CAL PRINCIPAL AND THIS BEING AN ERROR IN WORKING OF EXCESS STOCK THE SAME IS HEREBY ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO WORK ED OUT EXCESS STOCK IN TERMS OF QUANTITY AND THEN TO APPLY RATE O F 480 PER GMS AS ADOPTED AT THE TIME OF SURVEY. 7.2 CONSIDERING THE EFFECT OF CHANGE IN OPENING STO CK AND VALUATION OF EXCESS STOCK THE ADDITION ON ACCOUNT O F EXCESS STOCK OF GOLD IS WORKED OUT AT RS.9,95,544/- AND THE ADDITIO N OF RS.27,93,863/- ON ACCOUNT OF EXCESS STOCK OF GOLD I S HEREBY DELETED. ITA NO.107/RJT/2008 4 PARTICULARS GMS OPENING STOCK (AS PER AUDIT REPORT OF AY 2003-2004) 17946.60 ADD:PURCHASE AS MENTIONED ON PAGE NO.21 OF AO 23 65.90 LESS;SALES AS MENTIONED ON PAGE NO.21 OF AO 1226 .34 CLOSING STOCK AS ON DATE OF SURVEY 19086.16 LESS;PHYSICAL STOCK AS PER INVENTORY 21160.21 EXCESS STOCK IN TERMS OF GMS 2074.05 RATE PER GMS 480.00 EXCESS STOCK IN TERMS OF VALUE 995544.00 THE REVENUE VIDE GROUND NO.3 HAS CHALLENGED ENTIRE ADDITION OF RS.41,96,071 WHEREAS THE CIT(A) HAS DELETED PART ADDITION RS.3,0 5,602 & RS.27,93,863. THE AMOUNT TAKEN IN GROUND OF APPEAL IS NOT CORRECT. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF PAR TIES, RECORD PERUSED. WE FIND THAT THE CIT(A) HAS CONFIRMED THE ADDITION OF RS.1,01,063 ON ACCOUNT OF EXCESS STOCK OF DIAMOND, THEREFORE THE REVENUE SHOU LD HAVE NO GRIEVANCES. 8. AS REGARDS EXCESS STOCK OF SILVER THE ASSESSEE H IMSELF DECLARED THIS AMOUNT AS ADDITI9ONAL INCOME. ON VERIFICATION THE CIT(A) FOUND THIS ADDITIONAL INCOME IN ORDER OF RS.3,55,600 INSTEAD OF RS.3,05,6 02 AFTER CORRECTING APPARENT MISTAKES IN CALCULATION. CONTRARY MATERIAL NEITHER AVAILABLE ON RECORD NOR SUCH MATERIAL POINTED OUT BEFORE US. WE DO NOT FIND ANY ERROR IN THE ORDER OF CIT(A) IN DELETING THE ADDITION OF RS.3,05,602. 9. AS REGARDS DELETION OF RS.27,93,863/-, ON ACCOUN T OF EXCESS STOCK ON ACCOUNT OF GOLD WE FIND THAT THE CIT(A) HAS RIGHTLY DIRECTED AO TO TAKE THE CORRECT OPENING STOCK OF RS.76,50,625/- INSTEAD OF RS.57,30 ,460/- TAKEN BY THE SURVEY TEAM FOR CALCULATION OF EXCESS CLOSING STOCK OF GOL D. THE FINDING OF CIT(A) IS SUPPORTED BY COGENT MATERIAL ON RECORD. THE CLOSIN G STOCK OF EARLIER YEAR MUST BE THE OPENING STOCK THEREFORE THE CIT(A) HAS RI GHTLY CORRECTED SUCH MISTAKE IN CALCULATION, WE DO NOT THINK THAT THERE IS AN ERROR IN THE ORDER OF CIT(A). THE CONTENTION OF REVENUE CAN NOT BE SUSTAINED THAT THE EXCESS STOCK WAS CALCULATED ON THE BASIS OF INFORMATION FILED BY THE ASSESSEE B ECAUSE AS STATED ABOVE THAT ITA NO.107/RJT/2008 5 CLOSING STOCK OF LAST YEARN MUST BE THE OPENING STO CK. THE CORRECT AMOUNT OF OPENING STOCK IS NECESSARY. THE RATE OF VALUATION OF GOLD IS CONSEQUENTIAL TO THE EFFECT OF OPENING STOCK, WE THEREFORE DO NOT FIND A NY INFIRMITY IN THE ORDER OF CIT(A) THEREFORE THE ORDER OF CIT(A) IS CONFIRMED O N THIS ISSUE. 10. THE BRIEF FACTS OF GROUND NO.1 ARE THAT DURING THE COURSE OF SURVEY SOME MATERIALS WERE FOUND RELATED TO UNACCOUNTED SALE OF RS. 79,82,804/- UP TO THE DATE OF SURVEY, I.E. 21-10-2003 THE ASSESSING OFFI CER ESTIMATED SALE FOR REMAINING PERIOD OF THE YEAR. THUS TOTAL SALE ESTI MATED WAS RS. 1,52,06,249 ON WHICH THE AO APPLIED GROSS PROFIT RATE OF 20% AND A N ADDITION OF RS.30,41,250/- WAS MADE. THE CIT(A) REDUCED THE ADDITION TO RS.15 ,88,561 WITH FOLLOWING FINDINGS: 8.2 I HAVE DULY CONSIDERED THE SUBMISSION MADE AN D GONE THROUGH THE MATERIAL ON RECORD. SINCE THE APPELLANT HAS ACCEPT ED UNACCOUNTED SALES BASED ON MATERIAL IMPOUNDED AND ESTIMATION OF GROSS PROFI T AT THE RATE OF 20% ON THE SAME, NOW THE DISPUTE REMAINS FOR ESTIMATION OF UNA CCOUNTED SALES FOR REMAINING PERIOD AND ESTIMATION OF GROSS PROFIT ON THE SAME. IT IS SEEN THAT THE ASSESSING OFFICER HAD ESTIMATED THE SALES FOR THE REMAINING P ERIOD SIMPLY ON THE ASSUMPTION THAT THE APPELLANT MIGHT HAVE CONTINUED THE SAME PR ACTICE FURTHER. WORKING OF UNACCOUNTED SALES FOR THE PERIOD UP TO THE DATE OF SURVEY IS BASED ON MATERIAL EVIDENCE ON RECORD, HOWEVER THE WORKING OF UNACCOUN TED SALES AFTER THE DATE OF SURVEY IS ON ASSUMPTIONS. EVEN NO MATERIAL OR EVIDE NCE IS BROUGHT ON RECORD THAT THE APPELLANT IS STILL INDULGED IN MAKING UNACCOUNT ED SALES AFTER SURVEY. MERELY BECAUSE THERE ARE SOME DISCREPANCIES OR UNACCOUNTED SALES IN THE PRE-SURVEY PERIOD, IT COULD NOT LEAD TO ANY PRESUMPTION THAT U NACCOUNTED SALES WOULD HAVE CONTINUED IN THE POST-SURVEY, PARTICULARLY WHEN THE RE WAS FACTUALLY NO EVIDENCE AT ALL FOUND DURING THE SURVEY TO SUPPORT SUCH VIEW. THE RELIANCE IS ALSO PLACED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. ANAND KUMAR DEEPAK KUMAR (2007) 294 ITR 497. SINCE THE ASSUMPTIONS HA VE NO LEGS TO STAND, THE ESTIMATION MADE BY ASSESSING OFFICER FOR REMAINING PERIOD AFTER THE DATE OF ITA NO.107/RJT/2008 6 SURVEY TO YEAR END IS UNJUSTIFIABLE. HENCE ADDITIO N OF RS.30,41,250 MADE BY ASSESSING OFFICER IS REDUCED TO 15,88,561 AND BALAN CE IS DELETED. 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF PA RTIES, RECORD PERUSED. WE FIND THAT UNACCOUNTED SALE FOUND ON THE BASIS OF MATERIAL FOUND UP TO THE DATE OF SURVEY HAS BEEN ACCEPTED BY THE ASSESSEE. T HERE IS NO DISPUTE ABOUT THE GP RATE 20% APPLIED BY THE AO. THERE IS NO DIS PUTE REGARDING REJECTION OF BOOKS OF ACCOUNT. THE AUTHORITY MAKING A BEST JUDGM ENT ASSESSMENT MUST MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME OF THE AS SESSEE AND THOUGH ARBITRARINESS CANNOT BE AVOIDED IN SUCH AN ESTIMATE , THE SAME MUST NOT BE CAPRICIOUS BUT SHOULD HAVE A REASONABLE NEXUS TO TH E AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CASE - THE FINDING OF CIT(A) T HAT ESTIMATION OF SALE FOR AFTER SEARCH PERIOD WAS ON ASSUMPTION, CONTRARY TO THAT FINDING THERE ARE NO MATERIAL ON RECORD BASIS ON WHICH IT CAN BE HELD THAT ESTIMA TION OF SALE CAN BE MADE FOR THE POST SERVE PERIOD .FOR THE PURPOSE OF ACTUAL IN COME ASSUMPTION HAVE NO STAND, WE THEREFORE FIND THAT THERE IS NO INFIRMIT Y IN THE ORDER OF THE CIT(A) IN REDUCING ADDITION TO 15,88,561 AND DELETION OF BA LANCE ADDITION. 12. FACTS OF SECONDS GROUND OF APPEAL ARE THAT THE ASSESSING OFFICER MADE ADDITION OF RS. 21,72,321 ON ACCOUNT OF INITIAL INV ESTMENT IN PURCHASE / STOCK ATTRIBUTABLE TO UNACCOUNTED SALE OF RS. 1,52,06,249 . THE ASSESSING OFFICER ESTIMATED SUCH INVESTMENT ON THE BASIS OF ONE MONTH SALE OF UNACCOUNTED SALE. THE CIT(A) AFTER CONSIDERING ASSESSEES SUBMISSIONS THAT ONE MONTH SALE FOR ESTIMATION IS INCORRECT, DELETED THE ADDITION BY O BSERVING AS UNDER: 9.2 I HAVE DULY CONSIDERED THE SUBMISSION OF THE A PPELLANT AND GONE THROUGH THE RECORD. THE ESTIMATION OF UNACCOU NTED SALES FOR REMAINING PERIOD AFTER THE DATE OF SURVEY IS HELD T O BE UNJUSTIFIABLE AND ALSO THE ADDITION OF RS. 10,96,607 ON ACCOUNT O F EXCESS STOCK OF GOLD AND DIAMOND IS CONFIRMED BY THIS ORDER EARL IER. I DO FIND FORCE IN THE ARGUMENT OF THE AR THAT EXCESS STOCK F OUND DURING THE COURSE OF SURVEY ITSELF IS ATTRIBUTABLE TO UNACCOUN TED SALES AND NO SEPARATE ADDITION IS REQUIRED. THE JUDICIAL DECISIO NS QUOTED ABOVE ALSO SUPPORT THE ASSESSEES CONTENTIONS. THE UNACCO UNTED ITA NO.107/RJT/2008 7 INVESTMENT IN STOCK IS THUS ACCUMULATION OF UNACCOU NTED PROFIT EARNED ON UNACCOUNTED SALES. HENCE, THE ADDITION O F RS.21,72,321 IS HEREBY DELETED. 13. WE HAVE HEARD THE LEARNED REPRESENTATIVE OF PAR TIES AND RECORD PERUSED. IN PRINCIPLE, WE AGREE WITH THE VIEW THAT ADDITION ON ACCOUNT OF INITIAL INVESTMENT IN STOCK IS WARRANTED BUT THAT DEPENDS UPON THE FAC TS OF EACH CASE. WE FIND THAT IN THE CASE UNDER CONSIDERATION, ADDITIONS ON VARIO US ACCOUNT TO THE EXTENT OF RS.1,01,063 ON ACCOUNT OF DIAMOND, RS.3,05,602 ON A CCOUNT OF EXCESS STOCK OF SILVER AND RS 15,88,561 ON ACCOUNT OF UNACCOUNTED S ALE ETC HAVE BEEN SUSTAINED . ON ACCOUNT OF FACTS AND REASONABLE EST IMATION OF INITIAL INVESTMENT, THE ADDITIONS SUSTAINED AND ACCEPTED BY THE ASSESSE E HIMSELF NEEDS CONSIDERATION. APART FROM THIS FACT WE FIND THAT E STIMATION OF ONE MONTH SALE IS ALSO ON HIGHER SIDE. AFTER CONSIDERING ALL THESE F ACTS WE FIND THAT THE CIT(A) IS CORRECT IN DELETING ADDITION OF RS. 21,72,321. WE C ONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. 14. IN THE RESULT APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2010. SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 10 TH DECEMBER, 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-II, RAJKOT 4. THE CIT-I, RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT ITA NO.107/RJT/2008 8