M/s. Anant Agarbatti Works, Ahmedabad V. The ACIT., Circle2, Ahmedabad

ITA 1080/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9247 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-07-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 02-05-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1080/AHD/2006 ASSESSMENT YEAR:2002-03 DATE OF HEARING:7.7.09 DRAFTED:8.7.09 M/S. ANANT AGARBATTI WORKS, 1761, GANDHI ROAD, GAUTAM CHAMBERS, AHMEDABAD PAN NO.AABFA7415N V/S . ACIT,CIRCLE-2, AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI TUSHAR P HEMANI, AR RESPONDENT BY:- SHRI GOVIND SINGH, DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX-(A)-VI, AHMEDABAD IN APPEAL NO. CIT(A )VI/AC(IT)CIR.2/51/2005 -06 DATED 28-02-2006. THE ASSESSMENT WAS FRAMED BY THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-2, AHMEDABAD U/S . 143(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 24-03- 2005 FOR THE ASSESSMENT YEAR 2002-03. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION OF RS.5,55,088/- AND SIDE-BY-SIDE ENHANCING THE SAME BY RS.52,806/- BEING EXCESSIVE STOCK. FOR THIS, THE ASSESSEE HAS RAISED THE GROUND NO.1 TO 10 IN THE GROUNDS OF APPE AL RAISED BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED CA SE RECORDS INCLUDING THE ITA NO 1080/AHD/2006 A.Y. 2002-03 M/S. ANANT AGARBATTI WORKS V. ACIT CIR-2, ABD PAGE 2 ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A) AND THE ASSESSEES PAPER BOOK CONTAINING PAGES 1 TO 49. THE BRIEF FACTS REL ATING TO THIS ISSUE ARE THAT A SURVEY WAS CONDUCTED ON THE BUSINESS PREMISES OF TH E ASSESSEE U/S.133A OF THE ACT ON 30-01-2002. DURING THE COURSE OF SURVEY , THE SURVEY PARTY TOOK ACTUAL STOCK AS PER INVENTORIES PREPARED VALUED AT RS.60,73,315/-. THE STOCK AS PER BOOKS OF ACCOUNT WAS VALUED AT RS.55,18,265/ - AND ACCORDING TO THE ASSESSING OFFICER ASSESSEES EXCESS STOCK WAS TO TH E TUNE OF RS.5,55,090/- AND THE SAME WAS SURRENDERED BY THE ASSESSEE AND AG REED TO PAY ADVANCE TAX ON SURRENDERED EXCESS STOCK TO THE EXTENT OF 1, 98,163/-. THE ASSESSEE FILED RETURN OF INCOME AND DID NOT DISCLOSE THE SUR RENDER AMOUNT IN THE RETURN OF INCOME. WHEN THE AO REQUIRED THE ASSESSEE TO EX PLAIN WHY THE SURRENDER AMOUNT OF RS.5,55,090/- WAS NOT DISCLOSED, THE ASSE SSEE STATED THAT THE SURVEY PARTY HAS NOT WORKED OUT THE STOCK CORRECTLY AND THE SURVEY PARTY CALCULATED THE STOCK AFTER APPLYING GROSS PROFIT (G P) RATE OF 18.54% BUT HAS NOT ACCOUNTED THE EXPENSES OF ELECTRICITY AND SALES TAX, WHICH ARE PART OF TRADING ACCOUNT OF THE ASSESSEE. BEFORE THE ASSESS ING OFFICER, IT WAS ARGUED THAT THE GP RATE ADOPTED AT 18.5% WAS NOT JUSTIFIED AS THE GP RATE DURING THE YEAR WAS AT 17.77%. THE ASSESSEE ALSO PLEADED THAT THE GP RATE OF LAST FOUR YEARS IS AS UNDER:- A.Y.1998-99 15.92% A.Y.1999-00 16.02% A.Y.2000-01 15.64% A.Y.2001-02 15.38% THE ASSESSING OFFICER DID NOT AGREE WITH THE REPLY OF THE ASSESSEE AND ASSESSED THE EXCESS STOCK SURRENDERED DURING THE CO URSE OF SURVEY AS UNEXPLAINED STOCK AMOUNTING TO RS.5,55,090/- BY STA TING THE REASON THAT THE BOOKS OF ACCOUNT WERE INCOMPLETE AS THE PURCHASE WI TH EFFECT FROM 01-01- 2002 TO 30-01-2002 TILL THE DATE OF SURVEY WERE NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE SURVEY TEAM AFTER COMPLYING THE INF ORMATION, RECORDED THE PURCHASES IN THE BOOKS OF ACCOUNT TO THE TUNE OF RS .13,12,429/- AND AFTER EXAMINING THE TRADING ACCOUNT INCLUDED PURCHASES WH ICH WERE NOT ACCOUNTED ITA NO 1080/AHD/2006 A.Y. 2002-03 M/S. ANANT AGARBATTI WORKS V. ACIT CIR-2, ABD PAGE 3 BY THE ASSESSEE, COMPUTED THE EXCESS STOCK AT RS.5, 55,090/- AND THE ASSESSEE HIMSELF HAS AGREED TO SURRENDER THE SAME A ND PAID TAX THEREON. AGGRIEVED AGAINST THE ACTION OF THE ASSESSING OFFIC ER, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) ALSO CONFIRMED THE ADDITION AND ALSO ENHANCED THE STOCK TO THE EXTENT OF RS.52,806/- BY GIVING FOLLOWING FINDING IN PARA-2.2 OF HIS APPELLATE ORDER:- 2.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND FACTS OF THE CASE CAREFULLY. FROM THE RECORDS OF EARLIER YEARS I T IS CLEAR THAT THE APPELLANT IS SHOWING G.P. RATE FROM 15% TO 16% AND, THEREFORE, THE STOCK ON THE DATE OF SURVEY I.E. 30.1.2002 WAS TO B E COMPUTED ONLY AFTER APPLYING THE G.P. RATE OF IMMEDIATELY PRECEDING YEA R UNTIL UNLESS THE APPELLANT WOULD HAVE SHOWN WITH THE VOUCHERS THAT R IGHT FROM FIRST OF APRIL THE APPELLANT HAS INCREASED HIS SALES PRICE W HICH WARRANTS APPLICATION OF HIGHER G.P. RATE. THE APPELLANT HAD NOT PRODUCED ANY VOUCHERS OR DETAILS WHICH CAN SUBSTANTIATE THAT FRO M THE BEGINNING OF THE YEAR TILL THE DATE OF SURVEY THE APPELLANT HAS INCREASED ITS SALE PRICE IN COMPARISON TO EARLIER YEARS. IT IS ALSO TO BE ME NTIONED HERE THAT THE APPELLANT IS ONLY A MANUFACTURING UNIT AND ALL THE SALES ARE BEING MADE TO ITS SISTER CONCERN, THEREFORE, THE SELLING PRICE IS A CONTROLLED TRANSACTIONS AND NOT AT ARM LENGTH AND IT IS AT THE SOLE DISCRETION OF THE APPELLANT. THIS IS NOT GOVERNED BY ANY MARKET RATE CONSIDERATION. IT WAS ALSO FOUND DURING THE SURVEY THAT THE BOOKS WERE NO T COMPLETE BECAUSE THE PURCHASES WERE NOT RECORDED IN THE COMPUTER FOR ALMOST THE WHOLE MONTH OF JANUARY. THEREFORE, ON THE DATE OF SURVEY AFTER INCLUSION OF UNRECORDED PURCHASES AND INCORPORATING THE ELECTRIC ITY AND SALES TAX EXPENSES AND AFTER APPLYING THE G.P. RATE OF LAST Y EAR THE EXCESS STOCK WORKED OUT AS RS.6,07,882/-. THE POSITION OF EXCESS STOCK WAS IN THE KNOWLEDGE OF THE PARTNER WHO AFTER CONSIDERING THE TRADING ACCOUNT READILY AGREED TO SURRENDER AND ALSO PAID TAX THERE ON WITHOUT ANY PRESSURE OR COERCION BY THE SURVEY TEAM. THEREFORE, ADDITION TO THE EXTENT OF RS.6,07,882/- IS TO BE MADE AS UNEXPLAINE D INVESTMENT IN THE EXTRA STOCK. AS THE AO HAS ALREADY MADE AN ADDITION RS.5,55,086/-A.O IS FURTHER DIRECTED TO INCREASE THIS ADDITION BY RS .52,806/-. ACCORDINGLY, THIS GROUND IS DISMISSED BY ENHANCING THE INCOME BY RS.52,806/-. 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE STATED EV EN THE SURVEY PARTY HAS NOT WORKED OUT THE CORRECT STOCK WHILE CALCULAT ING THE STOCK AS PER BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAS APPLIED GP RA TE OF 18.54% AS AGAINST THE GP RATE OF THE ASSESSEE DURING THIS YEAR AT 17. 77%. LD. COUNSEL FOR THE ASSESSEE STATED THAT ASSESSEE HAD RECASTED THE TRAD ING ACCOUNT AFTER ITA NO 1080/AHD/2006 A.Y. 2002-03 M/S. ANANT AGARBATTI WORKS V. ACIT CIR-2, ABD PAGE 4 INCLUDING ELECTRICITY AND SALES TAX EXPENSES, AND B Y VIRTUE OF THE SAME, GP RATE OF THE ASSESSEE COMES TO 17.77%, WHICH MATCH T HE FIGURE OF THE CLOSING STOCK FOUND IN THE PREMISES AT RS.60,73,351/-. LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT ONCE THE REVENUE HAS COMPLETED THE PURCHASES TILL THE DATE OF SURVEY ENTERED INTO THE BOOKS OF ACCOUNT TO THE EXTENT OF RS.13,12,429/- AND IF TAKING THE GP RATE OF 17.77%, THE CLOSING ST OCK WILL NOT BE VARYING FROM CLOSING STOCK TAKEN PHYSICALLY BY THE SURVEY PARTY AND FROM CLOSING STOCK AS RECORDED IN THE ASSESSEES BOOKS OF ACCOUNT. LD. C OUNSEL FOR THE ASSESSEE ALSO DRAWN OUR ATTENTION TO THE ARGUMENTS AND SUBMI SSIONS MADE BEFORE THE CIT(A) AS WELL AS ASSESSING OFFICER AND STATED THAT GP RATE IN EARLIER YEARS WAS AT 15.92% TO 15.38%. THE LD. COUNSEL FOR THE AS SESSEE STATED THAT THERE IS NO REASON OR JUSTIFICATION FOR APPLYING GP RATE AT 18.54% BY THE AO, WHICH IS CONFIRMED BY THE CIT(A). IN VIEW OF THESE ARGUMENT S, LD. COUNSEL FOR THE ASSESSEE STATED THAT THERE IS NO DISCREPANCY OF STO CK, WHICH NEEDS ADDITION. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE STATED THAT THE ASSESSEE HIMSELF HAS SURRENDERED EXCESS STOCK OF RS.5,55,090 /- FOUND AT THE TIME OF SURVEY AND ALSO PAID ADVANCE TAX ON THAT EXCESS STO CK, TREATING THE SAME AS UNEXPLAINED. THE LD. DR FURTHER STATED THAT AT THE TIME OF SURVEY, THE ASSESSEE HAS NOT TAKEN ANY OBJECTION AND ONCE THE D EPARTMENT IS STOPPED FROM MAKING INQUIRY, THE ASSESSEE IS TAKING THIS OB JECTION. IN VIEW OF THESE ARGUMENTS, THE LD. DR SATED THAT THE ORDERS OF THE LOWER AUTHORITIES MAY BE CONFIRMED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE GP RAT E OF EARLIER YEAR IS RANGING FROM 15.38% TO 16.02%, I.E. IN ASSESSMENT YEARS 199 8-99 TO 2001-02. WE FURTHER FIND THAT THE ASSESSEE HAS RECASTED TRADING ACCOUNT BY INCLUDING ELECTRICITY AND SALES TAX EXPENSE BY APPLYING GP RA TE OF ASSESSEE AT 17.77% AND THE CLOSING STOCK COMES TO RS.60,73,351/-, THE STOCK FOUND AT THE TIME OF SURVEY AND AS INVENTORIZED AT RS.60,73,351/-. WE FU RTHER FIND THAT THE CIT(A) HAS RE-WORKED THE GP RATE BY TAKING THE GP RATE OF EARLIER THREE YEARS, THE ITA NO 1080/AHD/2006 A.Y. 2002-03 M/S. ANANT AGARBATTI WORKS V. ACIT CIR-2, ABD PAGE 5 CLOSING STOCK AS PER BOOKS OF ACCOUNT COMES TO RS.5 4,65,469/- AS AGAINST THE ACTUAL STOCK FOUND AT RS.60,73,351/-. ACCORDING TO CIT(A), THE ASSESSEES EXCESS STOCK AT THE BUSINESS PREMISES OF THE ASSESS EE TO THE EXTENT OF RS.6,07,882/- AS COMPARED THE EXCESS STOCK WORKED O UT BY THE SURVEY TEAM AT RS.5,55,086/-. THE CIT(A) ENHANCED THE ASSESSME NT TO THE EXTENT OF RS.52,806/-. IN VIEW OF THE ABOVE, WE ARE OF THE V IEW THAT REVENUE COULD NOT POINT OUT ANY DEFECT IN THE RECASTED BALANCE-SHEET AND THE REVENUE HAS TAKEN THE STOCK BY APPLYING GP OF 18.54% BY EXCLUDING THE ELECTRICITY AND SALES TAX EXPENSES. THE TRADING ACCOUNT CANNOT BE RECASTED BY EXCLUDING ELECTRICITY AND SALES TAX EXPENSES AND INCLUSIVE OF THE SAME, THE G P RATE COMES AT 17.77% WHICH IS MUCH HIGHER THAN EARLIER YEARS GP RATE. TAKING INTO CONSIDERATION THIS FACT, WE ARE OF THE VIEW THAT THE LOWER AUTHOR ITIES HAD WRONGLY MADE ADDITION ON ACCOUNT OF EXCESS CLOSING STOCK FOUND D URING THE COURSE OF SURVEY, WHICH IS NOT THE CASE. ACCORDINGLY, WE DELETE THE ADDITION AND ALLOW THIS ISSUE OF THE ASSESSEES APPEAL. 6. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE ASSESSING OFFIC ER IN DISALLOWING INTEREST @ 3%, I.E. DISALLOWANCE TO THE EXTENT OF RS.62,778/-. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) ALSO CONF IRMED THE ACTION OF THE ASSESSING OFFICER. 7. AFTER HEARING THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS NOT POINTED OUT HOW THE INTEREST @ 21% IS HIGHER AN D NO COMPARATIVE INSTANCES HAVE BEEN BROUGHT TO OUR NOTICE. EVEN OT HERWISE, THE BANK INTEREST IN ASSESSMENT YEAR 2002-03 WAS AROUND 15 TO 18% ON OVER DRAFT LIMITS AND OTHER BANK INTEREST. THE PRIVATE INTEREST IS ALMOS T HIGHER BY 2 TO 3%, WHICH THE ASSESSEE HAS PAID. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO HAS MADE DISALLOWANCE WITHOUT ANY BASIS AND THE CIT(A) HAS C ONFIRMED THE SAME. WE DELETE THE ADDITION AND ALLOW THIS ISSUE OF THE ASS ESSEES APPEAL. ITA NO 1080/AHD/2006 A.Y. 2002-03 M/S. ANANT AGARBATTI WORKS V. ACIT CIR-2, ABD PAGE 6 9. THE NEXT ISSUE RAISED BY WAY OF GROUND NO.12 & 1 3 IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) DISALLOWING 1/6 TH OF MOTOR CAR AND VEHICLE EXPENSES AND MOBILE & TELEPHONE EXPENSES. 10. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED BOTH THE ISSUES. HENCE, WE DISMISS BOTH THE ISSUES OF THE A SSESSEES APPEAL AS NOT PRESSED. 11. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28/08/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 28/08/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- VI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD