The Dy. CIT, Circle-6, Surat V. M/s. D. Subhashchandra & Co., Surat

ITA 1097/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2088 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-07-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S R KAVITHA
• Keywords: Principle of natural justice; Corroborative evidences

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO.1097/AHD/2014/SRT / ASSESSMENT YEAR: 2005-06 DY. COMMISSIONER OF INCOME TAX, CIRCLE-6, SURAT. VS. M/S.D.SUBHASHCHANDRA & CO, 2 ND FLOOR, NAVPAD COMPLEX, OPP.MOTI BAUG, MAHNDHARPURA, SURAT 395 003. PAN: AACFD3054D APPELLANT /RESPONDENT /ASSESSEE BY SHRI HIREN VEPARI, CA /REVENUE BY M R S. R.KAVITHA , SR.DR / DATE OF HEARING: 0 7 .0 3 .2018 /PRONOUNCEMENT DATE 14 .0 3 .2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, SURAT DATED 27.01.2014 FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT THE ORIGINAL ASSESSMENT WAS COMPLETED ON 16.12.2006 DETERMINING TOTAL INCOME AT RS.53,35,280/- BY MAKING AN ADDITION OF RS.39,95,895/- ON ACCOUNT OF FALL IN GROSS PROFIT AND RS.1,27,733/- ON ACCOUNT OF DISALLOWANCE OF EXPENSES. IN APPEAL, THE CIT(A) HAD UPHELD THE ADDITION ON ACCOUNT OF GROSS PROFIT, BUT DELETED THE DISALLOWANCES MADE OUT OF EXPENSES. ON FURTHER APPEAL, THE ITAT SET ASIDE THE ASSESSMENT AND RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ASSESSMENT VIDE ITS ORDER DATED 31.08.2010 IN ITA NO.3486/AHD/2008. IN CONSEQUENCE TO THE FRESH ASSESSMENT AS PER DIRECTION PAGE 2 OF 6 OF THE ITAT, THE ASSESSING OFFICER ANALYSED A CHART FILED BEFORE HIM AND RETAINED THE SAME SAID ADDITION AGAIN. BEING AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). HOWEVER, CIT(A) OBSERVED THAT THE ASSESSING OFFICER WAS EXPECTED TO RE-ASSESS THE INCOME AS PER THE DIRECTION OF ITAT. BUT, THE ASSESSING OFFICER NOT FOLLOWED SPECIFIC DIRECTIONS GIVEN BY THE ITAT AND WHILE DISCUSSING THE OTHER ASPECTS, HE HAS EXCEEDED HIS JURISDICTION AND THE ADDITION MADE BY HIM WAS HELD TO BE NOT SUSTAINABLE AND THEREFORE DELETED. 3. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. THE LD.DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CIT(A) HAS QUASHED THE SET ASIDE ASSESSMENT ON THE GROUND THAT THE ASSESSING OFFICER HAS FAILED TO FOLLOW THE DIRECTION OF THE TRIBUNAL BY NOT DECIDING THE ADDITION ON MERIT. THE SR.DR HAS REFERRED THE DIRECTION GIVEN BY THE ITAT VIDE PARA 9.1 OF ITS ORDER, ACCORDING TO WHICH THE ASSESSEE WAS UNDER OBLIGATION TO SUBSTANTIATE THAT THE ITEMS OF EACH LOT OF DIAMONDS HAVING SPECIFIC QUALITY HAD IN FACT MATCHED WITH THE SALE PRICE OF THAT VERY ITEMS OF THE STOCK, WHEN SOLD IN THE SUBSEQUENT YEAR. THEREFORE, IT WAS CONTENDED THAT THE ITAT HAS RESTORED THE ISSUE BACK TO THE ASSESSING OFFICER FOR WHICH THE ASSESSEE HAS FILED A DETAILED CHART OF STOCK WHICH WAS DULY CONSIDERED BY THE ASSESSING OFFICER. HENCE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAD NOT GONE THROUGH THE SAID CHART WHILE DECIDING THE ISSUE. THE LD.SR.DR, FURTHER POINTED OUT SOME OF THE INSTANCES OF THE VALUATION ADOPTED BY THE ASSESSEE FOR A PARTICULAR STOCK AND THE SALE PRICE FOR THE SAME STOCK SHOWN IN THE INVOICE IN THE TABULAR FORM AS UNDER: PAGE 3 OF 6 DESCRIPTION OF ITEM QTY IN CTS. VALUATION (RS./CT.) INVOICE NO. & DATE SALE PRICE PER CARAT COST AS SHOWN IN THE CHART (RS.) WHITE F CUT VS1 38.10 24200 DS/01/05 - 06 DTD. 21/4/2005 26200 24175 WHITE F CUT VS1 35.56 24000 DS/01/2005 - 06 DTD. 21/4/2005 26264 24215 WHITE F CUT VS1 27.87 21500 DS/ - 1/2005 - 06 DTD 21/4/2005 23380 21556 WHITE F CUT VS1 21.87 21500 DS/ - 1/2005 - 06 DTD 21/4/2005 23598 21757 D/CUT LCPK2 52.95 10200 DS/02/2005 - 06 DTD 26/4/2005 11144 10274 D/CUT TTLB PK2 & 3 12.20 10400 DS/04/2005 - 06 DTD 11/5/2005 11323 10440 4. THE LD.SR.DR FURTHER SUBMITTED THAT DURING THE APPELLATE PROCEEDINGS, IT WAS CLAIMED THAT THE POLISHED DIAMONDS WERE VALUED ON BASIS OF NET REALISATION VALUE METHOD. HOWEVER, IT IS EVIDENT FROM THE SALE INVOICES THAT SO CALLED NET REALISATION VALUE ADOPTED BY THE ASSESSEE OF CLOSING STOCK OF POLISHED DIAMONDS IS BASICALLY LESSER THAN THE SALE PRICE REALIZATION WITHIN A PERIOD OF ONE MONTH IN RESPECT OF SAME STOCK OF POLISHED DIAMONDS. IN FACT, THE VALUATION ADOPTED IS IN LOWER THAN THE COST IN MAJORITY OF THE INSTANCES EVEN THOUGH THE COST HAS BEEN WORKED OUT BY REDUCING THE GROSS PROFIT FROM SALE. THEREFORE, THE VALUATION ADOPTED BY THE ASSESSEE IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCES AND ASSESSEE HAS CARRIED OUT THE VALUATION OF ADHOC BASIS. THE LD.SR.DR, FURTHER REFERRED THE FINDING OF THE ITAT WHICH SHOWS THAT THE ONUS IS ON THE ASSESSEE TO PLACE ON THE RECORD THAT THE NET REALIZATION VALUE IS CORRECT VALUE MAY BE LESS THAN THE COST. 5. PER CONTRA, THE LD.COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS BEEN SHOWING THE GOODS AT NET REALIZATION VALUE WHICH IS REFLECTED IN SALES MADE IN SUBSEQUENT MONTHS AND THIS METHOD IS ADOPTED BY THE ASSESSEE AS LAID DOWN BY AS-II. THE SAME HAS BEEN ACCEPTED IN THE PAST AND NO ADDITION ON THIS ACCOUNT HAS BEEN MADE. THE ASSESSEE HAS SUBMITTED A CHART WHICH IS PLACED AT PAGE 4 OF 6 PAPER BOOK 51 TO 56 VIDE LETTER DATED 29/12/2011. THE RELEVANT EXTRACT OF WHICH BEING PARA 3.3C HAS ALSO BEEN RE-PRODUCED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. HOWEVER, THE ASSESSING OFFICER HAS NOT PASSED ANY SPEAKING ORDER ON THE REPLY SUBMITTED BY THE ASSESSEE AND THE ASSESSMENT WAS MADE ON 29.12.2011 FOR WHICH THE TIME ALLOWED WAS VERY SHORT. THEREFORE, THE CIT(A) WAS CORRECTLY QUASHED THE ASSESSMENT PROCEEDINGS AS THE ASSESSING OFFICER HAD FAILED TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL. THE AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT THE HONBLE HIGH COURT HAS ALSO EXTRACTED THE VALUATION METHOD ADOPTED BY THE ASSESSEE BEING NET REALIZATION VALUE VIDE IN TAX APPEAL 1507 OF 2008 DATED 28.07.2016 FOR THE ASSESSMENT YEAR 2003-04. IT WAS FURTHER SUBMITTED THAT DUE TO NATURE OF VARIATION IN THE VALUE OF INDIVIDUAL DIAMONDS, IT WAS NOT PRACTICAL TO COMPUTE THE COST USING EITHER FIFO OR WEIGHTED AVERAGE COST AND A STOCK WAS VALUED AT COST WHERE STOCK TO BE IDENTIFIED AND ESTIMATED REALIZATION VALUE WHERE IT WAS MIXED. 6. WE HAVE CONSIDERED FACTS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS SHOWN GROSS PROFIT OF 6.2% AS COMPARED TO 8.26% OF LAST YEAR. THE FALL IN GROSS PROFIT ACCORDING TO ASSESSING OFFICER WAS ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. ACCORDINGLY, THE ASSESSING OFFICER MADE ADDITION OF RS.39.95 LAKHS BY ESTIMATING THE GROSS PROFIT AT 8.26% AS PER LAST YEAR. THIS WAS CHALLENGED BEFORE THE TRIBUNAL AND A CHART SHOWING THE COMPUTATION OF CLOSING STOCK ON THE BASIS OF NET REALIZATION VALUE WAS FILED. AFTER CONSIDERING THE SAME, THE TRIBUNAL HAS SET ASIDE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS: IN THE OPINION OF THE TRIBUNAL, THE ASSESSEE COULD NOT RUN ITS BUSINESS WITHOUT MAINTAINING THE ACCOUNTS OF EACH AND EVERY PIECE OF DIAMOND. IT WAS HELD THAT THE ASSESSEE HAD NOT SHOWN PAGE 5 OF 6 THE RELEVANT SUBSEQUENT INVOICES TO VERIFY THE VALUE ACTUALLY REALIZED BY THE ASSESSEE ON SALE OF THAT SPECIFIC STOCK. UNDISPUTEDLY NET REALIZABLE VALUE METHOD IS RECOGNIZED BY AS-2 ISSUED BY ICAI, BUT IN SUCH A SITUATION, THE ONUS IS ON THE ASSESSEE TO PLACE ON RECORD THAT THE NET REALIZABLE VALUE IS CORRECT VALUE MAY BE LESS THAN THE COST. SUPPORTING EVIDENCE IS THE BASIS NECESSITY TO SUBSTANTIATE THE NET REALIZABLE VALUE IF ADOPTED BY THE ASSESSEE. NOW THE SITUATION IS THAT THE ASSESSEE HAS VEHEMENTLY PRESSED UPON THE POINT THAT THE SALE PRICE OF THE SUBSEQUENT YEAR HAD MATCHED WITH THE LOT OF THE DIAMONDS OF THE CLOSING STOCK AND THAT DETAILS WERE BEFORE THE ASSESSING OFFICER. HOWEVER, EVEN ON CAREFUL PERUSAL, THERE IS NO EVIDENCE ON THE BASIS OF WHICH IT COULD BE HELD THAT THE ASSESSEE HAD DISCHARGED HIS ONUS BY PLACING THE CORRECT INFORMATION ON RECORD IN RESPECT OF THE REALIZABLE VALUE OR THE SALE PRICE OF THE DIAMONDS AS ACCOUNTED FOR IN THE CLOSING STOCK. THE CHART WHICH IS NOW REFERRED WAS STATED TO BE BEFORE THE ASSESSING OFFICER, HOWEVER, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING NOR MENTIONED THAT THE CORRECTNESS OF THE CHART WAS VERIFIED BY HIM. RATHER THE ASSESSEE IS UNDER STRICT OBLIGATION TO SUBSTANTIATE THAT THE ITEMS OF EACH LOT OF DIAMONDS HAVING SPECIFIC QUALITY HAD IN FACT MATCHED WITH THE SALES PRICE OF THAT VERY ITEM OF THE STOCK WHEN SOLD IN THE SUBSEQUENT YEAR. BECAUSE OF THIS REASON, THE NATURAL JUSTICE DEMANDS TO REFER THIS ISSUE BACK TO THE STAGE OF ASSESSING OFFICER TO BE DECIDED DE NOVO IN THE BACKGROUND OF THE CHART FURNISHED BY THE ASSESSEE. 7. IT IS FURTHER NOTICED THAT THE ASSESSING OFFICER HAS ISSUED A NOTICE U/S.142(1) DATED 23.12.2011 ALONG WITH ANNEXURE (PB 14 16) REQUIRING THE ASSESSEE TO SUBSTANTIATE THAT THE ITEMS OF EACH LOT OF DIAMONDS HAVING A SPECIFIC QUALITY HAD IN FACT MATCHED WITH THE SALE PRICE OF THAT VERY ITEM OF THE STOCK WHEN SOLD IN THE SUBSEQUENT YEAR. THIS WAS REPLY BY THE ASSESSEE WHILE LETTER DATED 29.12.2011 PART OF WHICH ALSO RE-PRODUCED IN THE ASSESSMENT ORDER BY THE ASSESSING OFFICER. FURTHER, WE FIND THAT THE ASSESSING OFFICER HAS PASSED THE ORDER ON THE SAME DAY WITHOUT GIVING SPECIFIC REBUTTAL ON THE SUBMISSION OF THE ASSESSEE. THOUGH THE ASSESSING OFFICER HAS OBSERVED THAT THE REPLY OF THE ASSESSEE CONSIDERED BUT FOUND NOT ACCEPTABLE. THUS, WE FIND THAT THE ASSESSING OFFICER HAS MADE ASSESSMENT IN A HURRY DUE TO TIME BARRING LIMITATION, AS THE ORDER WAS PASSED ON THE SAME DATE WHEN THE EXPLANATION FILED. THEREFORE, NO LOGICAL CONCLUSION HAS BEEN ARRIVED AT. WE, FURTHER NOTICED FROM THE CONTENTION OF THE LD.SR.DR AND THE TABLE AS MENTIONED IN THE ABOVE PARA IN THE ARGUMENTS OF THE LD.SR.DR. THE PERUSAL OF THIS SAID TABLE SHOWS SOME INSTANCES OF THE VALUATION ADOPTED BY THE ASSESSEE FOR PARTICULAR STOCK AND THE SALE PRICE OF THE SAME STOCK ACCORDING TO WHICH SALE PRICE IS HIGHER THAN VALUE OF STOCK ADOPTED BY THE ASSESSEE. THEREFORE, WE ARE OF THE OPINION THAT THE PAGE 6 OF 6 ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE VALUATION OF STOCK AS REFERRED BY GIVING IN THE CHART IT WAS FILED BEFORE THE TRIBUNAL DURING THE FIRST ROUND OF APPELLATE PROCEEDINGS. THEREFORE IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE ARE OF THE CONSIDERED OPINION THAT MATTER NEEDS TO BE RE-VISITED AGAIN BY THE ASSESSING OFFICER TO EXAMINE THE VALUATION OF CLOSING STOCK SHOWN IN THE ABOVE REFERRED CHART WITH NECESSARY DOCUMENTARY EVIDENCES LIKE SALE INVOICES AND OTHER WHICH MAY BE ASSESSEE WOULD LIKE TO PRODUCE BEFORE HIM. THEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO CONSIDERATION. 8. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 14.03.2018 SD/- SD/- (C.M. GARG) (O.P. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER / SURAT, DATED: 14 TH MARCH, 2018. COPY OF ORDER FORWARDED TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUARD FILE OF ITAT. BY ORDER ASSISTANT REGISTRAR, SURAT