Mr. Sushanta Kumar Maji, Kolkata V. ITO, Ward-24(4), Hooghly, Hooghly

ITA 1134/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4529 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 18-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI S.S. GODARA, JM & SHRI M.BAL AGANESH, AM ] I.T.A NO. 1134/KOL/20 17 ASSESSMENT YEAR : 2012-1 3 MR. SUSHANTA KUMAR MAJI -VS- ITO, WARD-24(4 ), KOLKATA [PAN: ADQPM 0466 M ] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI RAVI TULSIYAN, AR FOR THE RESPONDENT : SHRI S. DASGUPTA, ADDL. CIT DR DATE OF HEARING : 26.07.2018 DATE OF PRONOUNCEMENT : 03.08.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-13, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO. 101/CIT(A)- 13/W-44(3)/KOL/2015-16 DATED 28.02.2017 AGAINST TH E ORDER PASSED BY THE ITO, WARD- 44(3)), KOLKATA [ IN SHORT THE LD AO] UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 23.03.2015 FOR THE ASS ESSMENT YEAR 2012-13. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ADDITION MADE TOWARDS G ROSS PROFIT IN THE SUM OF RS. 1,04,37,167/-, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE. 2 ITA NO.1134/KOL/2017 MR. SUSHANTA KUMAR MAJI A.YR. 2012-13 2 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS AN INDIVIDUAL CARRYING ON BUSINESS IN TRADING OF IRON & STEEL MATERIALS I.E. C.R. OIL S, G. C. SHEETS & H.R. SHEETS ETC. UNDER THE TRADE NAME M/S EAST INDIA STEEL CORPORATI ON. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 WAS FILED BY THE ASSESSEE O N 01.10.2012 DECLARING TOTAL INCOME OF RS. 7,12,980/-. THE ASSESSEE IS AN AUTHORIZED DE ALER OF STEEL AUTHORITY OF INDIA LTD. (SAIL). HE WAS MAINTAINING THREE GODOWNS FOR THE PU RPOSE OF STORING HIS STOCK-IN-TRADE I.E. TWO GODOWNS WERE LOCATED AT 21, MAHARSHI DEVEN DRA ROAD, KOLKATA AND ONE GODOWN AT 1, RIVERSIDE ROAD, SHALIMER, HOWRAH. HE W AS VALUING HIS STOCK-IN-TRADE YEAR AFTER YEAR AS PER RECORDS AND WITHOUT CONDUCTING P HYSICAL VERIFICATION OF THE CLOSING STOCK. THE ASSESSEE CARRIED ON BUSINESS AFTER OBTAI NING OVERDRAFT FROM BANK OF BARODA, BURROBAZAR BRANCH ON HYPOTHECATION OF HIS STOCK. TH E BANK LOANS WERE IN SUBSISTENCE FOR ALMOST 40 YEARS. EVEN BANK OF BARODA HAD NOT CO NDUCTED ANY PHYSICAL VERIFICATION OF HIS STOCK BUT THE OVERDRAFT LIMITS WERE PERIODIC ALLY INCREASED BASED ON THE VALUE OF STOCKS REPORTED BY THE ASSESSEE. 4. THE LD. AO OBSERVED THAT THE ASSESSEE HAD SHOWN CLOSING STOCK AS ON 31.03.2011 AT RS. 21,07,54,755/- IN HIS BALANCE SHEET AND WHEREAS THE OPENING STOCK AS ON 01.04.2011 WAS REFLECTED AT RS. 4,96,87,367/-, THEREBY LEADING TO A DISCREPANCY IN OPENING STOCK AS ON 01.04.2011 AT RS. 16,10,67,387/-. THE LD. AO OBS ERVED THAT THIS DISCREPANCY REPRESENTS SALE OF GOODS MADE BY THE ASSESSEE OUTSI DE HIS REGULAR BOOKS AND ACCORDINGLY SOUGHT TO TAX THE GROSS PROFIT THEREON. WHEN SHOW C AUSED IN THIS REGARD, THE ASSESSEE REPLIED THAT THE BANK OVERDRAFT LIMITS WERE PERIODI CALLY ENHANCED BY THE BANK OF BARODA BASED ON THE STOCK REPORTED BY THE ASSESSEE AND THA T NO PHYSICAL VERIFICATION OF STOCKS WERE CARRIED OUT BY THE BANK ALL ALONG. BUT WHEN BA NK OF BARODA IN ASSESSMENT YEAR 2012-13 DECIDED TO CONDUCT A PHYSICAL VERIFICATION OF STOCKS FOR THE PURPOSE OF GRANTING OF FRESH LOANS/RENEWAL OF OVERDRAFT LIMITS TO THE A SSESSEE, THE ASSESSEE ENGAGED HIS AUDITOR FOR PHYSICAL VERIFICATION OF STOCK BEFORE T HE STOCK AUDIT WAS MANDATED BY THE BANK. ON PHYSICAL VERIFICATION OF SUCH STOCKS, THE ASSESSEE FOUND THAT THE PHYSICALLY 3 ITA NO.1134/KOL/2017 MR. SUSHANTA KUMAR MAJI A.YR. 2012-13 3 STOCKS WERE AVAILABLE ONLY TO THE EXTENT OF 1034 MT VALUED AT RS. 4,96,87,367/- AS AGAINST QUANTITY OF 4126.874 MT VALUED AT RS. 21,07 ,54,755/- AS ON 31.03.2011. THE ASSESSEE FOUND THAT THE CLOSING STOCK AS ON 31.03.2 011 WAS INFLATED BY RS. 16,10,67,388/-. ACCORDINGLY, HE HAD RECASTED THE FI NANCIAL ACCOUNTS FOR THE FINANCIAL YEAR 2011-12 RELEVANT TO ASSESSMENT YEAR 2012-13 BY REPLACING THE ACTUAL OPENING STOCK FIGURE OF RS. 4,96,87,367/- IN RESPECT OF RS. 21,07 ,54,755/-. THIS WAS DONE BY THE ASSESSEE FOR THE REASON OF RECOGNIZING THE ACTUAL L OANS OF STOCK IN THE BOOKS OF ACCOUNTS TO THE TUNE OF RS. 16,10,67,388/- (3093 MT OF QUANT ITY) AND ALSO FOR THE REASON THAT THE BANK AUDITOR WOULD NOT FOUND ANY DISCREPANCY IN HIS STOCK. THE ASSESSEE ALSO FELT THE NEED OF PRESENTING THE TRUE PICTURE OF HIS BOOKS OF ACCOUNT WHICH ALSO WARRANTED HIM TO MAKE THIS ADJUSTMENT IN THE VALUE OF OPENING STOCK. THE ASSESSEE PLEADED BEFORE THE LD. AO TO ACCEPT THE VALUE OF OPENING STOCK BY HIM AND THAT THERE WAS NO UNACCOUNTED SALE AS ALLEGED BY THE LD. AO AND STATED THAT THE STOCK REPORTED IN THE EARLIER YEARS IN THE BALANCE SHEET AS WELL AS BEFORE THE BANK AUTHORITIE S WERE INFLATED AND THAT MORE TAXES WERE PAID BY THE ASSESSEE IN THE EARLIER YEARS. THE ASSESSEE TIME AND AGAIN PLEADED BEFORE THE LD. AO THAT CERTAIN STOCKS WERE INFLATED ONLY WITH THE LIMITED PURPOSE OF SECURING HIGHER CREDIT LIMITS (OVERDRAFT LIMITS) FR OM THE BANK FOR CARRYING ON HIS BUSINESS. THE ASSESSEE PLEADED THAT WHEN THE STOCK AUDIT WAS MANDATED BY THE BANK FOR RENEWAL OF LIMITS AFTER A GAP OF ALMOST 40 YEARS, T HE ASSESSEE IN ORDER TO UNDERSTAND THE REAL SITUATION PREVAILING IN THIS BUSINESS WITH REG ARD TO QUANTITY OF STOCK AVAILABLE, CARRIED OUT PHYSICAL VERIFICATION THROUGH HIS AUDIT OR, AND FOUND THE SHORTAGE OF 3093 MT AMOUNTING TO RS. 16,10,67,387/- WHICH WAS CORRES PONDINGLY REDUCED FROM THE VALUE OF OPENING STOCK AS ON 01.04.2011. THE LD. AO HOWEVER DID NOT HEED TO THIS CONTENTION OF THE ASSESSEE AND PROCEEDED TO TREAT T HE DIFFERENCE IN VALUE OF OPENING STOCK OF RS. 16,10,67,387/- AS SALES MADE BY THE AS SESSEE IN THE MARKET OUTSIDE THE BOOKS AND ACCORDINGLY TAXED AVERAGE GROSS PROFIT AT 6.48% THEREON AND MADE AN ADDITION OF RS. 1,04,37,167/- TO THE RETURNED INCOM E. THIS ACTION OF THE LD. AO WAS UPHELD BY THE LD. CIT(A). AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 4 ITA NO.1134/KOL/2017 MR. SUSHANTA KUMAR MAJI A.YR. 2012-13 4 5. WE HAVE HEARD RIVAL SUBMISSIONS. AT THE OUTSET W E FIND THAT THE FOLLOWING FACTS ARE NOT DISPUTED BEFORE US: I) THE ASSESSEE HAD AVAILED OVERDRAFT FACILITIES FR OM BANK OF BARODA AGAINST THE HYPOTHECATION OF HIS STOCKS. II) THE ASSESSEE HAS BEEN SUBMITTING THE STOCK STAT EMENT TO THE BANK ON A PERIODICAL BASIS. III) PHYSICAL VERIFICATION OF STOCKS WAS NOT CARRIE D OUT BY THE BANK IN THE LAST FOUR DECADES PRIOR TO THE YEAR UNDER APPEAL. IV) THE ASSESSEE CARRIED OUT THE PHYSICAL VERIFICAT ION OF STOCK DURING THE YEAR AND FOUND SHORTAGE OF 3093 MT OF QUANTITY VALUED AT RS. 16,10 ,67,387/-. WE FIND THAT THE ASSESSEE HAD GIVEN A PLAUSIBLE EXP LANATION THAT PURSUANT TO PHYSICAL VERIFICATION CARRIED OUT BY HIS AUDITOR, PRIOR TO T HE VISIT OF STOCK AUDITOR OF THE BANK, SHORTAGE OF 3093 MT WERE FOUND AND ASSESSEE IN ORD ER TO SHOW TRUE PICTURE OF HIS FINANCIAL AFFAIRS AND TO PROJECT A TRUE PICTURE TO THE BANK, SOUGHT TO RECAST THE OPENING STOCK AT RS. 4,96,87,367/- AS ON 01.04.2011, EVEN T HOUGH THE CLOSING STOCK AS ON 31.03.2011 WAS RS. 21,07,54,755/-. WE FIND BARRING THIS RECASTING OF OPENING STOCK FIGURE WHEN COMPARED WITH THE CLOSING STOCK OF EARL IER YEAR, THERE IS ABSOLUTELY NO EVIDENCE BROUGHT ON RECORD BY THE REVENUE TO PROVE THAT THE ASSESSEE INDEED HAD MADE CERTAIN SALES OUTSIDE THE BOOKS OF ACCOUNT. HENCE T HE BASIC ALLEGATION OF THE REVENUE THAT THE CERTAIN SALES HAD BEEN MADE OUTSIDE THE BOOKS O F ACCOUNT CANNOT BE ACCEPTED IN THE FACTS OF THE INSTANT CASE. WITH REGARD TO THE INCOM E TAX BEHAVIOR OF THE ASSESSEE, IT COULD BE SEEN THAT HE HAD BEEN SHOWING EXCESS CLOSING STO CK IN EARLIER YEARS AND HAD PAID MORE TAXES TO THE REVENUE. ADMITTEDLY, THE TAXES PA ID THEREON WERE OUT OF INFLATED STOCKS. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD MAINTAINED TWO SETS OF ACCOUNTS I.E. ONE FOR BANK LOAN PURPOSES AND ONE FO R THE PURPOSE OF INCOME TAX. HENCE IT COULD BE SAFELY CONCLUDED THAT THE STOCKS WERE SH OWN AT A HIGHER FIGURE IN THE EARLIER 5 ITA NO.1134/KOL/2017 MR. SUSHANTA KUMAR MAJI A.YR. 2012-13 5 YEARS WHICH WERE THE SAME AS SUBMITTED TO THE BANK ON A PERIODICAL BASIS. THE ASSESSEE ON REALIZING THE SHORTAGE OF 3093 MT OF STOCK VALUE AT RS. 16,10,67,387/- , HAD NO OTHER OPTION BUT TO RECAST THE OPENING STOCK VALUE AS ON 01.04.2011 OR ALTERNATIVELY COULD HAVE CLAIMED THE SAME AS LOSS OF STOCK WHICH WOULD BE AL LOWABLE AS A REGULAR TRADING LOSS U/S 28 OF THE ACT. THE LD. AR HAS MADE AN ALTERNATIVE S UBMISSIONS BEFORE US STATING THAT FROM THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE, IT COULD BE SEEN THAT THE ASSESSEE HAD CREDITED A SUM OF RS. 3,53,50,000/- IN HIS TRADING ACCOUNT TOWARDS SUNDRY BALANCES WRITTEN OFF. THIS SUNDRY BALANCE WRITTEN OFF OBVIOU SLY CANNOT BE PART OF TRADING RESULTS OF THE ASSESSEE AND ACCORDINGLY THE SAME REQUIRES T O BE IGNORED WHILE COMPUTING GROSS PROFIT. ACCORDING TO THE LD. AR, THE SAID SUM OF RS . 3,53,50,000/-, IF IGNORED, WOULD ONLY RESULT IN A GROSS LOSS OF RS. 2,04,00,547/-. H ENCE THERE CANNOT BE ANY ADOPTION OF GROSS PROFIT PERCENTAGE THEREON ON THE ALLEGED UNDI SCLOSED SALES OF THE ASSESSEE FOR THE YEAR. WE FIND LOT OF FORCE IN THIS ARGUMENT OF THE LD. AR AND HOLD THAT IN ANY CASE THERE CANNOT BE ANY ADDITION TOWARDS GROSS PROFIT DURING THE YEAR BY ADOPTING THE AVERAGE GROSS PROFIT RATE OF 6.48%. ACCORDINGLY, GROUNDS RA ISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 03.08.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 03.08.2018 SB, SR. PS 6 ITA NO.1134/KOL/2017 MR. SUSHANTA KUMAR MAJI A.YR. 2012-13 6 COPY OF THE ORDER FORWARDED TO: 1. MR. SUSHANTA KUMAR MAJI, 21, MAHARSHI DEVENDRA R OAD, KOLKATA-700007. 2. ITO, WARD-44(3), KOLKATA, 3, GOVT. PLACE (WEST), KOLKATA-700001. 3..C.I.T.(A)- 4. C.I.T .- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S