M/s. Amolak Singh Kumar & sons, Jalandhar V. The Income Tax Officer, Phagwara

ITA 124/ASR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4428 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y K SAXENA
• Assessee Lawyers: RAVISH SUD
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.124(ASR)/2012 ASSESSMENT YEAR:2006-07 PAN :AAKFA7020L M/S. AMOLAK SINGH KUMAR & SONS VS. INCOME TAX OFFIC ER, NAKODAR ROAD, NURMAHAL, WARD-2, PHAGWARA. DISTT. JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.RAVISH SUD, ADVOCATE RESPONDENT BY:SH.Y.K.SAXENA, DR DATE OF HEARING: 26/08/2013 DATE OF PRONOUNCEMENT:11/09/2013 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 22.03.2012 FOR THE ASSESSMENT YEAR 2006-07 . THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF THE CIT(A) TO THE EXTENT SUS TAINING THE ADDITIONS MADE BY THE A.O. IS AGAINST THE LAW AND FACTS OF THE CASE. ITA NO.124(ASR)/2012 2 2. THAT THE CIT(A) MISCONCEIVING THE FACTS OF THE CASE HAD THEREIN ERRED IN SUSTAINING THE ADDITION OF RS.4,50,904/- IN THE HANDS OF THE ASSESSEE FIRM. 3. THAT THE CIT(A) FAILING TO APPRECIATE THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE HAD THEREIN GRAVELY ERRED IN SUST AINING THE ADDITION PERTAINING TO ALLEGED DEFICIT STOCK OF R S.3,80,534/-. 4. THAT THE CIT(A) FAILING TO TAKE COGNIZANCE OF THE F ACTS ON RECORD IN ENTIRETY, THEREIN ERRED IN CALCULATING T HE GROSS PROFIT AS REGARDS THE SALE OF THE DEFICIT CEMENT STOCK A T RS.67,246/- ( I.E. RS.2,53,186 (-) RS.1,85,940/-), AND MADE AN AD DITION OF THE SAID AMOUNT IN THE HANDS OF THE ASSESSEE FIRM. 5. THAT THE CIT(A) AFTER TAKING COGNIZANCE OF THE JUDG MENT OF THE HONBLE HIGH COURT OF JUDICATURE RELIED UPON THE AS SESSEE, ACTED MOST ARBITRARILY AND ERRONEOUSLY DISTINGUISHE D THE FACTS OF THE PRESENT CASE AS IN COMPARISON TO THE FACTS AS W ERE INVOLVED IN THE CASE BEFORE THE HONBLE HIGH COURT. 6. THAT THE CIT ERRED IN SUMMARILY BRUSHING ASIDE THE AVERMENT OF THE ASSESSEE AS REGARDS THE WRONG CLASSIFICATION OF THE GOODS BY THE SURVEY OFFICIALS AT THE TIME OF THE SURVEY, THE REIN LEADING TO ALLEGED DISCREPANCIES IN THE STOCK. 7. THAT THE CIT(A) ERRED IN NOT ADJUDICATING THE GROU ND OF APPEAL AT S.NO.4, WHEREIN THE ASSESSEE HAD SPECIFI CALLY CHALLENGED THE ADDITION OF RS.5,260/- TOWARDS CASH FOUND SHORT DURING THE SURVEY PROCEEDINGS AS AGAINST TH AT AS STOOD REFLECTED IN THE BOOKS OF ACCOUNTS. 8. ANY OTHER GROUND OF APPEAL AS MAY BE ALLOWED TO BE RAISED AT THE TIME OF HEARING OF THE APPEAL. 2. GROUNDS NO. 1 & 8 OF THE ASSESSEE ARE GENERAL IN NATURE, THEREFORE, DO NOT REQUIRE ANY ADJUDICATION. ITA NO.124(ASR)/2012 3 3. THE LD. COUNSEL FOR THE ASSESSEE, MR. RAVISH SUD , ADVOCATE, DID NOT PRESS GROUNDS NO. 5 & 6. THEREFORE, THE SAME ARE DI SMISSED AS NOT PRESSED. 4. AS REGARDS GROUNDS NO. 2, 3 & 4, THE BRIEF FACTS ARE THAT SURVEY U/S 133A CONDUCTED AT THE BUSINESS PREMISES OF THE ASSE SSEE ON 28/09/2005. AS PER THE ASSESSMENT ORDER UNDER APPEAL DURING THE CO URSE OF THIS SURVEY CERTAIN DIFFERENCES BETWEEN THE STOCK AS PER BOOKS AND THE STOCK AS PER THE PHYSICAL COUNTING WAS FOUND AS UNDER: 4% 12.5% AGRL. CEMENT TOTAL AS PER BOOKS 9,92,828/- 1,74,682/- 3,40,004/ - 1,97,490/ - 17,05,014/ - AS PER PHYSICAL COUNTING 12,76,334/- 1,95,004/- 1,45,410/ - 11,550/- 17,28,278/ - DIFFERENC E (+)3,383,496/ - (+)20,322/ - (-) 1,94,594 (-) 1,85,940/ (+)23,284/ THE AO NOTED THAT THE STATEMENT OF SH. AJAY KUMAR, PARTNER, WAS RECORDED DURING THE SURVEY PROCEEDINGS WHEN HE WAS ASKED TO EXPLAIN THE AFORESAID DIFFERENCES. SH. AJAY KUMAR COULD NOT TELL THE REAS ON FOR THE DISCREPANCIES ITA NO.124(ASR)/2012 4 AND STATED THAT HE WOULD BE ABLE TO EXPLAIN THE SAM E AFTER VERIFICATION. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE DURI NG THE ASSESSMENT PROCEEDINGS IN WHICH HE MENTIONED THAT THE CONTENTI ON DURING THE SURVEY THAT THE DEFICIT IN STOCKS MAY BE ADJUSTED AGAINST THE EXCESS STOCK COULD NOT BE ACCEPTED SINCE SEPARATE TRADING ACCOUNTS WERE MA INTAINED IN RESPECT OF DIFFERENT CATEGORIES OF ITEMS. IT WAS POINTED OUT T HAT THE STOCK INVENTORY WAS PREPARED, VALUED AND SEGREGATED IN THE PRESENCE OF SH. AJAY KUMAR AND WAS DULY SIGNED BY HIM AFTER VERIFICATION. NO DAY TO DA Y STOCK REGISTER WAS MAINTAINED EXCEPT THAT FOR CEMENT AND THE CEMENT AC COUNT ALSO SHOWED SIGNIFICANT DISCREPANCY. IT WAS STATED THAT THE CLA IM OF LOSS ON ACCOUNT OF DAMAGE TO CEMENT BAGS DUE TO RAINS ON 20 TH AND 21 ST OF SEPT., 2005 WAS AN AFTER-THOUGHT AS THERE WAS NO SUCH CLAIM OR EVIDENC E OF DAMAGED CEMENT BAGS WHEN THE INVENTORY WAS PREPARED AT THE TIME O F SURVEY. THE AO WAS ALSO OF THE VIEW THAT ALLOWING THE SET-OFF OF THE UNACCOUNTED SALES WITH THE UNACCOUNTED PURCHASES WAS NOT POSSIBLE IN VIEW OF T HE ASSESSEES CLAIM THAT ALL THE PURCHASES AND SALES HAD BEEN RECORDED IN TH E BOOKS OF ACCOUNT. IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE STAT ED THAT AT THE TIME OF SURVEY THE FIGURE OF CLOSING STOCK HAD BEEN COMPUTE D BY APPLYING THE GP RATE OF THE PREVIOUS YEAR TO THE SALES OF THE YEAR UNDER SURVEY, WHICH METHOD WAS ERRONEOUS AND THEREFORE, THE RESULTS COULD NOT BE SUSTAINED. IT WAS ITA NO.124(ASR)/2012 5 SUBMITTED THAT THIS METHOD OF DETERMINING THE STOC K IN CASES WHERE NO STOCK REGISTER WAS BEING MAINTAINED HAD BEEN DEPRECATED B Y THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BHALLA BROTHERS, REPORTED AS 10 TLR 45 (P&H). IT WAS CONTENDED THAT ANY COMPARISON WITH T HE SAID CLOSING STOCK AS PER BOOKS WAS INVALID. IT WAS FURTHER CONTENDED THA T THE CLASSIFICATION OF GOODS DURING THE COURSE OF SURVEY PROCEEDINGS HAD B EEN CARRIED OUT IN HASTE, DUE TO WHICH A NUMBER OF ITEMS FALLING IN ON CATEGORY HAD WRONGLY BEEN CLASSIFIED IN ANOTHER CATEGORY. IT WAS CONTEND ED THAT THE CLASSIFICATION WAS GO ENDORSED FROM THE PARTNER OF THE ASSESSEE FI RM WHO WAS UPSET DUE TO THE UNFORTUNATE STATE OF HEALTH OF HIS FAMILY MEMBE RS AND BECAUSE HIS FATHER WAS REQUIRED TO BE ADMITTED TO THE HOSPITAL DUE TO THE TENSION GENERATED DURING THE SURVEY. IT WAS REQUESTED THAT THE CLAS SIFICATION MAY BE GOT RE- CLASSIFIED. IT WAS ALSO SUBMITTED THAT THE VALUATIO N OF THE STOCK HAD NOT BEEN DONE PROPERLY AS PER THE CONSISTENT METHOD OF VALUA TION DONE BY THE ASSESSEE FIRM AND THAT THE SAME WAS REQUIRED TO BE DONE BY A PPLYING THE PROPER RATES. THE ASSESSEE FURTHER STATED THAT THE SHORTAGE OF GO ODS AMOUNTING TO RS.3,80,534/- IMPLIED THAT CERTAIN GOODS HAD BEEN D EBITED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE BUT HAD BEEN SOLD OUTSIDE THE BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT ADDITION IN RESPECT OF ONLY THE PROFIT ELEMENT ON SUCH ALLEGED SUPPRESSED SALES TRANSACTIONS MADE BY THE ASSESSEE COULD BE MADE, ITA NO.124(ASR)/2012 6 BUT THERE WERE THE ENTIRE SALE CONSIDERATION OF SUC H GOODS WOULD BE AVAILABLE TO BE SET OFF AGAINST THE EXCESS STOCK OF RS.4,03,8 18/-. THUS, ONLY THE PROFIT ELEMENT ON THE SHORTAGE OF STOCK WOULD BE ADDED TO THE TOTAL INCOME. IT WAS ALSO THE ASSESSEES CONTENTION THAT THE CLAIM OF 3 85 CEMENT BAGS BEING SPOILED ON ACCOUNT OF HEAVY RAINS WAS A FACT AND CO ULD BE ALLOWED. 4.1. THE AO BEING NOT SATISFIED WITH THE SUBMISSION S HELD THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT TRUSTWORTHY DU E TO THE FACTS MENTIONED IN THE SHOW CAUSE NOTICE. ACCORDINGLY, THE AO MADE AN ADDITION OF RS.7,84,352/- BEING THE SUM OF THE EXCESS STOCK OF RS.4,03,818/- AND THE DEFICIT STOCK OF RS.3,80,534/-. 5. AS REGARDS GROUND NO.7, THE BRIEF FACTS ARE THAT THE AO ADDED THE SUM OF RS.5,260/-, BEING THE DIFFERENCE BETWEEN THE CAS H IN HAND AS PER THE BOOKS AND THAT FOUND ON PHYSICAL COUNTING AT THE TIME OF SURVEY. HE DID NOT ACCEPT THE ASSESSEES CONTENTION THAT THE DIFFERENCE IN CA SH WAS TAKEN AWAY BY ANOTHER PARTNER. THE AO FURTHER REJECTED THE ASSESS EES CONTENTION THAT CEMENT STOCK WORTH RS.63,525/- WAS SPOILT BEFORE TH E SURVEY, SINCE NO SUCH STOCK WAS HELD TO BE FOUND DURING THE SURVEY U/S 13 3A AND ADDED THIS AMOUNT TO THE TOTAL INCOME. 6. BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE SUB MISSION, MAINLY THAT THE DEFICIT STOCK WOULD LEAD TO THE SOLE INFERENCE THAT THE ASSESSEE FIRM HAD ITA NO.124(ASR)/2012 7 CARRIED OUT SALES OUTSIDE THE BOOKS OF ACCOUNT. TH E ASSESSEE FIRM WOULD ONLY BE SADDLED WITH ADDITION AS REGARDS THE PROFIT ELE MENT PERTAINING TO THE SAID SALES. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPO N THE DECISIONS OF VARIOUS COURTS OF LAW. 6.1. AS REGARDS THE EXCESS STOCK, APART FROM THE SU BMISSIONS, HE MADE THE SUBMISSIONS THAT EXCESS STOCK RELATABLE TO ASSESSEE FIRM OUT OF SALE PROCEEDS PERTAINING TO THE ALLEGED DEFICIT STOCK OF RS.3,80, 534/- AND THEREFORE, TELESCOPING OF THE DEFICIT STOCK TO THE EXCESS STO CK BE GIVEN. THE SAID SUBMISSIONS WERE SENT TO THE A.O. FOR COMMENTS AND THE REJOINDER WAS TAKEN FROM THE LD. COUNSEL APPEARING ON BEHALF OF T HE ASSESSEE. 6.2. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE AND THE REMAND REPORT AND REJOINDER OF THE ASSESSEE, THE LD. CIT(A ) VIDE PARA 4.5 ALLOWED THE RELIEF OF RS.3,33,448/- AND SUSTAINED THE ADDIT ION OF RS.4,50,904/-. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PART OF THE O RDER OF THE LD. CIT(A) IN PARA 4.5 IS REPRODUCED AS UNDER: 4.5. I DO, HOWEVER, ACCEPT THE APPELLANTS PLEA TO ALLOW THE TELESCOPING OF THE UNACCOUNTED PURCHASES AGAINST T HE UNACCOUNTED SALES. THIS IS FOR THE REASON THAT ONCE AN ADDITIO N IS MADE IN RESPECT OF UNACCOUNTED SALES TO THE TOTAL INCOME OF THE AS SESSEE, THE FUNDS TO THAT EXTENT COME INTO THE HANDS OF THE ASSESSEE AN D WOULD BE AVAILABLE FOR USE FOR MAKING THE PURCHASES OUTSIDE THE BOOKS OF ACCOUNT. THE SOURCE OF THE UNACCOUNTED PURCHASES WOULD, THUS, B ECOME EXPLAINED. THE TOTAL DEFICIT IN THE STOCK HAS BEEN FOUND TO B E OF RS.3,80,534/- AND ITA NO.124(ASR)/2012 8 COMPRISES OF DEFICIT OF RS.1,94,594/- OF AGRL. GOO DS AND OF RS.1,95,940/- OF CEMENT. THE GP RATES OF THESE TWO ITEMS ARE 1.58% AND 26.56% RESPECTIVELY AS PER THE TAX AUDIT REPOR T. THE VALUE OF SALES OF THESE ITEMS WOULD, THEREFORE, BE RS.1,97, 718/- AND RS.2,53,818/- RESPECTIVELY, TOTALING RS.4,50,904/- . SINCE THE EXCESS STOCK OF THE VALUE OF RS.4,03,818/-, I HOLD THAT T HE SALE PROCEEDS OF THE DEFICIT STOCK WILL EXPLAIN THE ACQUISITION OF THE EXCESS STOCK FOUND AT THE TIME OF SURVEY. HENCE, FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF M/S. CHAUDHARY ENTERPRISES (SU PRA), AN ADDITION OF RS.4,50,904/- OUT OF THE TOTAL ADDITION OF RS.7 ,84,352/- IS UPHELD. THE ASSESSEE GETS RELIEF OF RS.3,33,448/-. THE GRO UND NUMBERS 1 AND 2 OF APPEAL ARE, THUS, PARTLY ALLOWED. 7. THE LD. COUNSEL FOR THE ASSESSEE, MR. RAVISH SUD , ADVOCATE, MAINLY RELIED UP THE SUBMISSIONS MADE BEFORE THE LD. CIT(A ) AND THE COUNTER COMMENTS IN THE REJOINDER MADE BEFORE THE LD. CIT(A ). HE STRONGLY ARGUED THAT DEFICIT STOCK WOULD LEAD TO THE SOLE INFERENCE THAT THE ASSESSEE FIRM HAD CARRIED OUT SALES OF THE SAME OUTSIDE THE BOOKS OF ACCOUNT AND ONLY PROFIT ELEMENT ON THE SAID SALES SHOULD BE MATTER OF ADDIT ION AND NOTHING MORE THAN. HE RELIED UPON THE FOLLOWING DECISIONS OF IT AT: I) JANTA TILES VS. ACIT (2000) 66TTJ (PUNE) 695 II) B &BROTHERS ENGINEERING WORKS DCIT (2003) 84 I TD 243 (AHD.) 7.1 HE ALSO ARGUED THAT THE DECISION OF ITAT, AMRIT SAR BENCH, IN THE CASE OF M/S. CHAUDHARY ENTERPRISES, IN ITA NOS. 430 & 45 4(ASR)/2004 DATED 13.10.2006 RELIED UPON BY THE LD. CIT(A) IS NOT APP LICABLE IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.124(ASR)/2012 9 8. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF BOTH THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE MAIN ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE ARE THAT THE DEFICIT STOCK OF RS.3,80,534/- I.E. RS.1,94,594/- O N ACCOUNT OF AGRICULTURAL GOODS AND RS.1,85,940/- ON ACCOUNT OF CEMENT SHOUL D AT THE BEST MAY BE TREATED AS SALES OUTSIDE THE BOOKS OF ACCOUNT. IN T HIS REGARD, NOTHING HAS BEEN BROUGHT ON RECORD. WE ARE OF THE VIEW THAT THE ASSE SSEE HAS NOT BROUGHT ON RECORD BEFORE ANY OF THE AUTHORITIES BELOW OR EVEN BEFORE US THAT THE CORRESPONDING PURCHASES HAVE BEEN DEBITED IN THE BO OKS OF ACCOUNT. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) IN PARA 4 T O 4.5 WHERE THE LD. CIT(A) HAS ACCEPTED THE PLEA TO ALLOW THE TELESCOPING OF T HE UNACCOUNTED PURCHASES AGAINST THE UNACCOUNTED SALES. AS REGARDS THE TOTAL DEFICIT IN THE STOCK, IT HAS BEEN FOUND TO BE OF RS.3,80,534/- AND THE G.P. RAT E ON THE TWO ITEMS AS MENTIONED HEREINABOVE HAS BEEN CONSIDERED AT 1.58% AND 26.56% AS PER TAX AUDIT REPORT AND , THEREFORE, THE VALUE OF THE SAL ES HAS BEEN CONSIDERED AT RS.1,97,718/- AND RS.2,53,186/- TOTALING RS. 4,50,9 04/- AND SINCE THE EXCESS STOCK OF THE VALUE OF RS.4,03,818/- WAS FOUND, THE REFORE, THE SALE PROCEEDS OF THE DEFICIT STOCK AMOUNTING TO RS.4,50,904/- WI LL EXPLAIN THE ACQUISITION ITA NO.124(ASR)/2012 10 OF THE EXCESS STOCK FOUND AT THE TIME OF SURVEY. TH E LD. CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF M/S. CHAUDHARY ENTERPRISES REFERRED TO IN PARA 4.1 OF HIS ORDER DECIDED BY THE ITAT, AMRITSAR BENCH, V IDE ITS ORDER DATED 13.10.2006 IN IT NOS. 430 & 454(ASR)/2004. ACCORDIN GLY, THE LD. CIT(A) HAS RIGHTLY UPHELD THE ADDITION OF RS.4,50,904/-. W E FIND NO INFIRMITY IN HIS ORDER. THUS, GROUNDS NO. 2, 3 & 4 OF THE ASSESSEE A RE DISMISSED. 10. AS REGARDS GROUND NO.7, BEING THE ADDITION OF R S.5,260/- TOWARDS CASH FOUND SHORT. THE LD. CIT(A) HAS NOT DECIDED TH E ISSUE IN HIS ORDER DATED 22.03.2012. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAID AMOUNT OF RS.5,260/- IS PART OF THE EXCESS/DEF ICIT STOCK AND SHOULD BE CONSIDERED AS PART OF THE TELESCOPING BENEFIT ALRE ADY GIVEN BY THE LD. CIT(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS OF THE LD. COUN SEL FOR THE ASSESSEE THAT THE SAID AMOUNT OF RS.5,260/- BEING CASH FOUND SHOR T SHOULD BE CONSIDERED AS PART OF THE TELESCOPING BENEFIT GIVEN BY THE LD. CIT(A). THOUGH THE ISSUE HAS NOT BEEN DECIDED BY THE LD. CIT(A) BEING A NOMI NAL AMOUNT, IT COULD EASILY COVER UNDER THE TELESCOPING, AS DISCUSSED B Y THE LD. CIT(A) IN PARA 4 ITA NO.124(ASR)/2012 11 TO 4.5 OF HIS ORDER. ACCORDINGLY, THE SAID GROUND N O.7 OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.124(ASR)/2012 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH SEPT., 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11TH SEPT., 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. AMOLAK SINGH KUMAR & SONS, NURMAH AL 2. THE ITO WARD 2 PHAGWARA. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.