M/s. B. J. Cotton Industries, Vadodara V. DCIT, Circle-3(1), Vadodara

ITA 1320/AHD/2018

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3230 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 15-01-2024
• Assessment Year: 2010-2011
• Appeal Filed On: 21-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIASHOKKUMARSUTHAR; FORTHEREVENUEWOULDBEJUSTIFIEDINARGUINGTHAT
• Assessee Lawyers: MSKINJALSHAH

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’C’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And SHRITRSENTHILKUMAR,JUDICIALMEMBER आयकरअपीलसं./ITANo.1320/AHD/2018 धििाधरणवरध / Asstt.Year:2010-2011 M/s.B.JCottonIndustries ModasarCharRasta, AtModasar, POBodeli, Ta.Sankheda, Dist.Baroda-391135./ AnilR.Shah(C.A) ShreejiHouse, 4 th Floor,B/h.M.JLibrary, EllisBridge, Ahmedabad-380006. PAN:AAGFB3067J Vs. D.C.I.T, Circle-3(1), Vadodara. (Applicant)(Respondent) Assesseeby:MsKinjalShah,A.R Revenueby:ShriAshokKumarSuthar,Sr.D.R सुिवाईकीतारीख/DateofHearing:16/01/2024 घोरणाकीतारीख /DateofPronouncement:28/03/2024 आदेश/ORDER PERWASEEMAHMED,ACCOUNTANTMEMBER: ThecaptionedappealhasbeenfiledattheinstanceoftheAssesseeagainst theorderoftheLearnedCommissionerofIncomeTax,(Appeals)-3,Vadodara arisinginthematterofassessmentorderpassedunders.143(3)oftheIncome ITAno.1320/AHD/2018 A.Y.2010-11 2 TaxAct,1961(here-in-afterreferredtoas"theAct")relevanttotheAssessment Year2010-2011. 2.TheonlyissueraisedbytheassesseeisthatthelearnedCIT(A)erredin confirmingtheadditionmadebytheAOfor₹65,68,900/-onaccountofexcess stockfoundduringthesurveyoperation. 3.Thenecessaryfactsarethattheassesseeinthepresentcase,a partnershipfirm,isengagedinthebusinessofmanufacturing&tradingofcotton, cottonseedsandcottonseedsoil.Therewassurveyoperationatthebusiness premisesoftheassesseeundersection133AoftheActwhereinunaccounted stockof2119quintalhavingvalueof₹65,68,900/-wasfoundandtherefore,the samebeingunaccountedstockwasaddedtothetotalincomeoftheassessee. 4.Onappeal,theld.CIT(A)waspleasedtoconfirmtheorderoftheAO. 5.Beingaggrievedbytheorderofld.CIT(A),theassesseeisinappealbefore us. 6.ThelearnedARbeforeusfiledapaperbookrunningintopages1to69and raisedlimitedcontentionthattheunaccountedstockrepresentstheunaccounted purchasesandthereforetheentireamountcannotbetreatedasincomeofthe assessee.Assuchtheunaccountedstockrepresentsthebusinesstransactionof theassesseeandthereforeonlyanelementofprofitcanbemadesubjecttotax. Theassesseehasdeclaredprofitattherateof1.87%fromAY2007-08toAY 2013-14whichcanbeconsideredayardsticktoworkouttheprofitoutofsuch unaccountedstock. 7.Ontheotherhand,theld.DRvehementlysupportedtheorderofthe authoritiesbelow. ITAno.1320/AHD/2018 A.Y.2010-11 3 8.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Thereisnoambiguitytothefactthattherewas unaccountedinventoryfoundasonthedateofsurveywhichhasbeendiscussed intheprecedingparagraph.Thequestionariseswhetherthegrossvalueofthe unaccountedstockisliabletobeaddedtotheincomeoftheassesseeorsome percentageofprofitembeddedinsuchunaccountedstockshouldonlybebrought totax.Inthisregard,wenotethattheunaccountedstockarisesoutof unaccountedpurchases.Indeed,theassesseecanmakeunaccountedpurchases outoftheunaccountedmoneyavailablewithitortheassesseecanalsoacquire suchunaccountedstockoncreditaswell.However,themoneyinvestedinsuch unaccountedstockhasneitherbeenquantifiednorbroughttotaxbythe authoritiesbelow.Accordingly,werefrainfromthiscontroversyasnothingarises fromtheorderoftheauthoritiesbelow.Inotherwords,hadtherebeenany investmentbytheassesseeinsuchanunaccountedinvestment,thesameneeds tobebroughttotaxundertheprovisionsofsection69AoftheAct.Comingback tothequestionwhethertheentireamountofexcessstockfoundduringsurvey shallbesubjecttotaxoronlytheprofitelementembeddedinsuchunaccounted stockshallbebroughttotax.Asitisanundisputedfactthatthestockarisesfrom thepurchasesandifsuchpurchasesarenotfoundaccountedfororfrom explainedsourcesthen,cantheentirepurchaseamountbebroughttax?This questionhasbeenansweredbytheHon’bleGujaratHighcourtinthecaseofCIT vs.SnitaPShethreportedin38taxmann.com385whereitwasheldasunder: 7.Thatbeingtheposition,nottheentirepurchasepricebutonlytheprofitelement embeddedinsuchpurchasescanbeaddedtotheincomeoftheassessee.Somuchis clearbythedecisionofthiscourt.Inparticular,thecourthasalsotakenasimilarviewin thecaseofCITv.VijayM.MistryConstructionLtd.[2013]355ITR498(Guj)andinthe caseofCITv.BholanathPolyFab(P.)Ltd.[2013]355ITR290(Guj).Theviewtakenby theTribunalinthecaseofVijayProteinsLtd.v.Asstt.CIT[1996]58ITD428(Ahd.)came tobeapproved. 8.Iftheentirepurchaseswerewhollybogusandtherewasafindingoffactonrecordthat nopurchasesweremadeatall,counselfortheRevenuewouldbejustifiedinarguingthat theentireamountofsuchboguspurchasesshouldbeaddedbacktotheincomeofthe assessee.SuchwerethefactsinthecaseofPawanrajB.Bokadia(supra). 9.Thisbeingtheposition,theonlyquestionthatsurvivesiswhatshouldbethefairprofit rateoutoftheboguspurchaseswhichshouldbeaddedbacktotheincomeofthe ITAno.1320/AHD/2018 A.Y.2010-11 4 assessee.TheCommissioneradoptedtheratioof30percentofsuchtotalsales.The Tribunal,however,scaleddownto12.5percent.Wemaynoticethatintheimmediately precedingyeartotheassessmentyearunderconsiderationtheassesseehaddeclaredthe grossprofitat3.56percentofthetotalturnover.Iftheyardstickof30percent,as adoptedbytheCommissioner(Appeals),isacceptedthegrossprofitratewillbemuch higher.Inessence,theTribunalonlyestimatedthepossibleprofitoutofpurchasesmade throughnon-genuineparties.Noquestionoflawinsuchestimationwouldarise.The estimationofrateofprofitreturnmustnecessarilyvarywiththenatureofbusinessandno uniformyardstickcanbeadopted. 8.1IdenticalviewwasalsotakenbytheHon’bleGujaratHighCourtinthecase ofPresidentindustryreportedin258ITR654whereitwasheldasunder: Theamountofsalesbyitselfcannotrepresenttheincomeoftheassesseewhohasnot disclosedthesales.Thesalesonlyrepresentthepricereceivedbythesellerofthegoods fortheacquisitionofwhichithasalreadyincurredthecost.Itistherealisationofexcess overthecostincurredthatonlyformspartoftheprofitincludedintheconsiderationof sales.Therefore,unlessthereisafindingtotheeffectthattheinvestmentbywayof incurringcostinacquiringgoodswhichhavebeensoldhasbeenmadebytheassessee andthathasalsonotbeendisclosed,thequestionwhetherentiresumofundisclosedsales proceedscanbetreatedasincome,answersbyitselfinthenegative. 8.2TheaboveprincipleslaiddownbytheHon’bleHighCourtofGujaratcan alsobeappliedinthegivensetoffacts.Itisforthereasonthattheunaccounted purchaseinitselfdoesnotgiveanyrisetotheincometotheassesseeuntilitis soldout.Thoughtheassesseehasclaimedbeforeusthatsuchunaccountedstock haseitherbeensoldintheyearunderconsiderationorhasshownaspartof closingstockorthesamehasbeensoldinthesubsequentassessmentyear.The relevantsubmissionoftheassesseevideletterdated10-01-2022madebeforeus isextractedasunder: Wewouldfurtherliketostatethattheexcessstockfoundduringthesurveywassold subsequentlyandsaleproceedsofthesamehasalsobeenofferedtotaxasincomeunder theheadsales,andthereforetheassesseehascorrectlyaccountedfortheexcessstock foundduringthecourseofsurvey,asdirectexpenses,whichmaypleasebenoted.The saidfacthasbeenverywellexplainedduringthecourseofassessmentproceedingsforthe A.Y.2010-11andhasbeenconsideredbytheLearnedAssessingOfficervideour submissiondated18/12/2012 8.3However,theld.ARappearingbeforeushasnotbroughtanythingon recorddemonstratingfromthefinancialstatementsthatsuchunaccounted purchaseshaveeitherbeenshownaspartoftheclosingstockorsoldoutinthe current/subsequentyear.Thus,intheabsenceofsuchdetailsandtorender ITAno.1320/AHD/2018 A.Y.2010-11 5 equitablejusticetotheassesseeandtherevenue,weareoftheviewthatsome percentageofprofitonsuchunaccountedpurchases/stockisrequiredtobeadded. Theassesseebeforeushassuggestedvideletterdated10-01-2022,such percentageofprofitattherateof2%ofthevalueofunaccountedstock.The submissionoftheassesseeisreproducedasunder: Withoutprejudiceandinthealternative,itissubmittedthatifanyadditioniscalledforthenitshould [e-mail]2010-11whichisaspercombinedchart ofSalesG.P.,N.PetcfromA.Y2007-08toA.Y2013-14page55ofPaperBookfiledon8-6-2021. WithoutPrejudiceandinalternative,itissubmittedthatnoadditionofN.Pbemadeoratnetprofit @2%65,68,900istakenitwillmeettheendofjusticeandforthisthefollowingjudgementsare referredandrelied. 8.4Theabovesubmissionoftheassesseehasnowherebeencounteredbythe revenue.However,wenotethattheabovepercentageofthenetprofitshownby theassesseeisfromdisclosedbusinesswhereastheissuebeforeusisof unaccountedstockfoundinthecourseofthesurvey.Therefore,weareofthe viewthatthepercentageofnetprofitofsuchunaccountedpurchases/stock shouldbehigherthantheprofitalreadyshownbytheassesseefrom accounted/disclosedtransaction.Hence,forthesakeofjusticeandfairplay,we holdthatprofitelementembeddedinsuchunaccounted/excessstockshallbe broughttotax@5%,accordinglyanamountofRs.3,28,445/-canbeaddedto thetotalincomeoftheassessee.Thus,theorderoftheld.CIT-Aissetasidewith thedirectiontotheAOtodeletetheexcessadditionmadebyhim.Hence,the groundofappealoftheassesseeisherebypartlyallowed. 9.Intheresult,theappealfiledbytheassesseeispartlyallowed. OrderpronouncedintheCourton28/03/2024atAhmedabad. Sd/-Sd/- (TRSENTHILKUMAR)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated28/03/2024 Manish