Shri Mahendrakumar Kanaiyalal, Ahmedabad V. The Income tax Officer,Ward-1, Palanpur

ITA 1378/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76773 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: A C SHAH
• Keywords: Gross profit estimation; Business income

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , !'# !$ !'# !$ !'# !$ !'# !$0 00 0! !! !0 00 0 %$ %$ %$ %$, , , , &' ( &' ( &' ( &' ( & & & & BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 1378/AHD/2011 ASSESSMENT YEAR 2007-08 M/S. MAHENDRAKUMAR KANAIYALAL C/O NILESH AGARWAL, 31, 3 RD FLOOR, CITY CENTRE, SWASTIK CROSS ROAD, C.G. ROAD, NAVRANGPURA, AHMEDABAD. PAN: AADFM4207G VS INCOME TAX OFFICER WARD-1 PALANPUR. )*/ APPELLANT ,-)* / RESPONDENT REVENUE BY : SHRI ROOPCHAND, SR. DR ASSESSEE(S) BY : SHRI A.C. SHAH, AR $'. / 0'/ // / DATE OF HEARING : 28/05/2014 123 / 0' / DATE OF PRONOUNCEMENT : 30/05/2014 &4 &4 &4 &4/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 10.12.20 10. 2. THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITION OF RS 2,16,219/- MADE ON ACCOUNT OF UNDER-VALUATION OF STOCK. ITA NO. 1378/AHD/2011 M/S. MAHENDRAKUMAR KANAIYALAL, AHD. FOR A.Y. 2007-08 - 2 - 3. THE BRIEF FACTS OF THE CASE ARE THAT IN THE INS TANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF A GRICULTURAL PRODUCTS. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UND ER CONSIDERATION, THE ASSESSEE HAS SHOWN TOTAL SALES OF RS 71,69,939/- AN D GROSS PROFIT OF RS 4,88,702/- WHICH WORKED OUT TO 6.81% AS COMPARED TO LAST YEARS SALES OF RS 77,35,205/- AND GROSS PROFIT OF RS 5,97,681/- WH ICH WORKED OUT TO 7.72%. THUS, THE GROSS PROFIT AS COMPARED TO THE L AST YEAR OF THE ASSESSEE HAD FALLEN BY 0.91%. FURTHER, THE ASSESSING OFFICE R OBSERVED THAT IN THE AUDIT REPORT, THE FINISHED STOCK OF GUVAR WAS REPOR TED AS FOLLOWS: SR. NO. PARTICULARS IN QUANTITY (KGS.) IN RS. AVERAGE RATE PER KG. 1 OPENING STOCK 106800 1456800 RS 13.64 2 PURCHASES DURING THE YEAR 224225 3923528 (INCLUDING EXPS) RS 17.45 3 SALES 203837 3721962 RS 18.25 4 CLOSING STOCK 127188 2003211 RS 15.75 4. FROM THE ABOVE TABLE, THE ASSESSING OFFICER OBS ERVED THAT AS PER THE CLOSING STOCK SHOWN AT RS 20,03,211/-, THE QUAN TITY OF WHICH WAS 1,27,188 KGS., THE AVERAGE COST PER KG. WORKS OUT T O RS 15.25 PER KG. AS AGAINST THE PURCHASE PRICE DURING THE YEAR OF THE A SSESSEE OF RS 17.45 PER KG. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE REASON FOR VALUING THE CLOSING STOCK AT A PRICE LOWER THAN AT WHICH IT WAS PURCHASED DURING THE YEAR. THE ASSESSING OFFICER OBSERVED TH AT THE AUDITOR HAS MENTIONED IN THE AUDIT REPORT THAT THE VALUATION OF CLOSING STOCK AND OPENING STOCK IN TRADE ITEMS ARE SHOWN AT COST AND THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED A LETTER DATED ITA NO. 1378/AHD/2011 M/S. MAHENDRAKUMAR KANAIYALAL, AHD. FOR A.Y. 2007-08 - 3 - 09.07.2009 STATING THAT THE ASSESSEE HAD ADOPTED TH E METHOD OF FIFO FOR VALUATION OF CLOSING STOCK. 5. THE ASSESSEE EXPLAINED THAT OPENING STOCK OF GU VAR WAS 1,06,800 KGS. WHICH WAS VALUED AT THE RATE OF RS 13 .64 PER KG. AND THAT PURCHASE DURING THE YEAR WAS OF 2,24,225 KGS. WHICH WAS PURCHASED AT THE RATE OF 17.45 PER KG. AND SALE WAS 2,03,837 KGS. AT THE RATE OF RS 18.25 PER KG. THUS, THE OPENING STOCK OF GUVAR QUANTITY WAS REDUCED TO 71,800 KGS. AND THEREFORE, THE VALUATION OF CLOSING STOCK WAS D ONE AS OPENING STOCK 71,800 KGS. AT THE RATE OF RS 13.64 PER KG., RS 9,7 9,352/-. NEW ADDITION DURING THE YEAR 55,388 KGS. AT THE RATE OF RS 18.49 PER KG., RS 10,23,859/- AND TOTAL VALUE OF CLOSING STOCK AS PER AUDIT REPOR T WAS RS 20,03,211/-. 6. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLAN ATION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS SHOWN LOWER GROSS PROFIT BY ADOPTING LOWER VALUE OF CLOSING STOCK BY RS 1.70 PE R KG. I.E. 1,27,188 KG. X RS 1.70 PER KG. = RS 2,16,219/-. IN VIEW OF THESE DEFECTS, HE REJECTED THE BOOK RESULTS OF THE ASSESSEE AND ADDED RS 2,16,219/ - TO THE INCOME OF THE ASSESSEE. 7. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OB SERVING THAT THOUGH THE ASSESSEE HAD STATED THAT HE HAD FOLLOWED THE FIFO M ETHOD OF ACCOUNTING FOR GUVAR, HOWEVER HE DID NOT VALUE THE CLOSING STOCK O F THE GUVAR AT THE AVERAGE PURCHASE PRICE DURING THE YEAR, RATHER PRIC E OF GUVAR SHOWN IN THE CLOSING STOCK WAS LESS THAN THE AVERAGE PRICE DURIN G THE YEAR. THUS, IT IS CLEAR THAT THE ASSESSEE HAD CLEARLY UNDER-VALUED TH E CLOSING STOCK OF GUVAR. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ITA NO. 1378/AHD/2011 M/S. MAHENDRAKUMAR KANAIYALAL, AHD. FOR A.Y. 2007-08 - 4 - ASSESSEE VALUED THE CLOSING STOCK OF GUVAR AT RS 21 ,03,211/- AND THUS THE AVERAGE VALUE OF THE CLOSING STOCK WORKED OUT TO RS 15.75 PER KG. THE ASSESSING OFFICER OBSERVED THAT THE OPENING STOCK O F THE ASSESSEE WAS VALUED AT RS 13.64 PER KG. AND THE PURCHASE DURING THE YEAR WAS AT AVERAGE COST OF RS 17.45 PER KG. IN THE ABOVE CIRCUMSTANCE S, THE ASSESSING OFFICER VALUED THE CLOSING STOCK AT RS 17.45 PER KG. AND TH EREBY MADE ADDITION OF RS 2,16,219/- TO THE INCOME OF THE ASSESSEE. 9. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT OUT OF THE CLOSING STOCK OF 1,27,188 KGS., 71,800 KGS. WAS OUT OF OPENING STOCK AND ONLY REMAINING 55,388 KGS. WAS OUT OF THE PURCHASES DURING THE YEAR UNDER CONSIDERATION, THER EBY WHILE VALUING THE CLOSING STOCK, THE ASSESSEE VALUED 71,800 KGS. AT T HE RATE OF RS 13.64 PER KG. AND BALANCE 55,388 KGS. AT THE RATE OF RS 18.49 PER KG. AND THUS WORKED OUT THE VALUE OF CLOSING STOCK AT RS 20,03,211/-. HE ALSO SUBMITTED THAT THE ASSESSEES STOCKS WERE PLEDGED WITH THE BANK AND FO R REMOVAL OF GOODS, THE ASSESSEE HAS TO TAKE PERMISSION FROM THE BANK AND R ECORD OF THE BANK SHOWS THAT CLOSING STOCK WAS CONSISTING OF 71,800 K GS. OUT OF OPENING STOCK. 10. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT BEFO RE US TO SHOW THAT THE CLOSING STOCK IN FACT CONSISTED OF 71,800 KGS. OUT OF OPENING STOCK. NO DOCUMENT RELATING TO BANK APPROVAL ETC. WAS PROD UCED BEFORE US. FURTHER, WE FIND THAT THE ASSESSEE HAS NOT DISPUTED THE FACT THAT AS PER CONSISTENTLY FOLLOWED SYSTEM OF ACCOUNTING BY IT, T HE VALUATION OF CLOSING STOCK WAS DONE ON FIFO BASIS. NO MATERIAL WAS BROU GHT BEFORE US TO SHOW THAT IN EARLIER YEARS ALSO, THE ASSESSEE VALUED CLO SING STOCK ON SPECIFIC IDENTIFICATION BASIS, WE DO NOT FIND ANY FORCE IN T HE CONTENTION OF THE ASSESSEE. NO MATERIAL WAS BROUGHT BEFORE US TO SHO W THAT THE VALUE OF CLOSING STOCK ON FIFO BASIS WILL COME TO AN AMOUNT LESSER THAN WHAT WAS ADOPTED BY THE REVENUE. WE THEREFORE, DO NOT FIND ANY GOOD REASON TO ITA NO. 1378/AHD/2011 M/S. MAHENDRAKUMAR KANAIYALAL, AHD. FOR A.Y. 2007-08 - 5 - INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INC OME TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESS EE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 30 TH OF MAY, 2014 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED /05/2014 GHANSHYAM MAURYA, SR. P.S. TRUE COPY &4 / ,5 6&53 &4 / ,5 6&53 &4 / ,5 6&53 &4 / ,5 6&53/ COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. ,-)* / THE RESPONDENT. 3. ## 7 / CONCERNED CIT 4. 7() / THE CIT(A)-III, AHMEDABAD 5. 5': ,$ , , / DR, ITAT, AHMEDABAD 6. ;< =. / GUARD FILE. &4$ &4$ &4$ &4$ / BY ORDER, / // / # # # # ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD