Mamatha Silk Centre, Hyderabad V. Income Tax Officer, Suryapet

ITA 1381/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6199 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 06-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-10-2013
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained investment; Assessment record; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1381/HYD/2013 ASSESSMENT YEAR: 2007-08 MAMATHA SILK CENTRE, SURYAPET [PAN: AADFM4192Q] VS INCOME TAX OFFICER, SURYAPET (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO, AR FOR REVENUE : SMT U. MINICHANDRAN, DR DATE OF HEARING : 06-09-2016 DATE OF PRONOUNCEMENT : 14-09-2016 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI, HYDERA BAD DATED 23-08-2013. ASSESSEE HAS RAISED THE FOLLOWING GROUN DS: 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N REJECTING THE BOOKS OF ACCOUNT AND IN ESTIMATING THE GROSS PROFIT AT 10.41%. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN H OLDING THAT THERE WAS DIFFERENCE IN THE CLOSING STOCK. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE DISCOUNTS ALLOWED WOULD BE 30% ON AN AVERAGE AND THAT THE DISCOUNTS OF 30% ONLY SHOULD BE DEDUCT ED FROM THE TAGGED PRICE AS ARRIVED AT BY THE ASSESSING OFFICER . 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE ACCEPTED THAT NO ADDITION NEED BE MADE ON ACCO UNT OF I.T.A. NO. 1381/HYD/2013 MAMATHA SILK CENTRE :- 2 -: DIFFERENCE IN THE STOCKS AS THE ASSESSING OFFICER D ID NOT CORRECT VALUE THE COST OF THE STOCKS AS ON THE DATE OF SURV EY AND THAT THERE WAS NO DIFFERENCE IN THE STOCKS AVAILABLE AS ON THE DATE OF SURVEY. GROUND NOS. 1 & 6 ARE GENERAL IN NATURE. 2. BRIEFLY STATED, ASSESSEE IS A PARTNERSHIP FIRM CAR RYING ON BUSINESS IN TRADING OF CLOTHES. A SURVEY U/S. 133 A OF THE INCOME TAX ACT [ACT] WAS CONDUCTED IN THE BUSINESS PRE MISES OF ASSESSEE ON 31-08-2006. CONSEQUENT TO THE SURVEY, AS SESSEE FILED ITS RETURN OF INCOME FOR AY. 2007-08 ON 15-11-2007 AD MITTING INCOME OF RS. 6,467/-. ASSESSING OFFICER (AO) COMP LETED THE SCRUTINY ASSESSMENT BY MAKING THE ADDITION OF EXCESS S TOCK FOUND AT THE TIME OF SURVEY AMOUNTING TO RS. 47,05,008/-. F URTHER, AO REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE GROSS P ROFIT AT 10.41% AND THE DIFFERENCE IN GROSS PROFIT ADMITTED AT 8 .10% AND 10.41% ESTIMATED AMOUNTING TO RS. 2,00,092/- WAS BROU GHT TO TAX. 3. BEFORE THE LD. CIT(A), ASSESSEE CONTESTED BOTH THE ESTIMATION OF GROSS PROFIT AS WELL AS ADDITION OF EXCES S STOCK. IT WAS CONTENDED THAT ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNT, THEREFORE, THERE IS NO NEED TO REJECT THE BOOKS OF ACCO UNT. FURTHER, WITH REFERENCE TO EXCESS STOCK IT WAS SUBMITTED THAT THE S TOCK INVENTORY WAS TAKEN ON THE LESSER OF THE TWO PRICES MEN TIONED IN THE TAG, WHEREAS THERE IS ABOUT 55% BOOST-UP IN THE PRIC E MENTIONED IN THE PRICE TAG FROM THE COST. IT WAS SUBMITT ED THAT BY GIVING THE REDUCTION TO AN EXTENT OF 55%, THERE WILL BE NO EXCESS STOCK AND ASSESSEES BOOKS OF ACCOUNT CAN BE ACCEPTED . I.T.A. NO. 1381/HYD/2013 MAMATHA SILK CENTRE :- 3 -: 3.1. WITH REFERENCE TO REJECTION OF BOOKS OF ACCOUNT A ND ESTIMATION AT 10.41%, THE LD. CIT(A) HAS AGREED WITH AO AND CONFIRMED THE ADDITION OF RS. 2,00,092/-. WITH REFER ENCE TO EXCESS STOCK BROUGHT TO TAX, LD. CIT(A) GAVE CERTAIN FACTUAL FI NDINGS VIDE PARA 5.7 OF THE ORDER AND DETERMINED THE REDUCTION OF PRICE TO AN EXTENT OF 30% AND ACCORDINGLY ALLOWED THE CONTENTION PA RTLY. HIS FINDINGS IN PARA 5.10 ARE AS UNDER: DURING THE COURSE OF APPELLATE PROCEEDINGS, THE A PPELLANT TOOK THE PLEA THAT, THERE IS A HUGE GAP BETWEEN THE TAG PRIC ES AND THE ACTUAL SALE PRICE, WHICH WOULD BE ALMOST EQUAL TO 55% WHICH WAS DUE TO THE DISCOUNTS ALLOWED TO THE CUSTOMERS. THE APPELLANT FURNISHED THE LIST/DETAILS OF SALES, UNDER EACH CATEGORY/ITEMS OF TRADE SUCH AS SAREES, CHIFFON SAREES, FANCY SAREES ETC., INDICATING THE F URTHER DETAILS SUCH AS PURCHASE DATE, PURCHASE PRICE, SALE DATE, SALE PRIC E, LOW TAG PRICE AND HIGH PRICE ETC., AS APPLICABLE IN EACH ITEM/CATEGOR Y. THE ANALYSIS OF THE INFORMATION SHOWS THAT THOUGH THERE IS A VARIATION BETWEEN THE TAG PRICE (LOW TAG PRICE) AND THE SALE PRICE, THE VARIATION I S NOT CONSISTENT AND NOT AS PER A FORMULA, AS INDICATED BY THE APPELLANT DURING THE SURVEY PROCEEDINGS WHERE IN IT WAS STATED THAT THE PURCHAS E PRICE IS INCREASED BY 20% TO 25% AND THEN DOUBLED FOR THE PURPOSE OF TAG PRICE. THIS CAN BE EVIDENCED FROM THE SAMPLE ANALYSIS OF FEW ITEMS UND ER THE CATEGORIES OF SAREES, CHIFFON AND FANCY SAREES, AS UNDER: A. SAREES: REF. NO./SALE BILL DTD. PURCHASE PRICE RS. SALE PRICE RS. TAGE PRICE RS. % OF DIFFERENCE BETWEEN TAG PRICE AND SALE PRICE 5031/16.3.16 2000 2600 4800 45.83% 5235/16.5.06 3750 5100 9350 45.45% 4846/30.4.05 3400 4600 7850 41.40% 4954/13.6.05 3300 4200 7600 44.73% 5503/16.7.05 290 370 400 7.5% 5494/13.7.05 145 150 189 16.66% 6055/10.8.05 108 150 180 16.66% 6076/11.8.05 340 400 450 11.11% 6175/22.8.05 500 600 950 36.85% 6190/24.8.05 380 480 950 49.47% 6188/27.8.05 380 450 850 47.05% I.T.A. NO. 1381/HYD/2013 MAMATHA SILK CENTRE :- 4 -: B. CHIFFON SAREES: REF. NO. PURCHASE PRICE RS. SALE PRICE RS. TAGE PRICE RS. % OF DIFFERENCE BETWEEN TAG PRICE AND SALE PRICE 4674/2.5.05 102.04 110.00 130 15.38% 4681/3.5.05 127.55 160.00 170 5.88% 4442/22.3.05 142.86 170 220 22.72% 4482/28.3.05 450 550 570 3.50% 4471/26.3.05 280 330 390 15.38% 4470/26.3.05 150 170 180 5.55% 4465/26.3.05 300 370 480 22.91% 4646/29.4.05 320 375 460 18.47% 4783/9.5.05 175 215 240 10.41% 31042/5.4.05 290 350 395 11.40% C. FANCY SAREES: REF. NO. PURCHASE PRICE RS. SALE PRICE RS. TAGE PRICE RS. % OF DIFFERENCE BETWEEN TAG PRICE AND SALE PRICE 5275/6.6.05 450 600 700 14.28% 5346/16.6.05 350 400 500 20.00% 5520/29.7.05 400 450 530 15.09% 4/4.5.06 300 360 570 36.84% 53/3.6.06 375 400 500 20.00% 78/14.8.06 175 280 300 6.66% 83/30.8.06 300 380 420 9.52% 9233/13.5.06 330 400 450 11.11% 103/3.2.07 275 350 410 14.63% THUS, AS COULD BE SEEN FROM THE DATA AS ENUMERATED ABOVE ON SAMPLE BASIS, IT REVEALS THAT THERE IS A DIFFERENCE BETWEE N THE TAG PRICE AND SALE PRICE, ON ACCOUNT OF DISCOUNTS BEING ALLOWED BY THE APPELLANT FIRM TO ITS CUSTOMERS, WHICH WAS NOT TAKEN INTO CONSIDERATION B Y THE AO, WHILE QUANTIFYING THE PHYSICAL STOCK AT RS. 68,88,419 AND ARRIVED AT THE EXCESS STOCK OF RS. 47,05,008 AND FOR MAKING THE ADDITION OF RS. EQUAL AMOUNT, ON THE SAID ACCOUNT. HENCE, IT APPEARS THERE IS A BASIS FOR ARGUMENT OF THE APPELLANT THAT THE VALUE OF THE CLOSING STOCK IS LO WER THAN THE VALUE AS TAKEN AT THE TAG PRICE. HOWEVER, THE VARIATION WAS PEGGED AT 55% BY THE APPELLANT, WHICH APPEARS TO BE ON HIGHER SIDE. AS COULD BE SEEN, SUCH VARIATION IS MORE AMONG SAREES WHICH IS IN THE RANG E OF 45.83 TO 6.66%, AND AMONG THE CHIFFON SAREES, THE VARIATION/DIFFERE NCE IS IN THE RANGE OF 3.50% TO 22.91%, AND IN CASE OF FANCY SAREES, IT IS IN THE RANGE OF 7.5% TO I.T.A. NO. 1381/HYD/2013 MAMATHA SILK CENTRE :- 5 -: 49.47%. HENCE, IT MAY NOT BE CORRECT TO ASSUME THA T SUCH VARIATION IN 55% ON THE TOTAL STOCKS/SALES, ON AN AVERAGE, WHERE THE VOLUMES OF SALES/TURNOVER UNDER EACH CATEGORY IS NOT INDICATED . THUS, BASED ON THE FACTS OF THE CASE, AND AS REVEALED FROM THE ANALYSI S MADE, IT MAY BE REASONABLE TO PUT THE DISCOUNT/VARIATION BETWEEN TH E LOW TAG PRICE AND SALE PRICE AT 30% ON AN AVERAGE. ACCORDINGLY, THE APPELLANT DESERVED TO DEDUCT THE 30% VARIATION ON STOCKS QUANTIFIED ON AC COUNT OF DISCOUNT ALLOWED ON TAG PRICES. THUS, THE DISCOUNT @30% NEE DED TO BE DEDUCTED FROM THE VALUE OF THE STOCK AS ARRIVED AT RS. 68,88 ,419/- ON THE BASIS OF LOW TAG PRICE, AND THE ASSESSING OFFICER IS DIRECTE D TO RECOMPUTED THE NET UNEXPLAINED CLOSING STOCK FOR TREATING THE SAME AS UNEXPLAINED INVESTMENT. ACCORDINGLY, THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 4. LD. COUNSEL, REFERRING TO THE DETAILS FILED BEFORE THE AO AND CIT(A) RECONCILING THE STOCK FOUND TO THE PURCHASE PRICE AND SALE PRICE, SUBMITTED THAT THERE IS A GENERAL BOOST-UP IN THE PRICES AS MENTIONED IN THE PRICE TAGS. THEREFORE, THE SAME C ANNOT BE TAKEN AS VALUE OF CLOSING STOCK ON THE DATE OF SURVEY . REFERRING TO THE STATEMENT RECORDED DURING THE COURSE OF SURVEY, IT WAS EXPLAINED THAT THERE WILL BE TWO PRICES MENTIONED, A HI GHER PRICE AND A LOWER PRICE ON THE TAG AND GENERALLY, THE SALE P ERSON IS EMPOWERED TO SELL AT 50% OF THE HIGHER TAG PRICE WHICH IS GENERALLY LOWER THAN THE LOWER TAG PRICE BUT ALSO COVERS REASONAB LE PROFIT MARGIN. IT WAS SUBMITTED THAT THE INVENTORY WAS NOT PREPAR ED WITH THE HIGHER TAG PRICE, BUT ONLY WITH A LOWER TAG PRICE, WHICH ITSELF IS BOOSTED-UP PRICE. REFERRING TO STATEMENT RECORDED WHERE IN ASSESSEE HAS CLEARLY STATED THAT IF THE PRICE TAG IS SHOW N AS 750/550, SALES PERSON CAN SELL AT A PRICE HIGHER THAN RS. 375/- BUT NOT LOWER. HE INDICATED THAT THE LOWER PRICE OF R S. 550/- IS MORE THAN THE COST PRICE + PROFIT AS STATED IN THE STATEME NT ITSELF. AO DID NOT TAKE INTO CONSIDERATION THE HIGHER TAG PRICE KEPT ON THE INVENTORY. IT WAS SUBMITTED THAT GENERALLY ON AN AVERAGE , THE BOOST-UP OF PRICE EVEN IN THE LOWER TAG PRICE IS TO AN EXTENT OF 42% I.T.A. NO. 1381/HYD/2013 MAMATHA SILK CENTRE :- 6 -: AND CIT(A) HAS ERRED IN CONSIDERING ONLY 30% REDUCTI ON. HE ALSO SUBMITTED A RECONCILED STATEMENT TO INDICATE THAT THE ULTIMATE SALE PRICE IS MUCH LESS THAN THE TAG PRICE AND SINCE MOST OF THE GOODS ARE SOLD DURING THE YEAR AND SALE PRICE WAS ALREADY RECORDED IN THE BOOKS, NO FURTHER ADDITION CAN BE MADE ON THE EXCESS S TOCK FOUND ON THE DAY OF SURVEY. 4.1. WITH REFERENCE TO REJECTION OF BOOKS OF ACCOUNT, LD. COUNSEL SUBMITTED THAT PROFIT OFFERED BY ASSESSEE IS REA SONABLE AND SHOULD NOT HAVE ESTIMATED THE INCOME AT 10.41%. 5. LD. DR HOWEVER, SHOWED THE INVENTORY, AS PLACED I N THE ASSESSMENT RECORD (COPY WAS NOT FILED ON THE RECORD OF ITAT] TO INFORM THAT THERE ARE MANY ITEMS IN WHICH THERE IS ONL Y ONE TAG PRICE AND THERE IS NO HIGHER OR LOWER TAG PRICE. ONL Y IN CERTAIN SILK SAREES, THE HIGHER TAG PRICE AND LOWER TAG PRICES WERE AVAILABLE AND INVENTORY WAS MADE OF LOWER TAG PRICE. IT WAS SUBMITTED THAT ON AN AVERAGE, THE REDUCTION OF PRICE IS COMING TO ABOUT 25% . THEREFORE, LD. CIT(A) IS VERY REASONABLE IN GRANTING 30% REDUCTI ON. IT WAS FURTHER SUBMITTED THAT REVENUE ALSO PREFERRED AN APPEAL BUT THE SAME WAS DISMISSED ON THE TAX EFFECT. IT WAS SUBMITTED THAT THE ORDER OF CIT(A) IS REASONABLE. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSIN G THE EVIDENCES ON RECORD, I AM OF THE OPINION THAT ASSESSEE S BOOKS OF ACCOUNT WERE REJECTED FOR VALID REASONS. IN FACT IN THE COURSE OF SURVEY, AO DID NOT VERIFY ALL THE VOUCHERS AND BOOKS OF ACCOUNT AND ARRIVED EXCESS STOCK AS QUANTIFIED IN THE SURVEY AT RS. 47,05,008/-, FOR WHICH ASSESSEE ADMITTED THAT INVENTORY WAS TAKEN I.T.A. NO. 1381/HYD/2013 MAMATHA SILK CENTRE :- 7 -: CORRECTLY. THE MANAGING PARTNER IN FACT ADMITTED ADDIT IONAL INCOME OF RS. 30 LAKHS IN THE COURSE OF SURVEY. KE EPING THAT IN MIND AND ALSO NOTICING THAT ASSESSEE HAS OFFERED ONLY AN INCOME OF RS. 6,467/- IN THE RETURN OF INCOME, THERE IS REASONA BLE CAUSE FOR REJECTION OF BOOKS OF ACCOUNT AND ESTIMATING THE GROSS PROFIT. 7. COMING TO THE ISSUE OF EXCESS STOCK ALSO, LD. CI T(A) HAS EXAMINED THE CONTENTIONS VIZ-A-VIZ., VARIOUS SALE BIL LS AND TAG PRICES AND HAS REASONABLY ESTIMATED THE REDUCTION TO B E ABOUT 30%, WHICH IS REASONABLE ON THE GIVEN FACTS. IN VIEW OF THIS, TO THE EXTENT OF ESTIMATION OF GROSS PROFIT AND ESTIMATION OF S TOCK ON THE DAY OF SURVEY, I AGREE WITH THE FINDINGS OF THE LD. CI T(A). HOWEVER, I FIND THAT THERE CANNOT BE TWO ADDITIONS ON THE SAME ISS UE. THEREFORE, I AM OF THE VIEW THAT THE ADDITION MADE VIZ-A -VIZ THE GROSS PROFIT CAN BE TELESCOPED TO THE ADDITION WHICH WAS MADE ON EXCESS STOCK. ACCORDINGLY, AO IS DIRECTED TO TELESCO PE THE INCOME ADDED AS GROSS PROFIT ADDITION OF RS. 2,00,092/- TO TH E EXCESS STOCK DETERMINED AFTER THE ORDER OF CIT(A). THUS, ASSESS EE GETS PARTIAL RELIEF. GROUNDS ARE ACCORDINGLY ALLOWED PARTIALLY. 8. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER, 2016 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 14 TH SEPTEMBER, 2016 TNMM I.T.A. NO. 1381/HYD/2013 MAMATHA SILK CENTRE :- 8 -: COPY TO : 1. MAMATHA SILK CENTRE, SURYAPET. C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, ROAD NO. 9, HIMAYATHNAGAR, HYDERABAD. 2. INCOME TAX OFFICER, SURYAPET. 3. COMMISSIONER OF INCOME TAX(APPEALS)-VI, HYDERABA D 4. COMMISSIONER OF INCOME TAX-VI, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.