M/s. Hastakala, Pune V. Dy. CIT,Central Circle-1(1), Pune

ITA 1388/PUN/2010

• Counselvise Citation: 138824514 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V L JAIN
• Keywords: Unexplained investment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 1388/PN/10 (ASSTT. YEAR: 2005-06) M/S HASTAKALA, .. APPELLANT 589 SADASHIV PETH, PUNE PAN AACFH7979M VS. DY. COMMISSIONER OF INCOME-TAX, .. RESPONDEN T CEN. CIR. 1(1), PUNE APPELLANT BY : SHRI V L JAIN RESPONDENT BY : SMT N EERA MALHOTRA DATE OF HEARING : 23.01.2012 DATE OF PRONOUNCEMENT : 28.02.2012 ORDER PER G.S. PANNU, A.M : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, PUNE DATED 29.0 1.2010 WHICH, IN TURN, HAS ARISEN FROM ORDER DATED 31.12.2007 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SH ORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. GROUND NO. 1 OF THE APPEAL RELATES TO THE ADDITIO N OF RS 1,62,081/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. BRIEFLY STATED THE FACTS ARE, THE ASSESSEE IS A FIRM ENGAGED IN TRADING OF CLOTHES. A SURVEY OPERATION WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 15. 6.2004. IN THE COURSE OF SEARCH IN THE GROUP CASES OF SHEVANI, PHYSICAL INV ENTORY OF STOCK FOUND IN THE PREMISES OF THE ASSESSEE WAS PREPARED BY THE SURVEY PARTY. A TENTATIVE TRADING ACCOUNT WAS ALSO DRAWN AS ON THE DATE OF SURVEY ACCORDING TO WHICH THE VALUE OF TOTAL STOCK AS PER THE BOOKS OF THE ASSESSEE STOOD AT RS 71,74,800/-. ACCORDING TO THE ASSESSING OFFICER, THERE WAS A SHORTAGE OF RS 80,000/- IN THE STOCK FOUND AS A RESULT OF PHYSICAL VERIF ICATION AND AS REFLECTED IN THE TENTATIVE TRADING ACCOUNT. THE PERCENTAGE OF GR OSS PROFIT ADOPTED WHILE DRAWING UP THE TENTATIVE TRADING ACCOUNT WAS AT 18.5% WHEREAS THE SAME FOR THE EARLIER YEAR, I.E. ASSESSMENT YEAR 2004-05 AS PER TH E AUDITED ACCOUNTS WAS AT 18%. ON BEING ASKED TO RECONCILE THE DIFFERENCE I N STOCK NOTICED, THE APPELLANT CONTENDED BEFORE THE ASSESSING OFFICER THAT AP PLYING THE GROSS PROFIT RATE OF 19.24% AS REFLECTED IN THE AUDITED BOOKS OF ACCOU NT FOR THE YEAR ENDING 31.3.2005, THE VALUE OF STOCK AS PER BOOKS WORKED OUT TO R S 70,47,883/- AND AS PER INVENTORY PREPARED APPLYING SELLING PRICE, SAME WORKED OUT TO RS 70,29,758/- LEADING TO A DEFICIT OF RS 18,125/-. AS PER THE ASSESSEE, THE DIFFERENCE BEING NEGLIGIBLE AND DUE TO ERRORS CREPT I N WHILE TAKING THE PHYSICAL INVENTORY/VALUING STOCK, NO ADDITION WAS LIABLE TO BE M ADE. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF THE ASSE SSEE. IN THE OPINION OF THE ASSESSING OFFICER, THERE WAS NO SUBSTANCE IN THE PLEA OF TH E ASSESSEE ABOUT THE DISCREPANCY IN VALUATION, MORE SO, WHEN THE ASSESSEE HA D FAILED TO PIN- POINT ANY SPECIFIC ERRORS IN THE VALUATION. APPLYING GR OSS PROFIT PERCENTAGE OF 18% TO THE PHYSICAL STOCK, THE VALUE OF STOCK FOUND AT COST WAS WORKED OUT BY THE ASSESSING OFFICER AT RS 71,37,694/- WHICH RESULTED IN AN EXCESS STOCK TO THE EXTENT OF RS 1,62,081/-, I.E. RS 71,37,694 69,7 5,613. THE ASSESSING OFFICER ADDED THIS DIFFERENCE OF RS 1,62,081/- TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTMENT IN STOCK. AGGRIEVED BY T HIS ADDITION, ASSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AUTHORI TY. 3. AFTER CONSIDERING THE VARIED SUBMISSIONS OF THE ASSESSEE , THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE EXCE SS STOCK OF RS 1,62,081/- WORKED OUT BY THE ASSESSING OFFICER BY ADOPTING THE GROSS PROFIT RATE AT 18% AS DECLARED BY THE ASSESSEE FOR THE LAST TWO YEARS COULD NOT BE FAULTED WITH AND ACCORDINGLY, HE UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. STILL AGGRIEVED, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE DIFFERENCE BETWEEN THE FIGURE OF INVENTORY ARRIVED AT BY THE ASSESSEE AND THAT BY THE ASSESSING OFFICER IS ON ACCOUNT OF THE APPLICATION OF GROSS PROFIT RATE, WHEREAS THE ASSESSEE APPLIED A GROSS PROFIT RATE OF 19. 24% WHICH CORRESPONDED TO GROSS PROFIT RATE FOR THE YEAR UNDER CO NSIDERATION, THE ASSESSING OFFICER APPLIED A GROSS PROFIT RATE OF 18%, WHICH WAS THE GROSS PROFIT RATE FOR THE IMMEDIATELY PRECEDING YEAR. THE LEARNED COUNSEL POINTED OUT THAT SINCE THE STOCK WAS BEING TABULATED FOR A PERIOD FALLING IN THE YEAR UNDER CONSIDERATION, IT WAS APPROPRIATE THAT THE GROSS PROFIT RATE OF THE CURRENT YEAR BE APPLIED TO WORK OUT THE EXCESS STOCK FOUND DURING THE SU RVEY, IF ANY. 5. ON THE OTHER HAND, THE LEANED DEPARTMENTAL REPRE SENTATIVE APPEARING FOR THE REVENUE, SUPPORTED THE ORDERS OF THE AUTHORI TIES BELOW BY PLACING RELIANCE ON THE SAME. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE DIFFERENCE IN STOCK AS PER BOOKS OF ACCOUNT AND AS PREPARE D ON THE BASIS OF THE TENTATIVE TRADING ACCOUNT PREPARED AT THE TIME OF SURVEY IS BASED ON VARYING ESTIMATES, ONE MADE BY THE ASSESSEE BY APPLYING G ROSS PROFIT RATE OF CURRENT YEAR AND OTHER MADE BY THE ASSESSING OFFICER BY A PPLYING GROSS PROFIT RATE OF IMMEDIATELY PRECEDING YEAR. IT IS ALSO EVIDENT THAT THE DIFFERENCE COMPUTED IN EITHER OF THE METHODS IS QUITE NEGLIGIBLE CONSIDERING THE OVERALL SIZE OF THE AMOUNT OF STOCK REVEALED BY THE BOOKS OF ACCOUN T. IN THIS VIEW OF THE MATTER AND CONSIDERING THAT OTHER THAN THE AFORES AID, THERE IS NO OTHER MATERIAL OR EVIDENCE FOUND EVEN DURING THE COURSE OF S URVEY THAT ASSESSEE HAS MADE ANY SALES OUTSIDE THE BOOKS OF ACCOUNT, THE ADDIT ION DESERVES TO BE DELETED. THEREFORE, CONSIDERING THE ENTIRE FACTS AND CI RCUMSTANCES OF THE CASE, WE SET-ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TA X (APPEALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDI TION OF RS 1,62,081/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. THIS G ROUND OF APPEAL IS THUS ALLOWED. 7. THE NEXT GROUND RELATES TO DISALLOWANCE OUT OF SHOP EXPENSES. IN THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD DEBITED TOTAL EXPENDITURE OF RS 6,87,984/- IN THE PR OFIT & LOSS ACCOUNT UNDER THE HEAD SHOP EXPENSES. THE ASSESSING OFFICER DISALLOWED 10 % OF THE TOTAL EXPENDITURE, AMOUNTING TO RS 68,798/- FOR THE REASON THAT CERTAIN PAYMENTS INCLUDED IN THE EXPENDITURE WERE NOT SUPPORTED BY EVID ENCES. WHILE MAKING THE DISALLOWANCE, THE ASSESSING OFFICER CONSIDERED THE ASP ECT OF PERSON ELEMENT IN EXPENDITURE LIKE TELEPHONE EXPENSES, CONVEY ANCE, ETC. AGAINST THIS ADDITION OF RS 68,798/-, ASSESSEE PREFERRED APPEAL TO T HE COMMISSIONER OF INCOME-TAX (APPEALS) AND RAISED VARIOUS CONTENTIONS. THE COMMISSIONER OF INCOME-TAX (APPEALS) DID NOT FIND ANY MERIT IN THE ASS ESSEES SUBMISSIONS. ACCORDING TO HIM, SINCE THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO MAINTAIN PROPER BILLS/VOUCHERS IN RESPECT OF THE EXPENSE S CLAIMED UNDER THE HEAD SHOP EXPENSES, WHICH FACT WAS MENTIONED BY THE AUD ITOR IN HIS AUDIT REPORT, THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING TH AT THE ASSESSEE FAILED TO PROVE THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF THE BUSINESS. HOWEVER, CONSIDERING THE ENTIRETY OF TH E FACTS AND CIRCUMSTANCES, THE COMMISSIONER OF INCOME-TAX (APPEALS) RESTR ICTED THE DISALLOWANCE TO 50% OF THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER, I.E. RS 34,400/-. THUS, THE COMMISSIONER OF INCOME-TAX (APPEA LS) GAVE A RELIEF OF RS 34,400/-. STILL NOT SATISFIED, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSING OFFICER MADE AN AD HOC DISALLOWANCE OF 10% OUT O F TOTAL EXPENSES CLAIMED BY THE ASSESSEE AT RS 6,87,984/- WHICH WAS RESTRICTED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) TO 50% OF THE DISAL LOWANCE MADE BY THE ASSESSING OFFICER. IN OUR OPINION, THE ASSESSING OFFIC ER HAS NOT DOUBTED THE GENUINENESS AND NO DISCREPANCY HAS BEEN POINTED OUT I N ANY OF THE EXPENSES CLAIMED BY THE ASSESSEE. THE DISALLOWANCE HAS BEEN MADE ON AN AD HOC BASIS. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCE S OF THE CASE, WE DO NOT FIND ANY JUSTIFICATION FOR THE IMPUGNED DISALL OWANCE. WE ACCORDINGLY SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPE ALS) AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE IMPUGNED ADDI TION. THE ASSESSEE SUCCEEDS ON THIS GROUND OF APPEAL. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF FEBRUARY, 2012. SD/- SD/- (I C SUDHIR) (G.S . PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE, DATED: 28 TH FEBRUARY, 2012 B COPY TO:- 1) M/S HASTAKALA, PUNE 2) DCIT CEN. CIR. 1(1), PUNE 3) THE CIT (A)-I, PUNE 4 THE CIT (CEN), PUNE 5) DR, B BENCH, I.T.A.T.,PUNE. 6) GUARD FILE TRUE COPY BY ORDER SR. PS, ITAT PUNE