M/s. Sompura Moorti Art, Ahmedabad V. The Dy.CIT, Central Circle-2(2), Ahmedabad

ITA 139/AHD/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5294 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 19-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURAB SINGH
• Keywords: Rejection of books of accounts; Income from undisclosed sources; Cost of acquisition
• Section: 143(3); 133A

Judgement Text

ITA NO. 139/AHD/2016 SAMPURA MOORTI ART VS. DCIT ASSESSMENT YEAR: 2011-12 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] ITA NO. 139/AHD/2016 ASSESSMENT YEAR: 2011-12 SOMPURA MOORTI ART ..................APPELL ANT 3, BALESHWAR AVENUE, SG ROAD, AHMEDABAD-380052 [PAN : ABCFS 3974 N] VS. DY. COMMISSIONER OF INCOME-TAX ...........................RESPONDENT CENTRAL CIRCLE 2(2), AHMEDABAD APPEARANCES BY: GAURAV NAHTA, FOR THE APPELLANT SAURAB SINGH, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 13.07.2018 DATE OF PRONOUNCING THE ORDER : 12.10.2018 O R D E R PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF LEARNED CIT(A)S ORDER DATED 05.09.2015 IN THE MATT ER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSME NT YEAR 2011-12. 2. GRIEVANCE RAISED BY THE APPELLANT IS AS FOLLOWS: - THE LD. CIT APPEALS-12 AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN PASSING APPELLATE ORDER DATED 05.09.2015 FOR AY 2011-12 IN THE CASE OF APPELLANT BY CONFIRMING ADDITION OF RS.10,00,000/- OUT OF RS.48, 55,907/- ON ACCOUNT OF GROSS PROFIT ON AN PRESUMPTION BASIS. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE WAS SUBJECTED TO SURVEY PROCEEDINGS UNDER SECTION 133A OF THE ACT, AND, DURING THE COURSE OF SURVEY, THE ASSESSEE ACCEPTED UNACCOUNTED EXCESS STOCK OF RS.48,59,907. HOWEVER, IN THE INCOME TAX RETURN FI LED BY THE ASSESSEE, INCOME WAS SHOWN AT RS.48,66,194 AND NO SEPARATE INCOME WAS OF FERED IN RESPECT OF THE AFORESAID DISCLOSURE. WHEN ASSESSING OFFICER PROBE D THE MATTER FURTHER, IT WAS, INTER ALIA, SUBMITTED THAT THERE WAS NO DIFFERENCE IN QUA NTITY OF STOCK, THAT NO INCRIMINATING ITA NO. 139/AHD/2016 SAMPURA MOORTI ART VS. DCIT ASSESSMENT YEAR: 2011-12 PAGE 2 OF 5 MATERIAL WAS FOUND IN SURVEY SO AS TO SUGGEST THE U NACCOUNTED SALES, THAT NO UNACCOUNTED PURCHASES ARE FOUND DURING SURVEY, THAT THE PARTNER HAS REFERRED TO THE EXPRESSION TOTAL COST WHICH INCLUDES DIRECT AND INDIRECT COSTS, THAT SE ARCH PARTY HAD NOT ASKED ABOUT ASSESSEES COMPUTATION OF COST, THA T SINCE THERE WAS QUANTITATIVE TALLY AT THE TIME OF SEARCH, THE DISCLOSURE OBTAINE D FROM ONE OF THE PARTNERS OF THE ASSESSEE FIRM IS ILLEGAL AND NOT JUSTIFIED AND THAT THE DISCLOSURE WAS, IN EFFECT, WRONGLY MADE. IT WAS ALSO SUBMITTED THAT, EVEN THOU GH IT WAS STATED BY THE PARTNER DURING SURVEY, THE TAG PRICE WAS DOUBLE THE COST, I T MAY NOT BE TRUE IN ALL CASES BECAUSE GP CANNOT ALWAYS BE 50%, IN SOME CASES, IT MAYBE 100% OR EVEN 200% . IN SUBSTANCE, THE ASSESSEE SUBMITTED THAT RETURNED INCOME SHOULD BE ACCEPTED WITHOUT ANY SEPARATE ADJUSTMENT FOR UNACCOUNTED STO CK. THE ASSESSING OFFICER REJECTED THESE CONTENTIONS BY, INTER ALIA, OBSERVIN G AS FOLLOWS:- 2.4 FROM THE ABOVE STATEMENT IT IS SEEN THAT THE M AIN PARTNER OF THE ASSESSEE FIRM HIMSELF HAS VALUED THE STOCK AND HIS VALUATION IS TAKEN BY THE SURVEY TEAM AS CORRECT VALUATION. MAIN FEATURE OF T HE STATEMENT GIVEN BY SHRI RAJESH SOMPURA ARE: A) SHRI RAJESH SOMPURA IS THE MAIN PERSON WHO LOOK S AFTER THE DAY TO DAY ACTIVITY OF THE FIRM. THIS FACT IS EVIDENT FROM HIS ANSWER TO QUESTION NO 11 OF HIS STATEMENT DATED 21.04.2013. B) VIDE ANSWER TO QUESTION NO 14 SHRI RAJESH SOMPU RA HAS STATED THE BOOK VALUE OF THE STOCK. SHRI RAJESH SOMPURA HAS STATED THAT AS PER BOOKS THE STOCK OF THE ASSESSEE FIRM STANDS AT 57,61,043/-. C) VIDE HIS ANSWER TO QUESTION NO 17 AND 18 HE HAS AGREED TO THE FACT THAT EXCESS STOCK HAS BEEN FOUND IN THE CASE OF THE ASSE SSEE FIRM. AS PER THE VALUATION TOTAL VALUE OF THE STOCK FOUND DURING THE COURSE OF SEARCH AS PER THEIR TAG PRICE STANDS AT 2,12,33,901/-, SHRI RAJES H SOMPURA HIMSELF HAS STATED THAT THE TAG PRICES OF ALL THE ARTICLES ARE VALUED AT 200% OF THE TOTAL PURCHASE COST. THEREFORE, AS PER HIS OWN VALUATION, STOCK OF RS.1,15,22.086/- WAS FOUND DURING THE COURSE OF SUR VEY. VIDE HIS ANSWER TO QUESTION NO 17 & 18 HE HAS STATED THAT EXCESS ST OCK FOUND DURING THE COURSE OF SURVEY OF RS 48.55.907/- IS HIS UNACCOUNT ED INCOME FOR A.V. 2010-11. 2.5 IN THE INSTANT CASE IT IS IMPORTANT TO NOTE THA T THE ASSESSEE DOES NOT MAINTAIN ITEM-WISE STOCK REGISTER WHICH IS ALSO EVI DENT FROM THE SCHEDULE-8 (NOTES FORMING PART OF ACCOUNT) OF THE AUDIT REPORT . THE RELEVANT EXTRACT IS REPRODUCED AS UNDER: C) INVENTORIES: KEEPING IN VIEW OF THE NATURE OF ITEMS AND DEALING IN DIFFERENT MODELS OF VARIOUS SIZES IN MOORTIES, ASSESSEE CONTENDS THAT I T IS PRACTICALLY NOT POSSIBLE FOR THEM TO MAINTAIN & SUBMIT EACH MODEL W ISE QUANTITY RECORDS FOR OUR VERIFICATION. THEREFORE, STOCK IS PHYSICALL Y VERIFIED AND VALUED AT AVERAGE COST BY THE ASSESSEE FIRM AT THE END OF THE YEAR AND IS TAKEN AS CERTIFIED BY ASSESSEE FIRM.' 2.6 IT IS EVIDENT FROM THE NOTE FORMING THE ACCOUNT S THE ASSESSEE DOES NOT MAINTAIN STOCK REGISTER ON DAY TO DAY BASIS GIVING THE ITEM VISE DETAILS THE ITA NO. 139/AHD/2016 SAMPURA MOORTI ART VS. DCIT ASSESSMENT YEAR: 2011-12 PAGE 3 OF 5 SAME IS NEITHER FURNISHED DURING THE COURSE OF SURV EY PROCEEDINGS AND ASSESSMENT PROCEEDINGS. HOWEVER, IN ORDER TO GIVE T HE ASSESSEE FURTHER OPPORTUNITY THE ASSESSEE IS ONCE AGAIN ASKED TO REC ONCILE THE STOCK FOUND DURING THE COURSE OF SURVEY WITH THE STOCK REFLECTE D IN BOOKS OF ACCOUNTS. THE ASSESSEE WAS ALSO ASKED TO GIVE THE DETAILS ABOUT T HE DISCLOSURE OF RS.48,55,907/- AND STATE WHERE IT IS REFLECTED IN I TS BOOKS OF ACCOUNT. THE ASSESSEE HAS NOT FURNISHED ANY DETAILS/EXPLANATION FOR THE QUERY RAISED VIDE ORDER SHEET DATED 11.3.2014. THEREFORE, IT IS EVIDE NT THAT THE ASSESSEE DOES NOT HAVE ANY EXPLANATION AND THE DISCLOSURE AMOUNT OF RS. 48,55,907/- HAS NOT BEEN OFFERED AS HIS INCOME WHILE FILING ITS RET URN OF INCOME. 4. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT COMPLETE SUCCESS. LEARNED CIT(A) RESTRICT ED THE DISALLOWANCE TO RS.10,00,000/- ON THE BASIS OF HIS FOLLOWING REASONING:- 7. I HAVE GIVEN A VERY CAREFUL CONSIDERATION TO TH E FACTS NARRATED BY THE ID. ASSESSING OFFICER IN HIS ASSESSMENT ORDER AND THE S UBMISSIONS MADE BY THE LD. AUTHORISED REPRESENTATIVE. I HAVE ALSO PERUSED WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND ALSO PERUSED THE STATEMENT U/S. 133A(3)(III) DTD. 21-4- 2010. I FIND THAT THE PARTNER SHRI RAJESH SOMPURA, IN FACT ADMITTED UNACCOUNTED STOCK OF RS.48,55,907/- U/S.133A WHICH WAS RECONFIRMED BY HIM IN HIS STATEMENT U/S. 131. THE METHOD OF ARRIVING A T THE COST PRICE BY THE AUTHORISED OFFICER AT 50% OF THE TAG PRICE IS ARTIF ICIAL AND IS NOT SUPPORTED BY EVIDENCES THOUGH ADMITTED AND AGREED TO BY THE PART NER DURING THE COURSE OF ACTION U/S. 133A. I FIND MYSELF IN AGREEMENT WITH T HE ID. AUTHORISED REPRESENTATIVE THAT THE UNACCOUNTED INCOME DISCLOSE D DURING THE COURSE OF SURVEY NEED NOT NECESSARILY BE SEPARATELY INCLUDED IN THE COMPUTATION OF INCOME BECAUSE IF AT THE END OF THE YEAR, PHYSICAL STOCK AT COST PRICE IS TAKEN, THEN THE SALES AND THE CLOSING STOCK TOGETHER IS BO UND TO TAKE CARE OF THE DISCLOSURE ON ACCOUNTED STOCK BY WAY OF ENHANCED GR OSS PROFIT. AS PER THE FIGURES OF THE GROSS PROFIT WORKING GIVEN FOR THE Y EAR UNDER REFERENCE COMPARED TO THE PRECEDING YEAR, THERE IS SUBSTANTIA L RISE IN THE SALES, CLOSING STOCK AND GROSS PROFIT. MOREOVER, THE ID. ASSESSING OFFICER EXCEPT OBSERVING THAT THE DISCLOSURE HAS NOT BEEN HONOURED BY THE AS SESSEE BY WAY OF SEPARATE INCLUSION IN THE STATEMENT OF INCOME, HAS NOT DOUBTED THE WORKING/COMPUTATION OF CLOSING STOCK, PURCHASES OR SALES, OR OVERALL RELIABILITY OF BOOKS OF ACCOUNTS, IN ANY MANNER AND HAS ALSO NO T REJECTED THE BOOKS OF ACCOUNTS. I THEREFORE, AGREE WITH THE ID. AUTHORISE D REPRESENTATIVE THAT NOTWITHSTANDING THE FACT THAT AN AMOUNT OF DISCLOSU RE OF RS.48,55,907/- HAS NOT BEEN SEPARATELY OFFERED FOR TAXATION IN THE STA TEMENT OF INCOME BY THE ASSESSEE, THE GROSS PROFIT OF RS.124.90 LAKHS IN CO MPARISON TO THE PRECEDING YEAR GROSS PROFIT OF RS.42.73 LAKHS SHOWS SUBSTANTI AL HIGHER DISCLOSURE OF INCOME FOR THE YEAR UNDER REFERENCE. MOREOVER, I AL SO FIND MERIT IN THE SUBMISSION OF THE ID. AR THAT THE EXCESS STOCK FOUN D DURING THE COURSE OF ACTION U/S. 133A WAS NOT WITH RESPECT TO THE UNACCO UNTED ITEMS OF STOCK BUT WAS MERELY ON ACCOUNT OF ARTIFICIAL METHOD OF VALUA TION AND OF INVENTORISING THE STOCK, ADOPTED BY THE AUTHORIZED OFFICER AND AG REED TO BY THE ASSESSEE. THEREFORE, THERE IS NOTHING WRONG IF THE AMOUNT OF DISCLOSURE MADE DURING THE COURSE OF SURVEY IS OFFERED BY FOLLOWING THE METHOD ADOPTED BY THE ASSESSEE. WHETHER ANY ADDITIONAL INCOME DISCOVERED DURING THE COURSE OF SURVEY HAS BEEN OFFERED FOR TAX OR NOT, IN THE METHODOLOGY ADO PTED BY THE ASSESSEE, CAN ITA NO. 139/AHD/2016 SAMPURA MOORTI ART VS. DCIT ASSESSMENT YEAR: 2011-12 PAGE 4 OF 5 BE VERIFIED ONLY BY COMPARING THE BOOK RESULTS, NAM ELY, GP RATE, ABSOLUTE GP AND TURNOVER WITH THE CORRESPONDING FIGURES OF PREC EDING YEARS. 8. IT CAN BE SEEN FROM THE GROSS PROFIT AND TURNOVE R CHART SUBMITTED BY THE ASSESSEE ON PAGE 3 OF HIS WRITTEN SUBMISSION DTD. 2 8-8-2015 THAT THE GROSS PROFIT HAS INDEED SHOWN A QUANTUM JUMP OF RS.82 LAK HS AND GP RATE HAS INCREASED BY ALMOST 15% AND NET PROFIT HAS INCREASE D BY MORE THAN RS.41 LACS COMPARED TO THE PRECEDING YEAR. THE ASSESSEE H AS ALSO SUBMITTED THAT IF THE AVERAGE GP RATE OF THE PRECEDING YEARS IS APPLI ED TO THE TURNOVER DURING THE YEAR UNDER REFERENCE, THE G.P. @ 40% ON A TURNO VER OF RS.220 LAKHS SHOULD COME TO RS.88 LAKHS. THE G.P. SHOWN IN THE A CCOUNTS IS RS. 124 LAKHS. THIS CLEARLY INDICATES THAT DISCLOSURE MADE DURING THE COURSE OF ACTION U/S 133A IS SUBSUMED IN THE TRADING RESULTS SHOWN B Y THE APPELLANT. THEREFORE, IT HAS RIGHTLY BEEN SUBMITTED BY THE ID. AR THAT THE LD. AO'S INSISTENCE ON SEPARATE DISCLOSURE IN THE STATEMENT OF INCOME IS NOT TENABLE, AND IT IS THEREFORE HELD THAT NO ADDITION IS SUSTAI NABLE MERELY ON THE BASIS OF NON-INCLUSION OF AMOUNT OF EXCESS STOCK DISCLOSED D URING 133A IN THE COMPUTATION OF INCOME. THE LD. AO, IF NOT SATISFIED WITH THE RESULTANT TRADING RESULTS OF THE ASSESSEE, SHOULD MAKE ENQUIRIES WITH SUPPLIERS OR VERIFY DIRECT EXPENSES TO IDENTIFY THE DEFECTS, IF ANY, IN BOOKS OF ACCOUNT AND ESTABLISH, BY POSITIVE, COGENT AND CREDIBLE EVIDENCES, THE FACT T HAT THE 'EXCESS STOCK' IN FACT HAS NOT BEEN INCLUDED IN THE AUDITED ACCOUNTS BY WA Y OF SALES/CLOSING STOCK. IN THE ABSENCE OF SUCH MATERIAL ON RECORD, THE LD. AO'S ACTION OF ADDING THE AMOUNT OF DISCLOSURE MADE U/S 133A(3)(III), MERELY ON THE BASIS OF SUCH DISCLOSURE AND WITHOUT ANY MATERIAL BROUGHT ON RECO RD TO REBUT THE EXPLANATION OF THE ASSESSEE IS HELD NOT SUSTAINABLE IN LAW. 9. HOWEVER, I DO NOT AGREE WITH THE SUBMISSION OF THE LD. AR THAT NO ADDITION AT ALL NEED BE MADE OR SUSTAINED. THIS IS FOR THE SIMPLE REASON THAT IF THE EXPLANATION OFFERED BY THE ASSESSEE (THAT PROFI T OFFERED INCLUDES DISCLOSURE) IS FACTUALLY CORRECT, THEN THE DISCLOSU RE, AS A NECESSARY CONSEQUENCE, MUST NORMALLY SHOW UP AS ENHANCED GP. GOING BY THE TABLE AVAILABLE IN THE ASSESSEE'S WRITTEN SUBMISSIONS THE AVERAGE GP RATE FOR PRECEDING THREE YEARS IS 40.24%, AND APPLYING THE S AME RATE FOR THE CURRENT YEAR, THE GP FOR THE YEAR UNDER REFERENCE COMES TO RS, 88,9L,248/-. THE FACT THAT THE GP ACTUALLY EARNED AND DISCLOSED BY THE AS SESSEE AT RS.1,24,90,696/ IS FAR HIGHER THAN THE PAST CUMULATIVE AVERAGE THOU GH DOES POSITIVELY INDICATE THE MERIT IN LD AR'S OVERALL SUBMISSIONS, THE INCRE MENTAL COMPONENT OF RS.35,99,447/- (1,24,90,696 - 88,91,248) DOES NOT M ATCH WITH THE UNACCOUNTED STOCK OF RS. 48,55,907 ADMITTED DURING SURVEY PROCEEDINGS. THEREFORE, THOUGH I AM CONSCIOUS OF THE FACT THAT P URE ARITHMETIC DOES NOT DEFINE THE REALITIES OF BUSINESS, AND THAT IN LAW, THE ADDITION MADE BY THE LD. AO IS NOT WHOLLY SUSTAINABLE AND THAT THERE IS NO P ARTICULAR FLAW IN THE EXPLANATION SUBMITTED BY THE ASSESSEE, I AM OF THE CONSIDERED VIEW THAT THE OVERALL APPRECIATION OF FACTS WOULD REQUIRE ME TO U PHOLD PART OF THE ADDITION MADE BY THE LD. AO. AFTER CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES, I FIND IT FAIR AND REASONABLE TO SUSTAIN THE ADDITI ON OF RS.10,00,000/- AND DELETE THE BALANCE. 5. THE ASSESSEE IS STILL AGGRIEVED AND IS IN FURTHE R APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. ITA NO. 139/AHD/2016 SAMPURA MOORTI ART VS. DCIT ASSESSMENT YEAR: 2011-12 PAGE 5 OF 5 7. WE HAVE NOTED THAT THE CIT(A) HAS HELD THAT THE VERY FOUNDATION OF ADDITION OF RS.48,59,907/- IS UNSUSTAINABLE IN LAW AND YET HE H AS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.10,00,000/- BY MAKING A VAGUE OBSE RVATION TO THE EFFECT THAT THERE IS NO PARTICULAR FLAW IN THE EXPLANATION SUBMITTED BY THE ASSESSEE, I AM OF THE CONSIDERED VIEW THAT THE OVERALL APPRECIATION OF FA CTS WOULD REQUIRE ME TO UPHOLD PART OF ADDITION MADE BY THE LEARNED AO AND THAT AFTER CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES, I FIND IT FAIR AND REASONABLE TO SUSTAIN THE ADDITION OF RS.10,00,000/-. ONCE THE BASIS OF ADDITION IS DELETED, AND THAT ASP ECT HAS REACHED FINALITY, ONE CANNOT RUN AWAY FROM COROLLARIES OF T HE SAME. THE RIGHT COURSE OF ACTION, THEREFORE, WAS TO DELETE THE ENTIRE ADDITIO N. 8. IN VIEW OF THE ABOVE DISCUSSIONS AND BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE IMPUGNED ADDIT ION OF RS.10,00,000 AS WELL. THE ASSESSEE THUS SUCCEEDS IN APPEAL. 9. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT TODAY ON THE 12 TH OCTOBER, 2018 SD/- SD/- MAHAVIR PRASAD PRAMO D KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 12 TH DAY OF OCTOBER, 2018 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: ...12.10.2018........ 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ... 12.10.2018.... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: ..12.10.2018..... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: .. .. 12.10.2018.... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : . 12.10.2018. 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER : . 8. DATE OF DESPATCH OF THE ORDER: ......