I.T.O Wd - 43(3),kolkata, Kolkata V. Shyamlal Agarwal, Kolkata

ITA 1415/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4813 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 04-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2013
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Income from undisclosed sources
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NO.1415/KOL/2013 ASSESSMENT YEAR: 2006-07 INCOME-TAX OFFICER, WD-43(3), KOLKATA. VS. SHYAML AL AGARWAL (PAN: ACWPA6154B) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 04.05.2016 DATE OF PRONOUNCEMENT: 25.05.2016 FOR THE APPELLANT: SHRI SALLONG YADEN, ADDL. CIT, SR. DR FOR THE RESPONDENT: SHRI SUBASH AGARWAL, ADVOCAT E ORDER PER SHRI BALAGANESH, AM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XXX, KOLKATA VIDE APPEAL NO. 272/CIT(A)-XXX/WD-43(3)/2008-09 DATED 21 .12.2012. ASSESSMENT WAS FRAMED BY ITO, WD-43(3), KOLKATA U/S. 143(3)/147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSME NT YEAR 2006-07 VIDE HIS ORDER DATED 31.12.2008. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE TOWARDS CLO SING STOCK IN THE SUM OF RS.60,48,811/- IN THE FACTS AND CIRCUMSTANCES OF TH E CASE. 3. THE ASSESSEE IS A RETAILER OF SAREES. BRIEF FAC TS OF THIS ISSUE ARE THAT THE SURVEY U/S. 133A OF THE ACT WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 20.02.2006. DURING THE COURSE OF SURVEY, THE LD. AO OBSERVED TH AT THERE WAS EXCESS STOCK OF RS.92,48,323/- AND ACCORDINGLY, ISSUED SHOW CAUSE N OTICE DATED 11.12.2008 AS TO WHY THE EXCESS STOCK SHOULD NOT BE TREATED AS INCOME FR OM UNDISCLOSED SOURCES. THE ASSESSEE FILED WRITTEN SUBMISSION BEFORE THE AO STATING THAT THE SURVEY TEAM CARRIED OUT PHYSICAL VERIFICATION ON 20.02.2006 (THE DATE OF SURVEY) AND NO DISCREPANCY WAS FOUND BY THEM IN THE QUANTITY WHICH TALLIED WITH THE STOCK DISCLOSED IN THE STOCK REGISTERS. THE ASSESSEE DISCLOSED GROSS PROFIT @ 17.93%. THE LD. AO BASED ON THE TAG PRICE MENTIONED IN THE SAREES VALUED THE SALES FIGURE AT RS.2,23,12,199/- AND REDUCED THE GROSS PROFIT @ 17.93% THEREON AND ARRIVED AT THE VALUE OF CLOSING STOCK O F RS.1,83,11,622/-. THIS VALUE WAS 2 ITA NO.1415/K/2013 SHYAMLAL AGARWAL AY 2006-07 COMPARED WITH THE ACTUAL WORKINGS OF THE ASSESSEE, WHICH WAS RS.1,22,62,811/- THEREBY LEAVING BEHIND DIFFERENCE OF RS.60,48,811/- WHICH I N THE OPINION OF THE LD. AO WAS EXCESS STOCK FOUND AT THE TIME OF SURVEY AND HENCE, HE PROCEEDED TO BRING THE SAME TO TAX AS INCOME FROM UNDISCLOSED SOURCES. ON FIRST APPEAL, THE ASSESSEE ARGUED THAT THERE WAS NO DISPUTE IN RESPECT OF QUANTITY OF STOC K BUT THE ONLY DISPUTE IS WITH REGARD TO THE VALUATION OF CLOSING STOCK. IT WAS ARGUED THAT THE ASSESSEE IS NOT A FIXED PRICE SHOP. THE ASSESSEE HAD EMPLOYED NUMBER OF SALESMEN FOR SE LLING THE GOODS AND THE SAREES WERE MAINLY SOLD TO LADY CUSTOMERS WHO MADE HARD BA RGAINING AND, THEREFORE, IN ORDER TO ACCOMMODATE THE IMPACT OF SUCH HARD BARGAINING, THE PRICES ON THE SAREES GENERALLY TAGGED AT A VERY HIGH RATE. IT WAS STATED THAT THE TAG PRICE IS NEITHER THE PURCHASE PRICE NOR THE ACTUAL SELLING PRICE. THE SALESMEN ARE GIV EN VERBAL INSTRUCTIONS TO SELL THE MATERIAL NOT LESS THAN A PARTICULAR PRICE. IN FACT , THE SALESMEN WOULD NOT EVEN KNOW THE REAL PURCHASE VALUE OF THE GOODS SOLD. IT WAS ARGU ED THAT THESE TYPE OF STRATEGIES WERE VERY MUCH REQUIRED FOR THE PURPOSE OF BUSINESS SECR ECY. 4. IT WAS FURTHER ARGUED THAT CASH MEMOS WERE ALSO AVAILABLE ON THE DATE OF SURVEY. THE LD. AO SHOULD HAVE VERIFIED AS TO WHETHER THE S ALES MADE WERE AS PER TAGGED PRICE OR NOT. HE SHOULD HAVE ALSO VERIFIED THE SAME FROM PURCHASE INVOICES, WHICH THE LD. AO FAILED TO DO. IT WAS FURTHER ARGUED THAT THE PR ICE TAG IS PUT ON THE NEW SAREES WHEN IT IS DISPLAYED FOR SALE BUT IF THE SAREES ARE NOT SOL D IN A SHORT PERIOD THE DESIGN THEREON GETS OLDER BUT THE TAG PRICE IS NOT CHANGED. THE S HOPKEEPERS ULTIMATELY MAY HAVE TO SELL SUCH SAREES AT A MUCH LOWER PRICE WHICH MAY AT TIME S BE EVEN LESS THAN THE COST PRICE. HENCE, THE VALUATION OF CLOSING STOCK BASED ON THE TAG PRICE WAS OBJECTED TO BY THE ASSESSEE. THE LD. CIT(A) APPRECIATED THE CONTENTIO N OF THE ASSESSEE AND DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFO RE US. 5. LD. DR. VEHEMENTLY SUPPORTED THE ORDER OF THE AO. IN RESPONSE TO THIS, LD. AR ARGUED THAT THERE WAS NO QUANTITATIVE DISCREPANCY T HAT WAS FOUND DURING THE COURSE OF SURVEY IN RESPECT OF THE STOCK OF THE ASSESSEE AS S HOWN IN THE BOOKS OF ACCOUNT VIS--VIS THE STOCK FOUND DURING PHYSICAL VERIFICATION. HE A RGUED THAT THE TAG PRICE MENTIONED IN THE SAREES IS NOT ACTUAL SALE PRICE ON WHICH THE SA REES WERE SOLD. HE CLAIMED THAT THE 3 ITA NO.1415/K/2013 SHYAMLAL AGARWAL AY 2006-07 CASH MEMOS FOR SALES WERE AVAILABLE ON THE DATE OF SURVEY AND THE LD. AO COULD HAVE VERIFIED FROM THE SAME INSTEAD OF TAKING THE TAG PR ICE AS SALE PRICE. THE ASSESSEE HAD SUBMITTED THE STOCK SUMMARY GIVING TAG PRICE AND TH E COST PRICE TO JUSTIFY ITS VALUATION OF STOCK FOUND AT THE TIME OF SURVEY. IT WAS ALSO FURTHER SUBMITTED THAT THE LD. AO HAD CARRIED OUT THE VERIFICATION IN RESPECT OF PURCHASE OF RS.76,07,345/- OUT OF THE TOTAL PURCHASE OF RS.2,63,77,585/- IN THE REMAND PROCEEDI NGS. EVEN IN THE REMAND REPORT THE LD. AO HAD NOT POINTED OUT ANY DISCREPANCY IN RESPE CT OF THE COST PRICE SHOWN IN THE STOCK SUMMARY SUBMITTED BY THE ASSESSEE. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. AO HAD ACCEPTED THE G ROSS PROFIT AS DISCLOSED IN THE CURRENT YEAR AND HAS REDUCED THE SAME FROM THE TAG PRICE FO R ARRIVING AT THE VALUE OF THE CLOSING STOCK. THE ASSESSEE HAS, ON THE OTHER HAND, GIVEN THE BASIS OF ITS VALUATION OF STOCK AND SOME OF THE PURCHASE BILLS WERE ALSO PRODUCED BY HI M FOR VERIFICATION BEFORE THE AO. THE LD. AR ARGUED THAT THE ASSESSEE HAS BEEN GIVING SUBSTANTIAL DISCOUNT FROM THE TAG PRICE AT THE TIME OF ACTUAL SALE OF THE GOODS. WE FIND THAT THIS FACT HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US. WE ALSO FIN D THAT NO DISCREPANCIES WERE FOUND IN THE PURCHASE OR SALES AT THE TIME OF SURVEY IN THE QUANTITY OF STOCK. WE FIND THAT THE LD. CIT(A) HAD RECORDED A CATEGORICAL FINDING THAT THE INVENTORY OF THE BOOKS OF ACCOUNT AND RECORDS FOUND AND IMPOUNDED INCLUDED PURCHASE REGIS TER AND SALES REGISTER. WHEN THE ENTIRE DETAILS OF ACTUAL PURCHASE AND ACTUAL SALES, WHICH ARE SUPPORTED BY THE PURCHASE AND SALES INVOICES WERE AVAILABLE, THE ACTION OF TH E LD. AO TO VALUE THE STOCK AT TAG PRICE IS NOT CORRECT. WE ALSO FIND FROM THE TAX AUDIT RE PORT THAT THE ASSESSEE HAS BEEN MAINTAINING THE STOCK REGISTER. WE FIND THAT IF TH E VALUATION DONE BY THE AO HAS TO BE ACCEPTED THE GROSS PROFIT WOULD BECOME ABNORMALLY H IGH WHICH WOULD WORK AT ALMOST TWICE THE GROSS PROFIT DISCLOSED BY THE ASSESSEE WH ICH WOULD RESULT IN AN ABNORMALITY IN THIS BUSINESS. HENCE, EVEN ON THIS ACCOUNT, THE AD DITION MADE BY THE LD. AO DESERVES TO BE DELETED. ACCORDINGLY, GROUND NO.1 RAISED BY TH E REVENUE IS DISMISSED. 4 ITA NO.1415/K/2013 SHYAMLAL AGARWAL AY 2006-07 7. THE LAST GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE ADDITION OF RS.5,85,640/- CAN BE MADE ON THE BASIS OF DEPOSITIO N OF THE SON OF THE ASSESSEE AT THE TIME OF SURVEY. 8. BRIEF FACTS OF THIS ISSUE ARE THAT A STATEMENT W AS RECORDED FROM THE ASSESSEES SON SHRI ASHOK KR. AGARWAL ON 20.02.2006 WHEREIN HE HAD STATED THAT SALARY PAYMENT OF RS.1,25,000/- PER MONTH WAS INCURRED ON AN AVERAGE. THE LD. AO, HOWEVER, FOUND THAT THE ASSESSEE HAS DEBITED ONLY A SUM OF RS.5,85,640/ - AS SALARY IN THE P&L ACCOUNT. THE LD. AO WHILE VERIFYING THE ATTENDANCE REGISTER FOUN D FROM MONTHLY SALARY COLUMN OF THE SAID REGISTER WITH IDENTIFICATION SS-25 AND SS-26 T HAT ASSESSEE PAID SALARY BETWEEN RS.80,000 AND RS.92,000/- PER MONTH TO 30 EMPLOYEES . THE LD. AO OBSERVED THAT SINCE THREE DIFFERENT FIGURES ARE REFLECTED TOWARDS SALAR Y, HE ACCEPTED THE VERSION OF THE DEPOSITION OF THE ASSESSEES SON AND CONCLUDED THAT THE SALARY COMPONENT SHOULD BE RS.15 LACS PER ANNUM AND ACCORDINGLY, MADE AN ADDIT ION OF RS.9,14,360/- AFTER REDUCING THE SALARY ALREADY DEBITED BY THE ASSESSEE IN THE S UM OF RS.5,85,640/- AS UNEXPLAINED EXPENDITURE. ON FIRST APPEAL, IT WAS ARGUED THAT F ROM THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT ORDER IT COULD BE FOUND THAT THE AO WAS NOT CLEAR AS TO WHICH AMOUNT SHOULD BE THE ACTUAL PAYMENT OF SALARY. IT WAS ARG UED THAT NO ADDITION COULD BE MADE MERELY BASED ON THE STATEMENT OF THE SON OF THE ASS ESSEE WHO IS NEITHER THE PROPRIETOR NOR AN EMPLOYEE OF THE ASSESSEE. IN SUPPORT OF THI S PROPOSITION RELIANCE WAS PLACED ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE O F CIT VS. KADER KHAN SONS LTD. REPORTED IN 214 CTR 589. IT WAS FURTHER ARGUED THA T NO QUERY WAS RAISED BY THE LD. AO WITH REGARD TO THIS ADDITION DURING THE COURSE OF A SSESSMENT PROCEEDINGS. THE LD. CIT(A) FURTHER GOING THROUGH THE CONTENTION OF THE ASSESSEE OBSERVED AS UNDER: 2.2 THE SUBMISSIONS OF THE APPELLANT ON THIS GROU ND HAVE BEEN CONSIDERED AND IT IS SEEN THAT THE A.O. HAS MADE DISALLOWANCE ON THE BASIS OF THE STATEMENT OF THE SON OF THE APPELLANT WHO IS NEITHER THE PROPRIETOR NOR AN EMPL OYEE. THEREFORE, THE EVIDENCE IN THIS RESPECT RELIED UPON BY THE A.O. IS CONSIDERED AS NO T SUFFICIENT TO SUBSTANTIATE THE ESTIMATE OF SALARY MADE BY HIM AT RS.L,25,000/-. FURTHERMORE NO EFFORT HAD BEEN MADE ON THE PART OF THE A.O. TO VERIFY AS TO THE ACTUAL PAYMENT OF S ALARY OR TO INVENTORISE THE RECORD RELATING TO THE SALARY PAYMENT. THEREFORE THE A.O.' S ACTION OF ESTIMATING SALARY AT RS.L,25,000/- PER MONTH IS FOUND TO BE NOT JUSTIFIE D AND HE APPEARS TO BE CONFUSED WHILE ESTIMATING THE SALARY. IT IS ALSO HOWEVER SEEN THAT THE SALARY/ATTENDANCE REGISTERS WERE FOUND AND INVENTORISED AS 55-25 AND 26 INDICATING T HE SALARY OF RS.80,000/- TO RS.90,000/- PER MONTH. WHILE THE APPELLANT HAS PROV IDED THE DETAILS OF SALARY PAYMENT TO THE A.O. IN THE ASSESSMENT PROCEEDINGS HE HAS NOT B EEN ABLE TO EXPLAIN WHY ABOVE 5 ITA NO.1415/K/2013 SHYAMLAL AGARWAL AY 2006-07 AMOUNTS HAVE BEEN MENTIONED IN THE ABOVE ATTENDANCE REGISTERS FOUND IN THE COURSE OF SURVEY. THEREFORE THE AMOUNTS MENTIONED IN THEM CAN NOT BE TOTALLY DISCOUNTED AND THEIR EVIDENTIARY VALUE HAS TO BE CONSIDERED. IT HAS BEEN MENTIONED BY THE A.O. THAT- WHILE VERIFYING THE ATTENDANCE REGISTER IT WAS FOUND FROM MONTHLY SALARY COLUMN OF THE SAID REGISTER WITH IDENTIFICATION SS-25 AND SS-26, ASSES SEE PAID SALARY BETWEEN RS.80,000/- TO RS. 90,000/- P.M. TO 30 NUMBER OF EMPLOYEES,'. IN V IEW OF THE ABOVE, IT WOULD THEREFORE BE REASONABLE TO ESTIMATE THE SALARY PAYMENT SINCE CERTAIN SALARY AMOUNTS WERE BEING MENTIONED IN THE ATTENDANCE REGISTER, THE LOWER VAL UE RS.80,000/- PER MONTH COULD BE TAKEN THE BASIS AND THE SALARY WOULD BE RS.9,60,000 /- APPROXIMATELY FOR THE YEAR AS AGAINST RS.5,85,640/- DISCLOSED IN THE P&LA/C. THE REFORE THE UNEXPLAINED EXPENDITURE WOULD BE ONLY TO THE EXTENT OF RS.3,74,360/- AND TH E ADDITION IS CONFIRMED ONLY TO THIS EXTENT. (RELIEF RS. 5,40,000/-). 9. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: 2. THAT THE LD. CIT(A)-XXX, KOLKATA, ERRED IN DEL ETING RS.5,85,640/- WITHOUT CONSIDERING THE FACTS OF THE CASE AND DEPOSITION TA KEN FROM ASSESSEES SON ON THE DATE OF SURVEY. 10. THE LD. DR VEHEMENTLY RELIED ON THE ORDER OF TH E AO. IN RESPONSE TO THIS, LD. AR VEHEMENTLY SUPPORTED THE ORDER OF CIT(A). 11. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ENTIRE ADDITION HAS BEEN MADE ONLY BASED ON THE STATEMENT OF SON OF ASSESSEE WHO IS NEITHER THE PROPRIETOR NOR THE EMPL OYEE OF THE CONCERN. HENCE THE DECISION RELIED UPON BY THE LEARNED AR SUPRA THAT S TATEMENT IN SURVEY DOES NOT HAVE ANY EVIDENTIARY VALUE. WE ALSO FIND THAT NEITHER TH E SURVEY TEAM NOR THE LEARNED AO HAD BROUGHT ANY MATERIAL ON RECORD IN THE FORM OF CORRO BORATIVE EVIDENCES TO JUSTIFY THE ADDITION. FROM THE CATEGORICAL FINDING GIVEN BY T HE LD. CIT(A) AS REPRODUCED HEREINABOVE AND HAVING REGARD TO THE FACT THAT NONE OF THESE FINDINGS WERE CONTROVERTED BY THE REVENUE BEFORE US, WE FIND NO INFIRMITY IN T HE ORDER OF LD. CIT(A) IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. 13. ORDER IS PRONOUNCED IN THE OPEN COURT ON 25.05. 2016 SD/- SD/- (MAHAVIR SINGH) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 25TH MAY, 2016 6 ITA NO.1415/K/2013 SHYAMLAL AGARWAL AY 2006-07 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ITO, WARD-43(3), KOLKATA. 2 RESPONDENT SHRI SHYAMLAL AGARWAL, 4/5, SINGHEE BAG AN LANE, KOLKATA- 700 007. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .