Baldeo Motilal Jhawar, Ahmednagar V. Income-tax Officer,

ITA 149/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1852 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K RASTOGI; ANIL CHAWARE
• Assessee Lawyers: HARI KRISHAN
• Keywords: Wrong claim

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.149/PN/2014 % % / ASSESSMENT YEAR : 2009-10 SHRI BALDEO MOTILAL JHAWAR, PROP. OF M/S. M.R.BHINGARWALA, M.G. ROAD, AHMEDNAGAR 414001 PAN NO.ABIPJ2656C . / APPELLANT V/S ITO, WARD-1, AHMEDNAGAR . / RESPONDENT / ASSESSEE BY : SHRI HARI KRISHAN / REVENUE BY : SHRI S.K. RASTOGI & SHRI ANIL CHAWARE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 05-02-2013 OF THE CIT(A)-IT/TP, PUNE RELATING TO A SSESSMENT YEAR 2009-10. 2. ADDITION OF RS.10,40,000/- BY THE AO ON ACCOUNT OF SUPPRESSED PROFIT WHICH HAS BEEN UPHELD BY THE CIT(A) IS T HE ONLY ISSUE RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL. / DATE OF HEARING :10.05.2016 / DATE OF PRONOUNCEMENT:13.05.2016 2 ITA NO.149/PN/14 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRADING IN CIGARETTES MANU FACTURED BY ITC LTD. AND VST COMPANY LTD. AND FOOD ITEMS MANUFACTU RED BY ITC LTD. HE FILED HIS RETURN OF INCOME ON 25-09-2009 DEC LARING TOTAL INCOME OF RS.9,65,778/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THERE WAS A DRASTIC FALL IN THE GROSS PROFIT/NET PROFIT RATE FOR THE CURRENT YEAR AS COMPARED TO THE PRECEDING TWO YEARS, THE DETAILS OF WHICH ARE AS UNDER : A.Y. OP.STOCK PURCHASES SALES CL.STOCK G.P. RATE N.P. RATE 2007 - 08 20,40,358 20,44,87,506 20,91,18,578 10,01,290 1.71% 0.50% 2008 - 09 10,01,290 23,58,54,155 23,41,01,905 68,47,404 1.74% 0.70% 2009 - 10 68,37,404 19,62,75,000 20,05,89,540 48,32,348 1.15% 0.01% 4. THE AO FURTHER NOTED THAT THE AUDITOR HAD NOT FURNIS HED ANY QUANTITATIVE DETAILS WHATSOEVER AGAINST CLAUSE 28(A) OF THE AUDIT REPORT. ACCORDING TO THE AO THIS DEFECT WAS GLARING IN VIE W OF THE FACT THAT THE ASSESSEE IS A WHOLESALER. THE AO, THEREFORE, ASK ED THE ASSESSEE TO EXPLAIN AS TO WHY HE HAS NOT MAINTAINED ANY QUANTITATIVE DETAILS. HE ALSO ASKED THE ASSESSEE TO EXPLAIN THE MANNE R IN WHICH HE HAD EXERCISED CONTROL OVER RECEIPT AND ISSUE OF GOODS AND TO SUBSTANTIATE THE VALUATION OF CLOSING STOCK WITH THE HELP O F SOME PURCHASE/SALE BILLS. IT WAS EXPLAINED BY THE ASSESSEE THAT HE HAD N OT MAINTAINED QUANTITATIVE DETAILS ON DAY-TO-DAY BASIS AS IT W AS NOT PRACTICABLE TO DO SO. IT WAS FURTHER SUBMITTED THAT HE STORES THE GOODS IN GODOWN FROM WHERE DESPATCHES ARE MADE AND TH E DESPATCHES ARE MADE ONLY ON ISSUING SALE BILLS FROM HIS OFFICE . SO FAR AS THE QUESTION RELATING TO FALL IN THE GROSS PROFIT/NET PRO FIT RATE IS CONCERNED, IT WAS SUBMITTED THAT THERE COULD BE A NUMBE R OF REASONS SUCH AS KEEN COMPETITION IN THE MARKET, LOW PROFIT MARGIN ETC. 3 ITA NO.149/PN/14 5. ACCORDING TO THE AO, THE ASSESSEE DID NOT GIVE ANY S PECIFIC REASON FOR THE FALL IN THE PROFIT RATE. SUBSEQUENTLY, THE ASSESSEE IN THE VERY NEXT DAY TOOK ALTOGETHER A NEW STAND FOR THE FALL IN THE PRO FIT. IT WAS SUBMITTED THAT HEAVY RAINS OCCURRED AT AHMEDNA GAR ON 02-08-2008 WHICH DAMAGED STOCK OF THE VALUE OF RS.10,40,00 0/-. IT WAS SUBMITTED THAT ON THAT DATE THERE WERE CYCLONIC WIN DS WHICH WERE FOLLOWED BY HEAVY RAINS THAT SENT TIN SHEETS OF HIS G ODOWN AT MIDC FLYING IN THE AREA. THEREFORE, THE ASSESSEE COULD NO T SELL THE DAMAGED/DEFACED STOCK IN THE MARKET. SINCE THE STOCK WA S NOT INSURED NO PANCHANAMA WAS MADE OR FIR LODGED WITH ANY AUTHORITY. TO SUPPORT HIS CLAIM, THE ASSESSEE FILED A WRITTEN SUBMISSIO N AND A NOTARISED AFFIDAVIT. ON BEING ASKED BY THE AO TO EXPLAIN AS TO HOW AND WHEN THE EXPENDITURE OF LOSS WAS ASSESSED BY HIM, IT WAS SUBMITTED THAT THE ASSESSEE NOTICED THE DAMAGE ON MON DAY, I.E. ON 04-08-2008, THE EARLIER DAY BEING HIS CLOSED HOLDAY. IT WA S ALSO EXPLAINED THAT THE ASSESSEE HAD PHYSICALLY COUNTED STOC K AT THE CLOSING POSITION. THUS, THE CLOSING STOCK VALUE REFLECTED IN THE STATEMENTS OF ACCOUNTS AUTOMATICALLY REFLECTS THE LOSS OF STOCK. 6. HOWEVER, THE AO WAS NOT SATISFIED WITH THE ABOVE EXPLA NATION GIVEN BY THE ASSESSEE. HE NOTED THAT ASSESSEE HAD NE ITHER PASSED ANY ACCOUNTING ENTRY IN THE BOOKS FOR THE LOSS OF STOCK NOR REPORTED THE SAME TO THE AUDITORS. NO QUANTITATIVE DETAILS ARE MA INTAINED. REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE AND OBS ERVING THAT THERE IS NO CONCLUSIVE EVIDENCE TO SHOW THAT AHMEDNAGAR CITY/MIDC HAD INFACT EXPERIENCED CYCLONIC STORM OR HEAVY RAINFALL ON 02-08- 2008 THE AO MADE ADDITION OF RS.10,40,000/- TO THE TOTAL I NCOME OF THE ASSESSEE AS AMOUNT OF SUPPRESSED PROFIT. 4 ITA NO.149/PN/14 7. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE WITH ANY EVIDENCE THAT THERE WAS HEAVY RAINFALL AND CYCLONIC WINDS IN AHMEDNAGAR ON 02-08-2008 OR THERE WAS DAMAGE TO HIS PROPERTY AND OF OTHERS IN THAT LOCALITY. THERE IS ALSO NO EXPENDITURE SH OWN IN THE BOOKS OF ACCOUNT TOWARDS INCURRING OF REPAIR EXPENSES FOR REPLACING THE TIN SHEETS. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN A FFIDAVIT WAS FILED BEFORE THE AO EXPLAINING THE LOSS OF CIGARETTES DU E TO HEAVY RAINS IN AND AROUND THE PREMISES WHERE THE STOCK WAS S TORED. REFERRING TO THE FOLLOWING TABLE HE SUBMITTED THAT IN SUBSEQ UENT YEARS THE ASSESSEE HAS SHOWN HIGHER RATE OF GP AND NP WHICH CONCLUSIVELY PROVE THAT THERE IS NO INTENTION OF SUPPRESS ING ANY PROFIT AND DUE TO HEAVY RAINS STOCK TO THE EXTENT OF RS.10,40,0 00/- WAS DAMAGED FOR WHICH THE CLOSING STOCK WAS VALUED ACCORDINGL Y BY REDUCING TO THAT EXTENT : A.Y. OP. STOCK PURCHASES SALES C L.STOCK GP RATE NP RATE 2010 - 11 4832348 175190866 187835731 4858737 2.00 0.51 2011 - 12 4858737 188555089 192908111 4362605 2.00 0.44 2012 - 13 4362605 213402663 218184662 3983336 2.01 0.58 HE SUBMITTED THAT WHEN THE STOCK IS REDUCED, THERE IS N O NECESSITY TO PASS CORRESPONDING ENTRY IN THE PROFIT AND LOSS ACCOUNT BY DEBITING LOSS OF STOCK. HE SUBMITTED THAT IF THE AO IS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE REGARDING THE FALL IN THE GP AND NP RATIO, HE COULD HAVE REJECTED THE BOOK RESULTS AND COULD HAVE ESTIMATED THE INCOME BUT NOT BY MAKING ADDITION OF RS.10,40 ,000/- 5 ITA NO.149/PN/14 ON ACCOUNT OF SUPPRESSED PROFIT. HE SUBMITTED THAT THE ASSESSEE PERIODICALLY SUBMITS THE MONTHLY STOCK STATEMENTS TO TH E BANK. HE SUBMITTED THAT WHEN AN AFFIDAVIT HAS BEEN FILED AFFIRMING THAT THE ROOF OF THE GODOWN WAS REPAIRED BY REPLACING THE ROOF SH EETS, THEREFORE, WITHOUT PROVING THE CONTENTS OF THE AFFIDAVIT TO BE FALSE OR UNTRUE BY NOT CALLING FOR FURTHER DETAILS, THE SAME SHOULD N OT HAVE BEEN REJECTED. HE ACCORDINGLY SUBMITTED THAT THE ENTIR E ADDITION MADE BY THE AO AND UPHELD BY THE CIT(A) SHOULD BE DELETED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEA VILY RELIED ON THE ORDER OF THE AO AND THE CIT(A). HE SUBMITTE D THAT THE ASSESSEE HAS NOT PASSED ANY ACCOUNTING ENTRY FOR THE LOSS OF STOCK ON THE DATE OF OCCURRENCE OF THE LOSS. FURTHER, THE ASSESS EE HAS NOT MAINTAINED ANY QUANTITATIVE DETAILS OF THE STOCK WHATSOEVE R. EVEN SUCH LOSS OF STOCK DUE TO RAIN HAS NOT BEEN REPORTED T O THE AUDITOR. THEREFORE, MERE FILING OF AN AFFIDAVIT WITHOUT ANY CORROBORATIVE EVIDENCE CANNOT ABSOLVE THE ASSESSEE FROM ITS RESPONSIB ILITIES TO SUBSTANTIATE THE LOSS CAUSED. HE SUBMITTED THAT SINCE T HE ASSESSEE WAS UNABLE TO SUBSTANTIATE WITH COGENT EVIDENCE REGARDIN G THE LOSS OF STOCK TO THE EXTENT OF RS.10,40,000/-, THEREFORE, THE AO W AS JUSTIFIED IN MAKING THE ADDITION AND THE CIT(A) WAS JUSTIFIED IN SUSTAIN ING THE ADDITION MADE BY THE AO. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THERE WAS A DRASTIC FALL IN THE GP RATE AND NP RATE OF THE ASSESSEE FOR THE IMPUGNED ASSE SSMENT YEAR 6 ITA NO.149/PN/14 AS COMPARED TO THE PRECEDING ASSESSMENT YEARS. ON BE ING QUESTIONED BY THE AO THE ASSESSEE EXPLAINED THAT THE FA LL IN NET PROFIT IS DUE TO LOSS OF STOCK TO THE EXTENT OF RS.10,40,000/- B ECAUSE OF HEAVY RAINS THAT HAD OCCURRED AT AHMEDNAGAR ON 02-08 -2008 WHICH DAMAGED ITS STOCK TO THAT EXTENT. WE FIND THE AO DISBELIE VED THE ABOVE THEORY OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT PASSED ANY ACCOUNTING ENTRY FOR THE LOSS OF STOCK ON TH E DATE OF OCCURRENCE OF THE LOSS. FURTHER, THE ASSESSEE HAS NOT MAINTAINED A NY QUANTITATIVE DETAILS OF THE STOCK NOR HAS REPORTED THE S AME TO THE AUDITORS. HE THEREFORE DISBELIEVED THE AFFIDAVIT FILED BY THE A SSESSEE IN ABSENCE OF ANY CORROBORATIVE EVIDENCE TO SUPPORT ITS CLAIM. WE FIND THE CIT(A) UPHELD THE ACTION OF THE AO IN ABSENCE OF AN Y FURTHER EVIDENCE BEFORE HIM. IT IS THE SUBMISSION OF THE LD. COUNSE L FOR THE ASSESSEE THAT ONLY FOR THIS YEAR THERE IS FALL IN GP AND N P RATES WHEREAS IN SUBSEQUENT YEARS THERE IS AGAIN RISE IN THE G P AND NP RATE. FURTHER, WHEN AN AFFIDAVIT WAS FILED THE SAME COULD NO T HAVE BEEN DISBELIEVED WITHOUT PROVING THE CONTENTS OF THE AFFIDAV IT TO BE UNTRUE OR FALSE. IT IS ALSO THE SUBMISSION OF THE LD. COUN SEL FOR THE ASSESSEE THAT PASSING OF ACCOUNTING ENTRY IN THE BOOKS IS NOT REQUIRED SINCE THE CLOSING STOCK VALUED AT THE END OF THE YEAR TAKES CARE OF THE LOSS DUE TO STOCK. 12. WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. C OUNSEL FOR THE ASSESSEE. WHEN THE ASSESSEE IS NOT MAINTAINING ANY QUANTITATIVE DETAILS OF STOCK AND HAS VALUED THE STOCK AT THE END OF THE YEAR ON PHYSICAL VERIFICATION THE SAME TAKES CARE OF THE LOSS DUE TO RAIN, IF ANY. FURTHER, THE TRADING RESULT OF THE SUBSEQ UENT YEARS SHOW THAT THERE IS NO SUCH DRASTIC FALL. WE THEREFORE FIND SOME FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE TH AT THERE IS NO 7 ITA NO.149/PN/14 INTENSION ON THE PART OF THE ASSESSEE TO SUPPRESS PROFIT BY MAKING A FALSE CLAIM. HOWEVER, IT IS ALSO A FACT THAT APART FROM AFFIDA VIT, THE ASSESSEE WAS UNABLE TO GIVE ANY OTHER SUPPORTING EVIDEN CE TO SUBSTANTIATE THAT THERE WAS LOSS OF STOCK DUE TO HEAVY RAINS. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN TH E INTEREST OF JUSTICE, DISALLOWANCE OF RS.5 LAKHS ON ADHOC BASIS IN OUR OPI NION WILL MEET THE ENDS OF JUSTICE. WE, THEREFORE, RESTRICT THE DIS ALLOWANCE ON ACCOUNT OF SUCH LOSS OF STOCK TO RS.5 LAKHS AS AGAINST RS .10,40,000/- MADE BY THE AO AND UPHELD BY THE CIT(A). THE GROUND RA ISED BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13-05-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED :13 TH MAY , 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-IT/TP, PUNE 4. % S / THE CIT-IT/TP, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , // ( + //TRUE COPY // // 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE