ACIT, Circle (1), Tirupathi V. M/s Suhil Ahmed Sawood & Co, Chttoor District

ITA 1511/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2961 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 04-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Keywords: Business income
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A : HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1511/HYD/2012 ASSESSMENT YEAR 2009-2010 ACIT, CIRCLE (1) TIRUPATI. VS. M/S. SUHIL AHMED SAWOOD & CO. KAMMARAYANI MITTA (V & P) CHITTOOR DISTRICT PAN AABFC4978Q (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI M.H. NAIK (D.R.) FOR RESPONDENT : -NONE- DATE OF HEARING : 06.05.2013 DATE OF PRONOUNCEMENT : 23.05.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A), GUNTUR DATED 06.08.2012 FOR THE ASSESSMENT YEAR 2009-2010. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI RM IS ENGAGED IN PURCHASE OF RAW WET BLUE COW HIDES, PROCESS AND SELLING OF F INISHED LEATHER TO FOREIGN COUNTRIES AND WITHIN INDIA. IT FILED RETURN OF INCO ME FOR THE ASSESSMENT YEAR 2009-2010 ON 27.09.2009 ADMITTING TOTAL INCOME OF R S.5,42,380/-. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBSTANTIAT E THE EXPENDITURE CLAIMED IN RESPECT OF PURCHASES WITH BILLS AND VOUCHERS AND INVOICES FROM LMS INTERNATIONAL, PERAMBUR. THE ASSESSEE HAD SHOWN VAL UE OF OPENING STOCK AT RS.1,16,86,330/- AND THE VALUE OF CLOSING STOCK AT RS.93,69,720/- AND NET PROFIT AT RS.5,35,009/-. THE ASSESSING OFFICER ASKE D THE ASSESSEE TO GIVE 2 QUANTITATIVE VALUES OF OPENING STOCK AND CLOSING ST OCK IN SQ. FEET WHICH THE ASSESSEE WAS UNABLE TO GIVE. THE ASSESSING OFFICER OPINED THAT FOR SUCH HUGE AMOUNTS OF OPENING AND CLOSING STOCKS APPROXIMATE V ALUES AND NOT THE ACTUAL VALUES CANNOT BE ACCEPTED AND THEREFORE, HE REJECTE D THE BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE INCOME TAX ACT AND ESTIMAT ED THE INCOME AT 5% ON THE TOTAL TURNOVER OF RS.7,42,30,766/- WHICH WAS BR OUGHT TO TAX. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL TO THE CIT(A) AND SUBMITTED THAT CLOSING STOCK WAS VALUED TAKING INTO ACCOUNT COST OF HIRE, MANUFACTURING EXPENDITURE ETC., WHICH WAS THE PROCE DURE ADOPTED IN ALL THE EARLIER YEARS. BEFORE THE CIT(A), THE ASSESSEE SUBM ITTED AS FOLLOWS : 4.1. DURING THE COURSE OF APPELLATE PROCEEDINGS, S RI KGM GUPTA, C.A., ATTENDED AND FILED WRITTEN SUBMISSIONS WHICH ARE AS UNDER: THE APPELLANT IS A MANUFACTURER OF LEATHER (RAW SK INS TO FINISHED LEATHER) AND SELLS PARTLY EXPORT AND PARTL Y INDIAN SALES). A CHART SHOWING SALES, BUSINESS INCOME RETU RNED ADDITIONS MADE/ACCEPTED U/S.143(1) FOR ASSESSMENT Y EARS 2004-05 TO 2009-10 IS ENCLOSED. IN THE ASSESSMENT Y EAR 2004-05 THE ASSESSMENT WAS SUBJECTED TO SCRUTINY. I N THAT YEAR BOOK RESULTS WERE ACCEPTED SUBJECT TO CAPITALI ZATION OF EXPENDITURE OF RS. 1,36,831/- AND ADDITIONS OF RS. 8980/- TOWARDS DONATIONS DEBITED TO PROFIT AND LOSS ACCOUN T ADDED AS INADMISSIBLE. IN THE ASSESSMENT YEAR 2009-10 (UNDER APPEAL) THE LEARNED ASSESSING OFFICER HAS MADE AN A DDITION OF RS.31,69,158/- TO THE INCOME OF RS. 5,42,380/- RETURNED AND MADE ASSESSMENT ON AN INCOME OF RS. 37,11,538/- (5,42,380 + 31,69,158). THE NET INCOME ASSESSED TO TURNOVER RANGED FROM 0.52% TO 1.24% AS PER CHART ENCLOSED. IN RECENT YEARS THERE IS KEEN COMPETITION FROM BIG EXPORTERS. PRICES OF RAW MATERIALS, INGREDIENTS WERE INCREASIN G FROM 3 YEAR TO YEAR AND SO ALSO WAGES. THERE WAS NO CORRESPONDING COMMENSURATE INCREASE IN SELLING PRIC ES. THE FINANCIAL ACCOUNTS AND STOCK ACCOUNTS WERE MAINTAIN ED UNIFORMLY. THE STOCK TALLY IN NUMBERS WAS FURNISHED IN ALL YEARS. THE ASSESSEE'S HAVE TAKEN INTO ACCOUNT COST OF RAW SKIN, COST OF MANUFACTURE AND VALUED STOCK AT COST PRICE. THE COMMENT IN 3CB IS IN GENERAL NATURE. THERE IS NO SE RIOUS DISCREPANCY. THE ASSESSEE HAS PRODUCED BOOKS OF ACC OUNT, PURCHASE BILLS AND VOUCHERS FOR EXPENDITURE. PURCHA SES WERE THOROUGHLY VERIFIED BY A.D. SALES ARE FULLY VO UCHED FOR. IN THE NATURE OF THIS TYPE OF BUSINESS PACCA VOUCHE RS FOR FEW EXPENSES IS NOT POSSIBLE AND HAS TO MAKE SELF MADE VOUCHERS. THE COMMENT IN 3CB IS OF GENERAL NATURE. THERE ARE NO SERIOUS DISCREPANCIES. THE APPELLANT HAS DONE TURNOVER OF RS. 7,42,30,766/- AND RETURNED NET INCOME OF RS. 5,42,380/- (0.73%). THE APPELLANT MAINTAINED ACCOUNTS IN THE YEAR AS MAINTA INED IN LAST FIVE EARLIER YEARS AND RESULTS DECLARED ARE AS UNDER :- A.Y. TURNOVER NET INCOME PERCENTAGE OF INCOME TO TURNOVER 2005-06 62061425 598766 0.96 2006-07 71326160 673734 0.94 2007-08 97940882 592739 0.6 2008-09 93147965 455545 0.47 2009-10 74230766 542380 0.73 THE APPELLANT MAINTAINED STOCK TALLY IN NUMBER OF P IECES I.E. OPENING STOCK, PURCHASES, MANUFACTURED, SALES AND C LOSING STOCK AND TALLIED AS WAS MAINTAINED IN EARLIER YEAR S. THE CLOSING STOCK WAS VALUED TAKING INTO ACCOUNT COST O F HIDE, 4 MANUFACTURING EXPENDITURES ETC., WHICH WAS THE PROC EDURE ADOPTED IN ALL EARLIER YEARS. TAKING ABOVE FACTORS INTO ACCOUNT AND PAST HISTORY ADDITION MADE BY AO MAY BE DELETED.' 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE A.R. HELD THAT THE ASSESSEE HAS BEEN FOLLOWING VALUATION OF STOCK ITEM WISE AND MULTIPLYING THE PRICE PER PIECE OF THAT TIME WITH NUMBER OF PIECES AVAILABLE IN THE STOCK AND THIS PROCEDURE IS ADOPTED TILL ALL THE ITEMS OF STO CK IS EXHAUSTED AND THE GRAND TOTAL OF ALL THE ITEMS GIVES THE VALUE OF CLOSING S TOCK. THE CIT(A) WAS OF THE OPINION THAT THE VALUATION OF STOCK ON THE BASIS OF NUMBER OF PIECES FOLLOWED BY THE ASSESSEE WHICH HAS BEEN ACCEPTED IN THE EARLIER YEARS IS TO BE ACCEPTED BY THE ASSESSING OFFICER. WHEREAS, THE ASSESSING OFFIC ER HAD RESORTED TO ESTIMATE ON THE GROUND THAT THE VALUATION WAS NOT ON THE BAS IS OF SQUARE FEET. THE CIT(A) ALSO OBSERVED THAT THE N.P.RATE OF THE IMPUG NED ASSESSMENT YEAR COMPARES FAVOURABLY WITH EARLIER AND SUBSEQUENT ASS ESSMENT YEARS. THE CIT(A) HELD THAT THE ESTIMATION MADE BY THE ASSESSING OFFI CER IS NOT CORRECT AND DIRECTED THE ASSESSING OFFICER TO NULLIFY THE SAME. FURTHER, THE CIT(A) WAS OF THE OPINION THAT THE ENDS OF JUSTICE WOULD BE MADE IF AN ADDITION OF RS. 1 LAKH MADE TO THE RETURNED INCOME AS SOME OF THE VOUCHERS FOR EXPENDITURE WERE SELF-MADE. AGGRIEVED, THE REVENUE IS IN APPEAL AND RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LD.CIT(A) IS ERRONEOUS BOTH IN LAW AND ON FACTS. 2. THE DECISION OF THE LD.CIT(A) IS UNILATERAL AS N O OPPORTUNITY WAS GIVEN TO THE ASSESSING OFFICER ON THE SUBMISSIONS MADE B Y THE APPLICANT. 3. THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. THE CIT(A) RESTRICTING THE ADDITION TOWARDS SELF MADE V OUCHERS AT RS.100000/- AS AGAINST THE ORDER OF THE ASSESSING OFFICER ESTIM ATING THE INCOME ON TOTAL SALES @ 5% ON TOTAL SALES IS NOT ACCEPTABLE. 5 4. THE LD.CIT(A) ERRED IN ALLOWING THE ASSESSEE MET HOD OF VALUATION OF STOCK AS CORRECT ON THE BASIS OF NO. OF PIECES AS AGAINST THE ASSESSING OFFICER SEEKING VALUATION IN TERMS OF SQ. FEET IS NOT ACCEP TABLE. 5. THE HONBLE CIT(A) HELD THAT THE ASSESSEE METHOD OF VALUING STOCK IS ACCEPTED BY REVENUE IN EARLIER AND SUBSEQUENT ASSES SMENT YEARS BEFORE COMING TO THIS CONCLUSION THE CIT(A) OUGHT TO HAVE VERIFIED THE DETAILS OF NATURE OF ASSESSMENTS COMPLETED WHETHER THE SAME IS COMPLETED UNDER SCRUTINY OR THE I~OI FILED BY THE ASSESSEE PROCESSE D IN SUMMARY MANNER. IN THE ORDER ITSELF THE HON'BLE CIT(A) MENTIONED EX CEPT FOR THE ASST. YEAR 2004- 05 ALL THE ASST. YEARS THE ROI FILED BY THE A SSESSEE WAS PROCESSED U/S 143(1). 5. THE LEARNED D.R. SHRI M.H. NAIK (DR) VEHEMENTLY ARGUED THAT THE CIT(A) HAD GROSSLY ERRED IN RESTRICTING THE ADDITION TOWAR DS SELF-MADE VOUCHERS AT RS. 1 LAKH AS AGAINST THE ORDER OF THE ASSESSING OFFICE R ESTIMATING THE INCOME AT 5% ON TOTAL SALES. THE LEARNED D.R. SUBMITTED THAT THE RETURN OF INCOME IN THE CASE OF THE ASSESSEE HAS BEEN PROCESSED UNDER SECTI ON 143(1) EXCEPT FOR THE ASSESSMENT YEAR 2004-2005 AND THEREFORE, THE CIT(A) OUGHT TO HAVE NOTED THAT SUMMARY ASSESSMENT IS THE REASON FOR THE METHOD OF VALUATION OF STOCK TO HAVE BEEN ACCEPTED BY THE REVENUE IN THE EARLIER AND SUB SEQUENT ASSESSMENT YEARS. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT IN THE CA SE OF SUMMARY ASSESSMENTS, THE DETAILS OF VALUATION OF STOCK HAVE NOT BEEN GONE INTO THOROUGHLY BY THE ASSESSING OFFICER. THE LEARNED D. R. ALSO SUBMITTED THAT METHOD OF VALUATION OF STOCK ON THE BASIS OF NUMBER OF PIECES AS AGAINST VALUATION IN TERMS OF SQUARE FEET IS NOT ACCEPTABLE . THE LEARNED D.R. REQUESTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER. 6. IN THESE CIRCUMSTANCES, WE DEEM IT FIT TO REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER AND THE ASSESSEE SHOULD SUBSTANTI ATE ITS CLAIM AND THE VALUATION OF THE STOCK SHOULD BE MADE ON THE BASIS OF SQUARE FEET BEFORE THE 6 ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DECI DE THE ISSUE DENOVO IN ACCORDANCE WITH LAW. 6. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MAY, 2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 23 RD MAY, 2013. VBP/- COPY TO 1. ACIT, CIRCLE (1), TIRUPATI. 2. M/S. SUHIL AHMED SAWOOD & CO. KAMMARAYANI MITTA (V & P) CHITTOOR DISTRICT PAN AABFC4978Q 3. THE CIT(A), GUNTUR 4. THE CIT, TIRUPATI 5. D.R. A BENCH, I.T.A.T. HYDERABAD