Asstt. Commissioner of Income Tax, Lucknow V. M/s. Sugnamal Creations, Lucknow

ITA 159/LKW/2012

• Counselvise Citation: 15923714 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 02-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Corroborative evidences

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.159/LKW/2012 ASSESSMENT YEAR:2007 - 08 A.C.I.T. - 2, LUCKNOW. VS. M/S SUGNAMAL CREATIONS, 68, HAZARATGANJ, LUCKNOW. PAN:AAOFS9726R (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AMIT NIGAM, D. R. RESPONDENT BY SHRI K. R. RASTOGI, ADVOCATE SHRI SHUBHAM RASTOGI, C.A. DATE OF HEARING 24/07/2014 DATE OF PRONOUNCEMENT 07 /08/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT (A) - I, LUCKNOW DATED 13/01/2012 FOR ASSESSMENT YEAR 2007 - 2008. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING TO ADOPT VALUE OF STOCK AT RS.1,00,37,985/ - AS WORKED OUT BY THE ASSESSEE AS ON THE DAY OF THE SURVEY OPERATION IGNORING THE VALUE WORKED OUT BY SURVEY TEAM AT RS.1,30,07,813/ - WHICH WAS ACCEPTED BY THE PARTNER OF ASSESSEE'S FIRM A T THE TIME OF SURVEY AND EVEN THE ADVANCE TAX OF RS.25,00,000/ - WAS PAID BY THE ASSESSEE ON VALUE OF EXCESS STOCK FOUND BY THE SURVEY TEAM. 2. FOR SO DOING THE LD CIT(A) HAS ALSO ERRED IN DIRECTING TO ADOPT GP RATE OF 21% TO ARRIVE AT THE COST OF EXCESS 2 S TOCK ON THE DATE OF SURVEY WITHOUT APPRECIATING THAT THE A.O. HAD ADOPTED THE GP RATE OF 19% AS THE ASSESSEE HAD ITSELF DISCLOSED GP RATE OF 19.1% IN AY 2006 - 07 AND 18.52% IN AY 2005 - 06 RESPECTIVELY. 3. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY ONE O R MORE OF THE GROUND OF APPEAL AS STATED ABOVE AS AND WHEN NEED OF DOING SO ARISES WITH THE PRIOR PERMISSION OF THE HON'BLE BENCH. 3. REGARDING BOTH THE GROUNDS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ISSUE REGARDING FIRST GROUND HAS BEEN DECIDED BY CIT(A) AS PER PARA 3 & 5 OF HIS ORDER AND THE SAME ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 3. IN THE APPEAL BEFORE ME, THE APPELLANT HAS DISPUTED THE WORKING OF EXCESS STOCK AND RESULTANT ADDITION BY THE AO AND DETAILED SUBMISSIONS ALONG WITH COPIES OF BILLS AND INVENTORIES PREPARED AT THE TIME OF SURVEY HAVE BEEN FURNISHED TO POINT OUT THE MISTAKE S AND ANOMALIES IN SUCH WORKING. FIRSTLY, THE APPELLANT DISPUTES THE VALUE OF STOCK AT SALE PRICE AT RS.1,30,07,813/ - BY THE SURVEY TEAM. THE APPELLANT HAS POINTED THE DISCREPANCIES IN THE INVENTORY OF STOCK IN RESPECT OF 'LAHNGA'. THIS INVENTORY IS MARKED AS ANNEXURE - 'A'. THE INVENTORY SHOWS THAT THE SURVEY TEAM MULTIPLIED THE AMOUNT INDICATED IN THE PRICE TAG WITH THE DENOMINATION OF 10. THUS THE SALE PRICE INDICATED IN THE PRICE TAG AT RS.2,080/ - HAS BEEN TAKEN AT RS.20,800/ - , THE SALE PRICE OF RS.2,390/ - HAD BEEN TAKEN AT RS.20,900/ - , THE SALE PRICE SHOWN AT RS.6,100/ - HAS BEEN SHOWN AT RS.61,000/ - AND SO ON. AS THE VALUE OF STOCK WAS BEING TAKEN AT SALE PRICE THIS HAS RESULTED IN AN INFLATED EXCESS VALUATION OF STOCK AT SALE PRICE. IN THIS PROCESS, THE STOCK WHICH SHOULD HAVE BEEN VALUED AT SALE PRICE AT RS.5,75,152/ - GOT VALUED AT RS.33,18,030/ - RESULTING IN INFLATED VALUATION OF STOCK AT MRP BY AN AMOUNT OF 3 RS.27,42,878/ - . THE APPELLANT CLAIMS THAT IT DID NOT HAVE ANY SUCH ITEMS WHICH COULD FETCH A SA LE PRICE AS HIGH AS TAKEN BY THE SURVEY TEAM. THIS FACT IS SOUGHT TO BE FURTHER CORROBORATED BY THE PURCHASE BILLS OF THE CORRESPONDING ITEMS WHICH EVEN IF LOADED WITH EXORBITANT GROSS PROFIT AND MARGIN FOR DISCOUNT WOULD NOT FETCH SALE PRICE AS ADOPTED BY THE SURVEY TEAM. THE APPELLANT HAS ALSO SUBMITTED A DETAILED CHART OF SALES OF LAHNGA IN THE SEQUENT YEARS WITH COPIES OF CASH MEMOS TO CLAIM THAT IT HAS NEVER SOLD THE LAHNGA AT THE SALE PRICE ADOPTED BY THE SURVEY TEAM IN INVENTORIZATION AND VALUATIO N OF STOCK AT SALE PRICE. SIMILAR DISCREPANCIES AND ANOMALIES IN VALUATION OF OTHER ITEMS AS INVENTORIZED IN ANNEXURES S - 1 TO S - 8 HAVE ALSO BEEN POINTED OUT AND THE TOTAL IMPACT OF THESE DISCREPANCIES REPRESENTING EXCESS VALUATION OF STOCK AT SALE PRICE HAS BEEN QUANTIFIED AT RS.29,69,814 / - . THE APPELLANT'S CONTENTION IS FOUND TO BE BASED ON INVENTORIES PREPARED AT THE TIME OF SURVEY AND SUPPORTING EVIDENCE AND THUS THE STOCK AT SALE PRICE IS FOUND TO HAVE BEEN VALUED AT AN EXCESS AMOUNT OF RS.29,69,814 / - . ON REMOVAL OF THESE DISCREPANCIES AND ANOMALIES THE CORRECT VALUE OF STOCK AT SALE PRICE ON THE DATE OF SURVEY WOULD AMOUNT TO RS.1,00,37,999 / - AS AGAINST RS.1,30,07,813 / - AS PER THE INVENTORY VALUATION BY THE SURVEY TEAM. THIS STOCK WORTH RS.1,00,37,8 14 / - NEEDS TO BE FURTHER ADJUSTED (BY WAY OF REDUCTION7DEDUCTION) BY THE ELEMENTS OF GROSS PROFIT AND DISCOUNT EMBEDDED IN THE MRP AND THE STOCK AS PER THE BOOKS OF ACCOUNTS TO ARRIVE AT THE EXCESS STOCK AT COST PRICE ON THE DATE OF SURVEY SO TO BE TREATED AS UNEXPLAINED INVESTMENT IN STOCK - IN - TRADE. 5. IN VIEW OF THE DISCUSSION ABOVE, THE VALUE OF EXCESS STOCK AT COST AS ON THE DATE OF SURVEY REPRESENTING UNEXPLAINED INVESTMENT IN STOCK AND TO BE TREATED AS INCOME IS COMPUTED AS UNDER : - VALUE OF STOCK AT M RP AS TAKEN BY THE SURVEY TEAM ON 26.03.2007 RS.1,30,07,813 / - LESS: NET INFLATION IN VALUATION DUE TO HIGHER MRP ADOPTED IN IVENTORY (AS DISCUSSED IN PARA 3 ABOVE) RS. 29 , 69 , 814/ - CORRECT VALUE OF STOCK AT MRP FOUND ON THE DATE OF SURVEY RS.1,00,37,799 / - ELEMENT OF GP EMBEDDED IN THE MARK UP (MRP) T AKEN @ 21% (AS DISCUSSED IN PARA 4 ABOVE) RS. 21,07 , 980 / - RS. 79,30,019 / - 4 LESS: ELEMENT OF DISCOUNT EMBEDDED IN THE MARK UP MRP TAKEN A T 10% (AS DISCUSSED IN PARA 4.1 ) RS. 7 , 93 , 002 / - RS. 71,37,017 / - LESS: STOCK AS PER TRADING ACCOUNT DRAWN ON THE DATE OF SURVEY AS WORKED OUT BY THE APPELLANT. THIS IS INCLUSIVE OF PURCHASES NOT ENTERED IN THE BOOKS AMOUNTING TO RS.4,20,895 / - . AS AGAINST RS.19 , 23 , 911/ - TAKEN BY THE AO, THE LESSER FIGURE OF RS.18,98,5597 - IS TAKEN RESULTING IN AN ADDITIONAL EXCESS STOCK OF RS.74,648 / - (RS.19,23,911 / - - RS.18,98,5597 - ) RS.18 , 98 , 559 / - EXCESS STOCK AT COST REPRESENTING UNEXPLAINED INVESTMENT IN STOCK TO BE TREATED AS INCOME RS.52,38,458 / - LESS: AMOUNT ALREADY ADMITTED BY THE APPELLANT AND OFFERED FOR TAX IN ITS RETURN RS. 44 , 45 , 450 / - ADDITIONAL AMOUNT LIABLE FOR TAX AS INCOME ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK (AS AGAINST RS.36,40,151 / - ADDED BY THE AO) RS. 7,93,008 / - 4.1 FROM THE ABOVE PARAS OF CIT(A), WE FIND THAT THE STOCK FOUND IN SURVEY, AS NOTED BY SURVEY TEAM AT RS.130.07 LAC HAS BEEN REDUCED TO RS.100.37 LAC ON THE BASIS THAT THERE WERE APPARENT MISTAKES IN THE CALCULATION IN THE INVENTORY AS PER THE SURVEY TEAM. THE FIRST SUCH MISTAKE IS THAT THE SURVEY TEAM MULTIPLIED THE AMOUNT INDICATED IN THE PRICE TAG WITH THE DENOMINATION OF 10. THIS FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. THE CIT(A) HAS GIVEN A CONCRETE FINDING THAT THE STOCK, WHICH SHOULD HAVE BEEN VALUED AT SALE PRICE AT RS.5,75,152/ - GOT VALUED AT RS.33,18,030/ - RESULTING IN INFLATED VALUATION OF STOCK AT MRP BY AN AMOUNT OF RS.27,42,878/ - . APART FROM THIS, SOME OTHER SIMILAR DISCREPANCIES AND ANOMALIES IN VALUATION OF OTHER ITEMS WERE ALSO POINTED OUT AND CIT(A) HAS TAKEN COGNIZANCE OF THE SAME AND THIS FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE 5 REVENUE. CONSIDERING THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE . ACCORDINGLY, GROUND NO. 1 IS REJRCTED. 5. REGARDING THE SECOND GROUND OF THE REVENUES APPEAL, THE CIT(A) HAS DISCUSSED THIS ISSUE VIDE PARA 4 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 4. THE APPELLANT CLAIMS T HAT THE DEDUCTION ON ACCOUNT OF ELEMENT OF GROSS PROFIT EMBEDDED IN THE STOCK AT SALE PRICE SHOULD BE ALLOWED AT THE RATE OF 21% AS AGAINST 19% CONSIDERED AND ALLOWED BY THE ASSESSING OFFICER. WHILE ALLOWING THE GROSS PROFIT ELEMENT AT 19% THE ASSESSING O FFICER OBSERVES THAT IN THE IMMEDIATELY PRECEDING YEAR THE APPELLANT FIRM HAD DISCLOSED A GP RATE OF 1 9 .11 % AND THE GP RATE DURING THE YEAR UNDER CONSIDERATION WAS NOT LIKELY TO BE MORE THAN 19% AS PER THE DETAILS GATHERED IN SURVEY. HOWEVER, THE ASSESSING OFFICER HAS NOT SPELT OUT SUCH DETAILS AS LED HIM TO CONCLUDE THAT THE GROSS PROFIT COULD BE IN THE RANGE OF 19%. THE APPELLANT, ON THE CONTRARY, CONTENDS THAT G.P. RATE OF 21% DISCLOSED BY IT FOR THE A.Y. 2008 - 09 HAS BEEN ACCEPTED BY THE AO. ON PERUSAL OF THE ORDER OF ASSESSMENT FOR THE A.Y. 2008 - 09 , I FIND THAT THE AO HAS ACCEPTED THE TRADING RESULTS SHOWING A G.P. RATE AS DECLARED BY THE APPELLANT FIRM. AS THE AO HAS NOT ADDUCED ANY ANALYSIS OF TRADING RESULTS AND HAS NOT ELABORATED THE DETAILS GATHERE D DURING THE SURVEY IN STICKING TO THE G.P. RATE OF 19% , I FIND THE CLAIM OF G.P. RATE OF 21% BY THE APPELLANT AS FAIR AND REASONABLE ESPECIALLY WHEN THIS RATE OF G.P. HAS BEEN ACCEPTED IN ITS CASE FOR THE A.Y. 2008 - 09 . I, THEREFORE, DIRECT AN ADJUSTMENT O F 21% ON ACCOUNT OF GROSS PROFIT RATE TO ARRIVE AT THE EXCESS STOCK AT COST ON THE DATE OF SURVEY. 5.1 FROM THE ABOVE PARA OF CIT(A), WE FIND THAT A CLEAR FINDING IS GIVEN THAT GROSS PROFIT RATE OF 21% DISCLOSED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2 008 - 09 HAS BEEN ACCEPTED BY THE AO. THE STOCK FOUND IN SURVEY CARRIED OUT BY SURVEY TEAM HAS BEEN SOLD BY THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2008 - 09 AND WHEN THE ASSESSEE IS SHOWING A GROSS PROFIT RATE OF 8% IN THE YEAR OF SALE OF SUCH STOCK, FOR THE 6 PURPOSE OF COMPUTING COST PRICE OF THE STOCK FOUND IN SURVEY, THE CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ADOPT GROSS PROFIT RATE OF 21 % FOR REDUCING FROM MRP OF SUCH STOCK TO WORK OUT COST OF STOCK. CONSIDERING THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO AND HENCE, GROUND NO. 2 IS ALSO REJECTED . 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07/ 08/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR