Vasu Pharma Distributors, Hyderabad V. Asst. Commissioner of Income Tax, Circle-4(1), Hyderabad

ITA 1622/Hyd/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1385 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-11-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 20-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S PAWAN KUMAR
• Keywords: Reopening of assessment; Audit objection; Tangible material; Tax effect
• Section: 143(3); 133A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER S. NO. ITA NO. AY APPELLANT RESPONDENT 1 16 22 /H/17 20 10 - 11 VASU PHARMA DISTRIBUTORS, HYDERABAD. PAN AACFV3660M ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 4(1), HYDERABAD 2 16 23 /H/17 2010 - 11 VASU AGENCIES, HYDERABAD. PAN AABFV3596M - DO - 3 16 24 /H/17 2010 - 11 VENKATA SAI AGENCIES, HYDERABAD PAN AACFV0668B - DO - ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : S HRI S. PAWAN KUMAR DATE OF HEARING : 0 6 / 1 1 /2018 DATE OF PRONOUNCEMENT : 29 / 1 1 / 201 8 O R D E R PER S. RIFAUR RAHMAN, A.M : ALL THESE APPEALS FILED BY DIFFERENT ASSESSEES ARE DIRECTED AGAINST THE ORDERS OF CIT(A) 1 , HYDERABAD, ALL DATED, 09 /06/2017 FOR AY 2010 - 11 . AS IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THE SAME WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS, AS TAKEN FROM THE CASE OF VASU PHARMA DISTRIBUTORS (ITA NO. 1622/HYD/2012) , ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2010 - 11 ON 28/09/2010 BY DECLARING TOTAL INCOME OF RS. 13,62,470/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 29/03/2012 DETERMINING THE TOTAL INCOME AT RS. 15,74,100/ - . SUBSEQUENTLY, NOTICE U/S 148 WAS ISSUED TO THE ASSESSEE ON 05/11/2014 AND IN RESPONSE TO WHICH THE ASSESSEE FILED A LETTER STATING THAT THE RETURN ALREADY FILED MAY BE TREATED AS A RETURN FILE D IN 2 ITA NO. 16 22 /HYD/1 7 AND OTHERS VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. RESPONSE TO THE NOTICE U/S 148 OF THE ACT. IN RESPONSES TO THE NOTICES ISSUED, THE ASSESSEE FILED THE INFORMATION AS CALLED FOR. 2.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS D ISCL OSED AN ADDITIONAL I N COME OF RS.35,00 ,000 / - FOR THE ASST. YEAR 2009 - 10 DURING THE COURSE OF SURVEY PROCEEDINGS CONDUCTED ON 04 - 02 - 2009. HE OBSERVED THAT THE ASSESSEE FIRM HAS SHOWN THE ENTIRE C LOSING STOCK OF RS. 1,56,03,922/ - ( I NCLUDING THE ADDITIONAL INCOME OF RS. 35 LAKHS) AS OPENINGS STOC K FOR THE A Y 20 10 - 11, WHICH IS NOT ALLOWABLE. WHEN THIS WAS CONFRONTED WITH THE AR , THE AR OF THE ASSESSEE SUBMITTED AS UNDER: 'THERE IS NO MATERIAL EVIDENCE TO SHOW THAT ADDING VOLUNTARY INCOME OF RS.35, 00,000 FOR THE CLOSING STOCK OF RS.2009 - 1 0 IS I N NO WAY GOES TO PROVE THE INCOME OF 201 0 - 11 WHICH RESULTS IN ESCAPEMENT. THE CLOSING STOCK IS INVENTORIES AS ON THE DATE OF CLOSING I. E. ON 31 - 03 - 2010 AND THE VALUE SO ARRIVED AT IS SHOWN UNDER CLOSING STOCK. THEREFORE THERE IS NO BASIS IN STATING THAT MERELY BECAUSE OF OPENING STOCK ADDITION THE CLOSING STOCK AND THE INCOME ARE AFFECTED. ON THE VERIFICATION OF RETURN OF INCOME AND THE SCHEDULES THEREON, THE AO OBSERVED THAT THE ASSESSEE HAS INCREASED THE OPENING STOCK TO THE EXTENT ON THE DISCLOSURE M ADE DURING THE COURSE OF SURVEY OPERATION. HE OBSERVED THAT T HE DISCLOSURE MADE DURING THE COURSE OF SURVEY OPERATION IS ON ACCOUNT OF CERTAIN DISCREPANCIES POINTE D OUT AND THE SAME IS IN ADDITION TO THE NORMAL INCOME. THE AO OPINED THAT T HE INCLUSION OF ADDITIONAL INCOME OFFERED TO THE CLOSING STOCK IS AGAINST THE QUANTUM DISCLOSURE MADE DURING THE COURSE OF SURVEY OPERATION AND REDUCES THE TAX EFFECT THE EXTENT OF DISCLOSURE THEREBY RESULTING IN REGULARIZATION OF SURVEY OPERATION WITHOUT ANY OUTCOME AS ENVISAGED. IN VIEW OF THE ABOVE OBSERVATIONS, THE AO REJECTED THE ASSESSEE'S SUBMISSION S AND THE ADDITION MADE TO THE OPENING STOCK TO THE EXTENT OF RS. 35,00,000/ - AS ADDITIONAL INCOME WAS ADDED TO THE INCOME RETURNED BY ASSESSEE. 3 ITA NO. 16 22 /HYD/1 7 AND OTHERS VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) AFTER REJECTING THE SUBMISSIONS OF THE ASSESSEE, WHICH WERE EXTRACTED AT PAGE 5 & 6 O F H ER ORDER, UPHELD THE STAND TAKEN BY THE AO ON THE GROUND THAT THE ADDITIONAL INCOME OFFERED DURING THE SURVEY CANNOT BE RE - CATEGORIZED AS STOCK. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE COMMON IN ALL THE APPEALS UNDER CONSIDERATION, EXCEPT THE QUANTUM OF ADDITION: 1. THE ORDER OF THE LD.COMMISSIONER OF INCOME - TAX (APPEALS) - 1 ['CIT(A)'] IN CONFIRMING THE ASSESSMENT MADE BY THE ASSESSING OFFICER IS UNSUSTAINABLE BOTH ON FACTS AND IN LAW . 2. THE CIT(A) FAILED TO NOTE THAT THE REASONS RECORDED FOR RE - OPENING ASSESSMENT WHICH FLEW FROM AN AUDIT OBJECTION HAD NO NEXUS WITH THE INCOME ESCAPING ASSESSMENT AND THEREFORE OUGHT TO HAVE CLEARLY HELD THAT THE ENTIRE RE - ASSESSMENT PROCEEDING WERE WITH OUT JURISDICTION, INVALID AND BAD IN LAW, AND IN THE PROCESS OUGHT TO HAVE QUASHED THE RE - ASSESSMENT PROCEEDINGS. 3. THE AO ERRED IN ISSUING NOTICE U/S 148 OF THE ACT WHEN THERE WAS NO TANGIBLE FRESH MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCA PEMENT OF INCOME FROM ASSESSMENT. 4. THE REASONS RECORDED FOR REOPENING THE ASSESSMENT CLEARLY SHOWS THAT THERE WAS NO EXISTENCE OF TANGIBLE MATERIAL, FOR THE FORMATION OF AN OPINION THAT INCOME ESCAPED ASSESSMENT, WHICH IS A PREREQUISITE FOR INITIATION OF PROCEEDING U/S 147 OF THE ACT AND THEREFORE THE CIT(A) ERRED IN CONFIRMING THE RE - ASSESSMENT PROCEEDINGS. 5. THE ORIGINAL ASSESSMENT HAVING BEEN COMPLETED U/S 143(3) WHICH CLEARLY DEPICTS THAT THE AO HAD APPLIED HIS MIND TO ALL THE FACETS OF THE ASSES SMENTS ON THE BASIS OF DISCLOSURE OF COMPLETE FACTS BY THE APPELLANT AND THEREFORE THE CIT(A) OUGHT TO HAVE QUASHED THE ENTIRE RE - ASSESSMENT PRO CEEDINGS WHICH AROSE ON THE SAME SET OF FACTS AS DISCLOSED ORIGINALLY. 4 ITA NO. 16 22 /HYD/1 7 AND OTHERS VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. 6. THE CIT(A) ERRED IN UPHOLDING THE TA XING OF INCOME OF RS. 35 LAKHS IN AY 2010 - 11 WHICH WAS ALREADY OFFERED TO TAX BY THE APPELLANT IN A Y 2009 - 10, THUS LEADING TO DOUBLE TAXATION OF THE SAME INCOME AND FAILED TO NOTE THAT IT WAS TAKEN AS CLOSING STOCK IN AY 2009 - 10. 7. THE CIT(A) ERRED IN HOLDING THAT THE INCOME OFFERED IN AY 2009 - 10 DURING SURVEY U/S 133A OF THE ACT CANNOT BE CHARACTERISED AS INCOME AND THEREFORE ERRED IN CONFIRMING THE ADDITION OF RS. 35 LAKHS. 8. ANY OTHER GROUNDS THAT MAY ARISE AT THE TIME OF HEARING. 6. GROUND NOS. 1 & 8 ARE GENERAL IN NATURE, HENCE, NEED NO ADJUDICATION. 6.1 AS REGARDS GROUND NOS. 2 TO 5 REGARDING REOPENING OF ASSESSMENT U/S 147, THE LD. AR OF THE ASSESSEE HAS NOT ARGUED ON THESE GROUNDS AND, ACCORDINGLY, THE SAME ARE DISMISSED. 6.2 T HE LD. AR HAS ARGUED ON THE MERITS OF THE CASE, WHICH ARE RAISED IN GROUND NOS. 6 & 7. 7 . CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT ASSESSEE HAS DECLARED RS. 35 LAKHS AS ADDITIONAL INCOME IN THE AY 2009 - 10 IN CO NSEQUENCE OF SURVEY PROCEEDINGS. THIS ADDITIONAL INCOME WAS OFFERED BY ADDING IN THE CLOSING STOCK AT RS. 1,56,03,922/ - . THE SAME WAS ACCEPTED BY THE DEPARTMENT. ACCORDINGLY, THE ASSESSMENT WAS COMPLETED. ASSESSEE ACCORDINGLY CARRIED FORWARD THE STOCK AT R S. 1,56,03,922/ - AS OPENING STOCK FOR THE CURRENT AY 2010 - 11. ASSESSEE SUBMITTED BEFORE THE AO THAT AS PER ACCOUNTING PROCEDURE, IT HAS TO CARRY FORWARD THE STOCK AS PER EARLIER FINANCIAL STATEMENT. THIS IS AS PER REGULAR NORMS. AO OBSERVED THAT ASSESSEE I S SETTING OFF THE PROFIT DISCLOSED IN THE EARLIER YEAR AND HENCE HE DISALLOWED THE STOCK VALUE TO THE EXTENT OF RS. 35 LAKHS. 5 ITA NO. 16 22 /HYD/1 7 AND OTHERS VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. 7 .1 THE QUESTION BEFORE US IS, WHETHER THE ADDITIONAL INCOME DISCLOSED IN THE EARLIER AY IN THE STOCK WILL HAVE IMPACT IN THE CU RRENT AY I.E. 2010 - 11. WE CONSIDERED THE SUBMISSIONS AND IN OUR VIEW, THE ASSESSEE HAS INFLATED THE CLOSING STOCK BY RS. 35 LAKHS AND DECLARED THE ADDITIONAL INCOME IN AY 2009 - 10. NORMALLY, THE ADDITIONAL INCOME WILL BE DECLARED BY INCREASING THE GROSS RE VENUE, BUT, IN THE GIVEN CASE, ASSESSEE CHOSE TO INCREASE THE CLOSING STOCK. IT IS FINE FOR THE AY 2009 - 10. BUT, WHEN IT COMES TO AY 2010 - 11, THE ASSESSEE CARRIE D FORWARD THE STOCK AND RECORDS THE SAME AS OPENING STOCK. IT INCLUDES THE INFLATED VALUE OF RS . 35 LAKHS. WHEN THE P&L ACCOUNT IS DRAWN FOR THE CURRENT AY, THE ASSESSEE WILL RECORD ACTUAL STOCK WITHOUT ANY ARTIFICIAL VALUE IN THE CLOSING STOCK. IN THE RESULT, THE ARTIFICIAL VALUE INFLATED IN THE OPENING STOCK WILL BECOME FICTITIOUS EXPENDITURE FOR THE CURRENT AY TO THE EXTENT OF RS. 35 LAKHS. THIS EXPENDITURE IS NOT REAL BUT NOT RELEVANT FOR THE CURRENT AY I.E. 2010 - 11. THEREFORE, IN OUR CONSIDERED VIEW, THE ARTIFICIAL INCREASE IN THE OPENING STOCK WILL INCREASE THE EXPENDITURE OF THE CURRENT AY AND WILL HAVE IMPACT ON THE ACTUAL PROFITABILITY AND TAXABLE INCOME OF THE ASSESSEE. THIS IS BECAUSE, THE VALUE INCLUDED IN OPENING STOCK HAS NO PHYSICAL VALUE AND IT CANNOT BE TRANSACTED. ONLY OPTION IS TO DECLARE ACTUAL STOCK IN THE CLOSING STOCK AND IT RES ULTS IN THE REDUCTION OF STOCK WHICH INDIRECTLY WRITING OFF OF THE VALUE OF STOCK. THEREFORE, THE VALUE INCLUDED IN THE OPENING STOCK SHOULD BE ELIMINATED TO ARRIVE AT THE REAL PROFIT OF THE ASSESSEE. HENCE, DISALLOWANCE MADE BY THE AO IS PROPER. ACCORDING LY, GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE DISMISSED. 8. AS THE FACTS AND GROUNDS RAISED IN OTHER APPEALS I.E. IN ITA NO. 1623 & 1624/HYD/2017 ARE MATERIAL LY IDENTICAL TO THAT OF ITA NO. 1622/HYD/2017, FOLLOWING THE DECISION THEREIN, WE DISMISS THE GROUNDS RAISED IN THESE APPEALS AS WELL. 6 ITA NO. 16 22 /HYD/1 7 AND OTHERS VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. 9. IN THE RESULT, ALL THE THREE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER , 2018 . SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER , 2018 KV C OPY TO: - 1) M/S VASU PHARMA DISTRIBUTORS, 2) VASU AGENCIES, AND 3) VENKATA SAI AGENCIES, C/O E. SAPTHARISHI & CO, CAS, 3 - 10 - 20/9/3, GOKHALENAGAR, RAMANTHAPUR, HYDERABAD 500 013. 4 ) AC IT, CIRCLE 4 (1) , HYDERABAD. 5 ) CIT(A) 1, HYDERABAD. 6 ) PR. CIT - 1 , HYD. 7 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 8 ) GUARD FILE