M/s. Dulhan, Pune V. Deputy Commissioner of Income-tax,

ITA 164/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1020 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-07-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 27-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Assessee Lawyers: V L JAIN
• Keywords: Unexplained investment; Unexplained expenditure; Search and seizure; Fair market value; Corroborative evidences
• Section: 143(3); 63; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 16 3 /PN/20 1 4 / ASSESSMENT YEAR: 20 05 - 06 M/S. RANGOLI, M/S. RANGOLI, 619, SADASHIV PETH , PUNE - 411030 . / APPELLANT PAN: AABFR5124M VS. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), PUNE . / RE SPONDENT . . / ITA NO. 16 4 /PN/201 4 / ASSESSMENT YEAR: 20 05 - 06 M/S. DULHAN DULHAN COMPLEX 375, NARAYAN PETH, PUNE - 411030 . / APPELLANT PAN: AA ACD6460E VS. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1) , PUNE . / RESPONDENT / APPELLANT BY : S HRI V.L. JAIN / RESPOND ENT BY : SHRI ANIL CHAWARE / DATE OF HEARING : 2 8 .0 7 .201 6 / DATE OF PRONOUNCEMENT: 31 . 0 8 .201 6 DATE OF HEARING : 2 8 .0 7 .201 6 DATE OF PRONOUNCEMENT: 31 . 0 8 .201 6 ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 2 / ORDER PER SUSHMA CHOWLA, JM: BOTH THE APPEAL S FILED BY RELATED ASSESSEE ARE AGAINST SEPARATE ORDER S OF CIT (A) - I I , PUNE , BOTH DATED 29 . 11 .201 3 RELATING TO ASSESSMENT YEAR 20 05 - 06 AGAINST RESPECTIVE ORDERS PASSED UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961 (IN SHORT THE ACT) . 2. BOTH THE APPEALS RELATING TO RELATED ASSESSEE S ON IDENTICAL ISSUE S WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE IS BEING MADE TO THE F ACTS IN ITA NO.1 6 3 /PN/201 4 TO ADJUDICATE THE ISSUE. 3 . THE ASSESSEE IN ITA NO. 1 6 3 /PN/201 4 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - APPEAL : - 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF RS.56,499/ - BEING 10% OF THE SHOP EXPENS ES OF RS.5,64,987/ - FOR WANT OF CHECK AND PROBABLE USER. 2. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING AN ADDITION OF RS.49,65,926/ - ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN RETAIL TRADING IN TEXTILE, ESPECIALLY S AREES AND D RESS M ATERIAL S . FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING NIL INCOME ON 28.10.2005. SEARCH ACTION UNDER SECTION 132 OF THE ACT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 15.06.2004. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS. 5,64,987/ - UNDER THE HEAD SHOP EXPENSES. REGARDING THE SAID EXPENDITURE, THE AUDITOR HAD REMARKED THAT THE EXPENDITURE GROUPED UNDER THE HEAD SHOP EXPEN SES INCLUDES PAYMENTS FOR WHICH, SUPPORTING EVIDENCE WAS EITHER NOT AVAILABLE OR OBTAINING THE SAME HAD NOT BEEN FOUND FEASIBLE. THE ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 3 ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS EXPLAINED THAT THE EXPENSES DEBITED UNDER THE HEAD SHOP EXPENSES WERE GENUINE EXPENSES, BUT OBTAINING THIRD PARTY VOUCHERS FOR EXPENSES LIKE LOCAL CONVEYANCE, TEA EXPENSES WAS NOT PRACTICALLY POSSIBLE. IT WAS FURTHER CONTENDED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT AS IN THE PAST YEAR, EITHER THE EXPENSES WERE ACCEPTED IN TOTO OR NOMINAL ADDITION AS MADE IN ASSESSMENT YEAR 2001 - 02, DISALLOWANCE OUT OF EXPENSES WAS MADE AT RS.25,000/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THUS, REQUESTED THAT THE DISALLOWANCE IF ANY, SHOULD BE MADE ONLY TO THE EXTENT OF RS.25,000/ - , IF THE CLAIM OF ASSESSEE IS NOT ACCEPTED. THE ASSESSING OFFICER ON THE OTHER HAND, NOTED THE CONTENTION OF ASSESSEE THAT ONLY 20% OF EXPENSES UNDER THE HEAD WERE SUPPORTED BY MANAGEMENT VOUCHERS. HE FURTHER OBSERVED THAT THERE WAS NO PERFECT CHECK ON EXPENSES AND HENCE, DISALLOWANCE WAS WARRANTED. HE FURTHER NOTED THAT OUT OF OTHER EXPENSES LIKE TELEPHONE, TRAVELLING SOME ELEMENT OF PERSONAL USER COULD NOT BE RULED OUT . T HEREFORE, HE DISALLOWED 10% OUT OF SHOP EXPENSES RESULTING IN DISALLOWANCE OF RS.56,499/ - . 5. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL. 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THERE WAS NO MERIT IN ADHOC DISALLOWANCE MADE BY THE AUTHORITIES BELOW. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS A PAR TNERSHIP FIRM, WHICH WAS ENGAGED IN THE BUSINESS OF RETAIL SALE ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 4 OF SAREES AND DRESS MATERIAL S . SEARCH ACTION UNDER SECTION 132 OF THE ACT WAS CARRIED OUT AT THE PREMISES OF ASSESSEE ON 15.06.2004 . THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FURNISH ED RETURN OF INCOME DECLARING NIL INCOME. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE AUDITORS IN THE AUDIT REPORT HAD GIVEN A NOTE IN RESPECT OF SHOP EXPENSES BEING SUCH EXPENSES FOR WHICH, NO SUPPORTING EVIDENCE WAS EITHER AVAILABLE OR OBTAINING THE SAME WAS FOUND TO BE NOT FEASIBLE. THE ASSESSEE EXPLAINED THAT OUT OF EXPENDITURE OF RS. 5,64,987/ - , 20% OF EXPENDITURE WAS SUPPORTED BY MANAGEMENT VOUCHERS AND FOR THE BALANCE EXPENSES DEBITED UNDER THE SAID HEAD I.E. ON ACCOUNT OF LOCAL CONVEYANCE, TEA EXPENSES, ETC., IT WAS NOT FEASIBLE TO MAINTAIN VOUCHERS. ADMITTEDLY, IN ASSESSMENT YEAR 2001 - 02 ALSO DURING THE SCRUTINY ASSESSMENT, DISALLOWANCE OF RS.25,000/ - WAS MADE OUT OF SAID EXPENSES. THE ASSESSING OFFICER AND TH E CIT(A) ON THE OTHER HAND, DISALLOWED 10% OUT OF SAID EXPENSES. THE CASE OF THE ASSESSING OFFICER WAS THAT BESIDES THE EXPENSES DEBITED UNDER SHOP EXPENSES, PERSONAL USE OUT OF TELEPHONE AND TRAVELLING COULD NOT BE RULED OUT. HOWEVER, NO DISALLOWANCE WA S MADE OUT OF SAID TELEPHONE AND TRAVELLING EXPENSES. ON THE OTHER HAND, THE ASSESSING OFFICER MADE DISALLOWANCE OF 10% OUT OF TOTAL SHOP EXPENSES RESULTING IN ADDITION OF RS.56,499/ - . IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES OF THE CASE AND LOOKING INTO THE NATURE OF EXPENDITURE DEBITED BY THE ASSESSEE, IT HAS TO BE ACCEPTED THAT IN RESPECT OF PETTY EXPENSES LIKE CONVEYANCE, TEA, ETC., IT IS NOT FEASIBLE TO MAINTAIN THIRD PARTY VOUCHERS AND THE SAME WERE SUPPORTED BY SELF MADE VOUCHERS. HOWEVER, IN THE ABSENCE OF COMPLETE VOUCHERS BEING MA INTAINED BY THE ASSESSEE, CERTAIN DISALLOWANCE IS MERITED IN THE HANDS OF ASSESSEE, BUT WE RESTRICT THE SAID DISALLOWANCE TO RS.25,000/ - . THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, PARTL Y ALLOWED. ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 5 9. THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAINST ADDITION OF RS.49,65,926/ - ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. 10. BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE THAT DURING THE COURSE OF SEARCH, INVENTORY WAS TAKEN AT THE PREMI SES OF ASSESSEE . O N THE DATE OF SEARCH, DISCOUNT SALE WAS ON IN THE SHOP OF ASSESSEE. ON EACH OF THE ITEMS FOR SALE, THERE W ERE TAG S INDICATING TWO PRICES AND ACCORDING TO THE ASSESSEE, ONE WAS THE LABEL PRICE AND THE OTHER WAS DISCOUNT PRICE. HOWEVER, IN SOME CASES, BOTH LABEL PRICE AND DISCOUNT PRICE WERE SAME. ACCORDING TO THE PARTNER OF ASSESSEE FIRM, THE ASSESSEE SOLD THE GOODS AT DISCOUNT PRICE DURING THE DISCOUNT SALE WHICH LASTED FOR THREE MONTHS DURING MONSOON STARTING FROM JUNE TO AUGUST OF EA CH YEAR . SEARCH TEAM INVENTORIZED THE STOCK AND VALUED THE SAME ON THE BASIS OF LABEL PRICE AND AS ON THE DATE OF SEARCH I.E. 15.06.2004, THE STOCK WAS RS. 2,37,63,340/ - . THE VALUE OF STOCK AT DISCOUNT PRICE , ACCORDING TO THE ASSESSEE WAS RS. 1, 77,62,510/ - . AS PER TENTATIVE TRADING ACCOUNT DRAWN ON THE DATE OF SEARCH, THE STOCK WORKED OUT TO RS. 1,30, 09,896/ - . THE SAID STOCK VALUATION AS PER THE TRADING ACCOUNT WAS CONFIRMED BY THE PARTNER OF ASSESSEE FIRM WHOSE STATEMENT WAS RECORDED DURING THE COURSE OF SEARCH. HE WAS ALSO CONFRONTED WITH THE INVENTORY OF STOCK PREPARED, AS PER WHICH COST PRICE OF STOCK WAS RS.1.94 CRORES, AFTER TAKING THE GP AT 18.50% AS PER LAST YEAR. THE ASSESSEE WAS THUS, ASKED AS TO WHY THE EXCESS STOCK OF RS.64,80,279/ - SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE IN THE STOCK OUT OF UNDISCLOSED INCOME OF THE FIRM. THE PARTNER SOUGHT SOME TIME TO VERIFY THE SAME AND GIVE REPLY. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO EXPLAIN THE SOURCES OF EXCESS STOCK OF RS. 64,80,279/ - AS ON THE DATE OF SEARCH. THE ASSESSEE IN REPLY, POINTED OUT THAT THE REPLY WAS GIVEN IMMEDIATELY AFTER SEARCH TO THE D D IT (INV) - 2, PUNE AND THE SAME REPLY WAS FORWARDED TO THE ASSESSING OFFICER DURING THE ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 6 COURSE OF ASSESSMENT PROCEEDINGS. IN THE REPLY, THE ASSESSEE EXPLAINED THAT THE LABEL PRICE WAS THE MARK UP PRICE INCLUDING GROSS PROFIT TO COST AND DISCOUNTS ARE OFFER ED AT DIFFERENT RATES TO VARIOUS CUSTOMERS AND THE DISCOUNTED PRICE WAS THE ACTUAL SELLING PR ICE AND TO ARRIVE AT COST, THE AVERAGE GROSS PROFIT SHOULD HAVE BEEN REDUCED THEREFROM. IT WAS FURTHER CONTENDED BY THE ASSESSEE THAT THE STOCK WAS VALUED AT COST OR MARKET PRICE , WHICHEVER WAS LOWER, WHICH METHOD WAS CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT. IT WAS STRESSED BY THE ASSESSEE IN THAT COMMUNICATION THAT THE STOCK WAS VALUED AT SELLING PRICE WHICH WAS LABEL PRICE MINUS DISCOUNT RATE BY GROSS PROFIT , EXCEPT FEW ITEMS, WHERE SELLING PRICE WAS LESS THAN COST. THE NEX T OBJECTION RAISED BY THE ASSESSEE WAS THAT SEARCH TEAM HAD CALCULATED THE VALUE OF STOCK ON THE BASIS OF LABEL PRICE / TAG PRICE AND THE DISCOUNTED RATES WERE ALSO WRITTEN ON THE SAID SHEETS BUT THEIR TOTALS WERE NOT DRAWN. HE FURTHER POINTED OUT THAT DI FFERENCE IN STOCK WAS WORKED OUT BY THE SEARCH PARTY WITH REFERENCE TO LABEL / TAG PRICE AND NOT WITH REFERENCE TO SELLING PRICE, WHICH IS DISCOUNTED PRICE. THE ASSESSEE ALSO POINTED OUT CERTAIN OMISSION / CHANGES IN THE TENTATIVE TRADING ACCOUNT PREPARED AT THE TIME OF SEARCH ITSELF. THE ASSESSEE FURNISHED REVISED TENTATIVE TRADING ACCOUNT FOR THE BROKEN PERIOD WITH RECONCILIATION AND IN THIS REGARD POINTED OUT THAT DIFFERENCE IN STOCK I.E. EXCESS STOCK AVAILABLE WITH THE ASSESSEE WAS ONLY TO THE TUNE OF RS. 15,29,865/ - , WHICH AS PER THE ASSESSEE WAS NOMINAL BECAUSE OF THE ASSESSEE BEING IN BUSINESS FOR THE PAST MORE THAN 20 YEARS. THE ASSESSEE ALSO POINTED OUT THAT IN ORDER TO AVOID DISPUTES AND LITIGATIONS, THEY WERE PREPARED TO OFFER ABOVE DIFFERENCE O F RS. 15,29,865/ - AS ADDITIONAL INCOME UNDER SECTION 132(4) OF THE ACT FOR THE CURRENT ASSESSMENT YEAR, SUBJECT TO THE CONDITION THAT NO ADVERSE INFERENCE WAS DRAWN AND NO PENALTY WAS LEVIED / IMPOSED UNDER ANY PROVISIONS OF THE ACT. ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 7 11. THE ASSESSING OF FICER TOOK NOTE OF THE ABOVE SAID EXPLANATION FILED BY THE ASSESSEE AND THE CONTENTIONS OF ASSESSEE THAT THE BENEFIT OF GP OF 18.75% SHOULD BE AVAILED FROM THE DISCOUNT PRICE AS AGAINST LABEL PRICE, WORKED OUT BY THE SEARCH PARTY. THE ASSESSING OFFICER NO TED THE FACT THAT THE ASSESSEE ARRANGES FOR DISCOUNT SALE WHEREIN IT SOLD OLD, OUT OF FASHION GOODS AT DISCOUNTED VALUE AT A MUCH LESSER MARGIN. THE FACT THAT EVEN DURING THE DISCOUNT SALE, THERE WAS PROFIT, WHICH WAS ADMITTED BY THE PARTNER IN THE SUBMIS SIONS FILED BEFORE THE SEARCH PARTY AND SUBSEQUENT TO THE DISCOUNT SALE, ADMITTEDLY, THE ASSESSEE REVERTS BACK TO THE LABEL PRICE IN MOST OF THE CASES. HOWEVER, IN SOME CASES GOODS WERE SOLD AT DISCOUNTED PRICE ONLY. IN REPLY TO QUESTION NO.25, THE ASSES SING OFFICER NOTED THAT THE ASSESSEE HAD ADMITTED THAT DURING THE DISCOUNT SALE WHEREIN DISCOUNTS GIVEN WERE FROM 7% TO 50%, HOWEVER, THE ASSESSEE ADMITTED THAT THERE WAS MARGIN OF PROFIT OF AROUND 10% TO 15%. THE ASSESSEE WAS ASKED TO PRODUCE STOCK INVEN TORY TAKEN AT THE END OF THE FINANCIAL YEAR, WHICH WAS NOT PRODUCED BY THE ASSESSEE AND IN ANSWER TO QUERY NO.25, THE ASSESSEE ADMITTED THAT HE COULD NOT PRODUCE STOCK INVENTORY AS THE SAME WAS DESTROYED. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSM ENT PROCEEDINGS IN ORDER TO BE FAIR TO THE ASSESSEE AND IN THE INTEREST OF JUSTICE, ASKED THE ASSESSEE TO IDENTIFY THE PURCHASE BILLS AND VALUE THE STOCK FOUND DURING THE COURSE OF SEARCH AT COST. HOWEVER, THE ASSESSEE EXPRESSED ITS INABILITY TO DO THE SA ME ON THE PLEA THAT IT WAS NOT AT ALL POSSIBLE. THE ASSESSING OFFICER THUS, OBSERVED THAT TO ARRIV E AT THE CORRECT VALUE OF STOCK AS ON THE DATE OF SEARCH WAS NOT POSSIBLE ON ACCOUNT OF ASSESSEE NOT HAVING PROPER RECORDS TO DO SO. AS PER THE ASSESSING OF FICER , LABEL PRICE WAS RS.2.39 CRORES AND THE DISCOUNT PRICE WAS RS.1.77 CRORES AND THE DIFFERENCE BETWEEN THE TWO WAS RS. 62,14,473/ - . FROM THE DIFFERENCE BETWEEN THE VALUE OF STOCK AS ON THE DATE OF SEARCH ON THE BASIS OF LABEL PRICE AND THE DISCOUNT PRI CE, THE ASSESSING OFFICER OBSERVED THAT IT APPEARS THAT THE DISCOUNT WAS TO THE TUNE OF 25.92% WITH ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 8 REFERENCE TO LABEL PRICE. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE WAS REGULARLY SHOWING GROSS PROFIT MARGIN OF AROUND 18.50% FOR THE PAST SEV ERAL YEARS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. THE ASSESSING OFFICER THUS, HELD THAT THE CLAIM MADE BY THE ASSESSEE THAT THE DISCOUNT WAS IN EXCESS OF 20% WITH REGARD TO LABEL PRICE COULD NOT BE ACCEPTED, ESPECIALLY IN VIEW OF THE FACT THAT THE ASSESSEE WAS NOT IN A POSITION TO PROVE THE CORRECTNESS OF VALUATION WITH REGARD TO PURCHASE BILLS. IT WAS THE OBSERVATION OF ASSESSING OFFICER THAT WHERE THE ASSESSEE WAS ARRANGING DISCOUNT SALES EVERY YEAR, THE YEARLY GROSS PROFIT WAS THE CUMULATIVE EFFECT OF SALES AT HIGHER GP DURING THE PEAK SEASON AND LOWER GP DURING OFF SEASON. THE ASSESSING OFFICER FURTHER HELD AS UNDER: - AS POINTED OUT ABOVE THE DIFFERENCE BETWEEN THE LABEL PRICE AND DISCOUNT PRICE IS QUITE SUBSTANTIAL AND IS TO THE TUNE OF O VER 25% WITH REFERENCE TO LABEL PRICE. THE PARTNER ADMITS THAT THERE IS MARGIN OF 10% TO 15% DURING DISCOUNT SALES. ACCORDING TO THE ASSESSEE TO ARRIVE AT THE COST PRICE OF STOCK OR TO ARRIVE AT INVESTMENT OF THE ASSESSEE IN STOCK FURTHER REDUCTION (FROM DISCOUNT PRICE) BY AVERAGE RATE OF G.P. I.E. 18.75% IS CALLED FOR. IN THAT EVENTUALITY ON FACTS IT IS CLEAR THAT THE STOCK IS VALUED AT A PRICE LESSER THAN COST PRICE OF THE ASSESSEE. THEREFORE, THE ASSESSEES CLAIM TO HAVE DEDUCTION ON ACCOUNT OF G.P. AT 18.75% ON DISCOUNT PRICE, IS NOT FACTUALLY CORRECT AND IF ACCEPTED, WOULD GIVE RISE TO ON DISCOUNT PRICE, IS NOT FACTUALLY CORRECT AND IF ACCEPTED, WOULD GIVE RISE TO ABSURDITY OF WORKING OUT INVESTMENT OF THE ASSESSEE IN STOCK SUBSTANTIALLY BELOW THE COST. 1 2 . THE ASSESSING OFFICER FURTHER HELD THAT WHERE ANY METHOD OF VALUATION WHICH IS PROPOSED TO BE ADOPTED, WHICH GIVES VALUATION FIGURE OF STOCK LESSER THAN THE STOCK / INVESTMENT OF THE ASSESSEE OR FAIR MARKET VALUE WAS WRONG, ILLOGICAL AND AGAINST THE PRINCIPLE OF ACCOUNT AND IT WAS HELD THAT THE COST PRICE OF STOCK WOULD BE NOTHING BUT THE LABEL PRICE AS REDUCED BY THE GROSS PROFIT I.E. RS.1.95 CRORES AND THE FAIR MARKET VALUE OF STOCK WOULD BE THE VALUE AT WHICH IT IS BEING SOLD I.E. DISCOUNTED PRICE WHICH IS VALUED AT RS.1.77 CRORES. HE FURTHER OBSERVED THAT AS PER THE NOR MAL ACCOUNTING PRACTICE, THE LOWER OF TWO WAS TO BE TAKEN FOR VALUATION OF STOCK. HOWEVER, THE ASSESSEE COULD NOT FURNISH DISCOUNT PRICE OF THE GOODS IN ALL CASES AND THE SEARCH TEAM HAD SUBSTITUTED THE PURCHASE PRICE IN PLACE OF DISCOUNT PRICE. THUS, IT WAS HELD THAT THERE WAS NO BASIS FOR DISCOUNT ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 9 PRICE OF RS.1.77 CRORES FURNISHED BY THE ASSESSEE, MORE SO, WHEN IT WAS LESS THAN 25 . 92% WITH REGARD TO LABEL PRICE. THEREFORE, THE DISCOUNT PRICE GIVEN BY THE ASSESSEE WAS NOT ACCEPTED AS MARKET VALUE OF THE GOODS . THE CLAIM OF ASSESSEE TO TREAT DISCOUNT PRICE AS SALE PRICE AND WORK OUT THE COST BY REDUCING AVERAGE GP AT 18 . 75% WAS HELD TO BE INCORRECT AND ILLOGICAL. ANOTHER POINT NOTED BY THE ASSESSING OFFICER WAS IN CASE THE SEARCH WAS CONDUCTED DURING PE AK SEASON, STOCK WOULD HAVE BEEN VALUED AT LABEL PRICE AND THE DIFFERENCE IN STOCK WOULD HAVE BEEN DEFINITELY HIGHER AND THERE WAS NO QUESTION OF DISCOUNT PRICE. THE CONTENTION OF ASSESSEE TO ADOPT DISCOUNT PRICE AND GIVE DEDUCTION FOR GP AT 18 . 50% WHILE DETERMINING THE VALUE OF CLOSING STOCK WAS THUS, DISMISSED. THE ASSESSING OFFICER ALSO NOTED THAT THE OPENING STOCK AS ON 01.04.2004 WAS VALUED ON THE BASIS OF LABEL PRICE AND IF THE STOCK FOUND ON 15.06.2004 WAS VALUED ON THE BASIS OF DISCOUNT PRICE , THE SAME WOULD GIVE DISTORTED PICTURE OF STOCK AS ON THE DATE OF SEARCH, WHICH IN TURN, WOULD HAVE AFFECT ON THE INCOME FOR THE YEAR UNDER CONSIDERATION UNDER AND HENCE, THE SAME WAS REJECTED. 1 3 . ANOTHER ASPECT OF THE ISSUE WHICH WAS NOTED BY THE ASSESSING OFFICER WAS THAT THE SEARCH WAS CARRIED OUT AT THE PREMISES OF ASSESSEE ON 15.06.2004 AND DURING THE COURSE OF SEARCH, THE ASSESSEE WAS ASKED TO PRODUCE INVENTORY OF STOCK AS ON 31.03.2004. IN RESPONSE, THE ASSESSEE CONTENDED THAT THE STOCK WAS PHYSICALLY TAKEN ON 31.03.2004 BUT IT DOES NOT HAVE INVENTORY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO, THE ASSESSEE WAS ASKED TO PRODUCE THE STOCK INVENTORY AS ON 31.03.1998 TO 31.03.2005. HOWEVER, THE ASSESSEE EXPRESSED ITS INABILITY TO PRODUCE THE INVE NTORY OF STOCK ON ALL THOSE DATES. IN THIS CONNECTION, THE EMPLOYEES OF ASSESSEE FIRM WERE ALSO EXAMINED. THEY STATED THAT THE STOCK WAS PHYSICALLY TAKEN BUT THE INVENTORY WAS DESTROYED. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN CASE EVERYTHING WAS OK, THERE WAS NO REASON WHY AFTE R TAKING ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 10 PHYSICAL INVENTORY , ASSESSEE SHOULD NOT MAINTAIN COPY OF IT. THEREFORE, THE CONTENTION OF ASSESSEE, PARTNER OF ASSESSEE FIRM AND THE EMPLOYEES WAS NOT ACCEPTED ON ITS FACE VALUE. TAKING INTO CONSIDERATION ALL THE ABOVE SAID FACTS AND CIRCUMSTANCES AND THE FACT THAT THE ASSESSEE WAS DISCLOSING MORE OR LESS IDENTICAL GROSS PROFIT RATE FOR ASSESSMENT YEARS 1999 - 2000 TO 2005 - 06, IT WAS CLEAR AS PER THE ASSESSING OFFICER THAT PERFECT STOCK TAKING WAS NOT BEING DONE BY T HE ASSESSEE OVER THE YEARS AND PRECISELY BECAUSE OF THE SAID REASON, THERE WAS EXCESS STOCK. THE EXPLANATION OF THE ASSESSEE OF ADOPTING THE DISCOUNT PRICE AS THE BASIS WAS HELD TO BE ILLOGICAL AND THE EXCESS STOCK FOUND DURING THE COURSE OF SEARCH WAS HE LD TO BE UNEXPLAINED INVESTMENT. THE EXCESS STOCK WAS WORKED OUT AT RS.65,14,350/ - BY THE ASSESSING OFFICER AS UNDER: - A 2,39,76,983/ - ] STOCK FOUND ON PHYSICAL VERIFICATION B 44,35,742/ - ] LESS G.P AT 18.50% C 1,95,41,241/ - - STOCK AT COST. (A - B ) __________ D 1,30,26,891/ - - STOCK AS PER TENTATIVE TRADING A/C. __________ 65,14,350/ - - EXCESS STOCK (C - D) 65,14,350/ - - EXCESS STOCK (C - D) 1 4 . THE ASSESSING OFFICER NOTED IN THE RETURN OF INCOME FILED ON 28.10.2005, THE ASSESSEE HAS OFFERED ADDITIONAL INCOME OF RS. 15,48, 424/ - UNDER THE HEAD OTHER INCOME AND THE SAME WAS ON ACCOUNT OF ADDITIONAL STOCK FOUND, HENCE THE BALANCE OF RS. 49,65,926/ - WAS ADDED AS ADDITIONAL INCOME IN THE HANDS OF ASSESSEE. 1 5 . BEFORE THE CIT(A), THE ASSESSEE REITERATED HIS EARLIER SUBMISSIONS. IT WAS CONTENDED BY THE ASSESSEE THAT THE STOCK VALUED AT LABEL PRICE WAS NOT DISPUTED AND NEITHER WAS THE STOCK VALUED AT SELLING PRICE AND THE ONLY DISPUTE WAS WHETHER GROSS PROFIT MARGINS HAD TO BE RE DUCED FROM STOCK VALUED BY LABEL PRICE OR FROM STOC K VALUED AT SELLING PRICE / DISCOUNTED PRICE. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER OBSERVING AS UNDER: - ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 11 3.6 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND PERUSED MATERIAL ON RECORD. THE APPELLANT IS IN THE BUSINESS OF RETAILING IN TEXTILES ESPECIALLY SAREES AND GARMENTS CARRYING OUT THE BUSINESS AT LAXMI ROAD, PUNE. THERE WAS A SEARCH ACTION U/S 132 OF THE ACT ON 15 - 06 - 2004 AND DURING THE COURSE OF SEARCH ACTION THE STOCK AT BUSINESS PREMISES WAS PHYSICALLY INVENTORISE D AND THE DIFFERENCE OF RS.65,14,350/ - WAS ASCERTAINED AS EXCESS STOCK BY THE SEARCH PARTY BASED ON THE TRADING ACCOUNT DRAWN UP TO THE DATE OF SEARCH. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS, HAS EXAMINED THE ENTIRE ISSUE IN DETAIL AND TH E SAME HAS ALSO BEEN NOTED IN THE ASSESSMENT ORDER AND MADE AN ADDITION OF RS.49,65,926/ - ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. THE ASSESSING OFFICER ALSO TOOK INTO ACCOUNT THE CONTENTION RAISED BY THE APPELLANT AND THE EXPLANATION FURNISHED BY HI M BEFORE DRAWING THE AFORESAID CONCLUSION OF MAKING ADDITION U / S 69B. THE ASSESSING OFFICER IN ARRIVING AT THE VALUE OF STOCK AS PER THE PHYSICAL INVENTORY DEDUCTED THE GROSS PROFIT MARGIN OF 18.5% FROM THE INVENTORY TAKEN AS PER THE PRICE AVAILABLE ON TH E PRICE TAGS WHICH CONTAINED TWO AMOUNTS VIZ. THE LABEL PRICE AND THE DISCOUNTED PRICE. THE SAID DISCOUNTED PRICE IS THE PRICE AT WHICH THE GOODS ARE SOLD BY THE ASSESSEE DURING THE MONSOON SEASON I.E. FROM THE MONTH OF JUNE TO AUGUST. THE ASSESSING OFFIC ER ADOPTED THE LABEL PRICE INSTEAD OF THE DISCOUNTED PRICE AS CONTENDED BY THE APPELLANT TO DEDUCT THE GROSS PROFIT MARGIN TO ARRIVE AT THE COST OF STOCK. ACCORDINGLY, THE ASSESSING OFFICER ADOPTED THE LABEL PRICE STOCK AT RS. 2,39,76,983/ - AS AGAINST THE DISCOUNTED PRICE OF RS. 1,77,62,510 / - AS CLAIMED BY THE APPELLANT. THE ASSESSING OFFICER HAS POINTED OUT THE REASONS IN A VERY LOGICAL MANNER FOR ADOPTING THE LABEL PRICE TO ARRIVE AT THE VALUE OF THE COST OF GOODS BY FURTHER REDUCING THE GROSS PROFIT MARG IN OF 18.5% WHICH PRIMA FACIE APPEARS TO BE REASONABLE AND THE ONLY OPTION AVAILABLE WITH THE ASSESSING OFFICER IN THE GIVEN SET OF FACTS OF THE CASE. THE CONTENTION RAISED BY THE APPELLANT OF ADOPTING THE DISCOUNTED PRICE STOCK VALUED AT RS. 1,77,62,510 / - TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF REDUCING THE GROSS MARGINS TO ARRIVE AT THE COST OF GOODS IS NOT BASED ON A SOUND AND LOGICAL BASIS AS IT WOULD GIVE AN ERRONEOUS AND ILLOGICAL VALUE OF THE COST OF GOODS WHICH WOULD HAVE EVEN LESSER THAN THE ACT UAL COST PRICE . THAN THE ACT UAL COST PRICE . 3.7 I AGREE TO THE VIEW OF THE ASSESSING OFFICER THAT IF THE CONTENTION OF THE APPELLANT IS TO BE CONSIDERED IT WILL PROJECT A VERY DISTORTED PICTURE OF VALU ATION OF STOCK AS ON DATE OF SEARCH. IT IS ALSO RELEVANT TO POINT OUT THAT THE AP PELLANT COULD NOT IDENTIFY AND FURNISH THE PURCHASE BILLS WITH RESPECT TO THE STOCK FOUND DURING THE SEARCH SO AS TO VALUE THEM AT COST AND EVEN DURIN G THE SEARCH ACTION THE APPELLANT COULD NOT FURNISH THE DISCOUNT PRICE OF GOODS IN SOME OF THE CASES. MOR EOVER, DURING THE SEARCH THE APPELLANT WAS SOU G HT TO FURNISH THE STOCK INVENTORY AS ON 31 - 3 - 2004 WHICH THE APPELLANT HAD FAILED TO FURNISH THE N AND EVEN DURING THE ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER THE SAME WAS NEVER FURNISHED. THE EMPLOY EES OF THE APPELLANT WHEN EXAMINED ON THE ISSUE OF STOCK INVENTORY IT WAS STATED THAT THOUGH THE STOCK WAS PHYSICALLY TAKEN, THE INVENTORY WAS DESTROYED. IN VIEW OF THE ABOVE FACTS AS BROUGHT ON RECORD THE ASSESSING OFFICER'S REASONING PUT FORTH IN ARRIVIN G AT THE COST OF GOODS FOUND DURING THE SEARCH IS NOT ARBITRARY BUT BASED ON THE MATERIAL FOUND AND THERE IS NO BASIS TO QUESTION THE FINDINGS OF FACT RECORDED BY HIM. THE APPELLANT HAS ALSO NOT BEEN ABLE TO BRING ANY SUCH MATERIAL WHICH IS CONTRARY TO TH E LOGICAL FINDINGS OF THE ASSESSING OFFICER. 1 6 . THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 1 7 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT UNDER RETAIL PRICE METHOD AFTER TAKING SELLING PRICE, THERE IS APPLICATIO N OF GP RATE. ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 12 HOWEVER, GP RATE COULD NOT BE APPLIED TO THE TAG PRICE / LABEL PRICE. HE FURTHER CONTENDED THAT THE GP RATE IS TO BE APPLIED TO THE DISCOUNTED PRICE I.E. THE RATES AT WHICH GOODS WERE SOLD DURING THE DISCOUNT PERIOD , WHEN SEARCH AND SEIZURE ACTION WAS CARRIED OUT AT THE PREMISES OF ASSESSEE. ANOTHER CONTENTION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE ASSESSING OFFICER HAS FAILED TO ESTABLISH THAT THE GP RATE DECLARED BY THE ASSESSEE WAS HIGHER. ON THE O THER HAND, THE ASSESSING OFFICER WHILE COMPUTING EXCESS STOCK HAD ALSO APPLIED THE GP RATE DECLARED BY THE ASSESSEE AS THE BASIS FOR WORKING OUT THE EXCESS STOCK. HE SUBMITTED THAT NO STOCK STATEMENT WAS MAINTAINED BY THE ASSESSEE THOUGH STOCK INVENTORY W AS TAKEN AT THE YEAR END. HE STRESSED THAT THE STOCK STATEMENT WAS PREPARED BUT THE SAME WAS DESTROYED THEREAFTER. ANOTHER CONTENTION RAISED BY THE ASSESSEE WAS THAT THE DEPARTMENT HAD APPLIED THE RETAIL PRICE METHOD OF ACCOUNTING AND NOT THE ASSESSEE , W HERE AS THE CLAIM OF ASSESSEE WAS THAT THE STOCK HAD TO BE VALUED AT COST OR MARKET PRICE , WHICHEVER WAS LESSER. THE GROSS PROFIT AS PER THE ASSESSEE WAS ACCEPTED, SO THERE IS NO QUESTION OF ANY SUBSTITUTION. ANOTHER POINT RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THERE WAS NO QUESTION OF OPENING AND CLOSING STOCK INVENTORY, WHERE THE INVENTORY WAS P REPARED ON THE DATE OF SEARCH. 1 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ISSUE ARISING IN THE PRESENT APPEAL IS WHAT SHOULD BE THE BASIS FOR WORKING OUT THE VALUE OF CLOSING STOCK IN THE HANDS OF ASSESSEE. RELYING ON THE ORDERS OF BOTH THE ASSESSING OFFICER AND THE CIT(A), THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD NOT BE AT COST BUT IT WOULD BE AT LOWER PRICE THAN THE COST, WHICH COULD NOT BE ALLOWED. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FURTHER POINTED OUT THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ITS GP MARGINS, ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 13 WHEREIN THE OPENING STOCK WAS TAKEN AT LABEL PRICE, WHEREAS ON THE DATE OF SEARCH, IF DISCOUNT PRICE WAS TAKEN, THEN THE MARGIN WOULD BE DIFFERENT. HE FURTHER STRESSED THAT THE STOCK INVENTORY WAS NOT AVAILABLE FOR BOT H THE OPENING AND CLOSING STOCK. 1 9 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES FOR ADJUDICATION BY WAY OF GROUND OF APPEAL NO.2 IS THE ADDITION MADE BY THE AUTHORITIES BELOW ON ACCOUNT OF EXCESS STOCK FOUND DURING THE COURSE OF SEARCH. THE CONTENTION OF REVENUE IN THIS REGARD IS THAT WHERE EXCESS STOCK WAS FOUND DURING THE COURSE OF SEARCH, THEN THE VALUE NOT DECLARED BY THE ASSESSEE IS TO BE ADDED AS INCOME OF THE ASSESSEE FOR THE CURRENT ASSESSMENT YEAR. IN THE FACTS OF THE PRESENT CASE , ON THE DATE OF SEARCH I.E. 15.06.2004, DISCOUNT SALE WAS BEING CARRIED OUT AT THE PREMISES OF ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE TRADING OF RETAIL SALE OF SAREES AND DRESS MATERIALS. PHYSICAL VERIFICATION OF STOCK WAS C ARRIED OUT BY THE SEARCH PARTY AND IT WAS FOUND THAT ON MAJORITY OF ITEMS, THERE WERE TWO TAGS WRITTEN (A) THE LABEL PRICE OF THE SAREE OR MATERIAL AND (B) DISCOUNTED PRICE. THE TOTAL VALUE OF STOCK AS PER THE LABEL PRICE WAS RS. 2,37,63,340/ - . HOWEVER, THE VALUE OF STOCK AT DISCOUNT PRICE ACCORDING TO THE ASSESSEE WAS RS. 1,77,62,510/ - . TENTATIVE TRADING ACCOUNT WAS DRAWN ON THE DATE OF SEARCH I.E. 15.06.2004, AS PER WHICH STOCK WAS RS. 1,30,09,896/ - . THE SAID TENTATIVE TRADING ACCOUNT PREPARED ON THE D ATE OF SEARCH WAS CONFRONTED TO THE ASSESSEE, WHO ADMITTED THAT THE CLOSING STOCK AT COST AS ON 15.06.2004 AS PER THE BOOKS WAS RS. 1,30,09,896/ - . THE ASSESSEE HAD BEEN CONSISTENTLY SHOWING THE GP RATE OF 18.50% AND THE COST PRICE OF THE STOCK WAS WORKED O UT BY THE ASSESSING OFFICER BY TAKING GP @ 18.50% AT RS. 1,94,90,175/ - . THE EXCESS STOCK AS ON THE DATE OF SEARCH WORKED OUT AT RS. 64,80, 279/ - . THE ISSUE WHICH ARISES IN ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 14 THE PRESENT APPEAL IS IN RELATION TO THE WORKING OF EXCESS STOCK AND ITS ADDITION AS ADDITIONAL INCOME IN THE HANDS OF ASSESSEE. 20 . THE CASE OF THE ASSESSEE WAS THAT THE QUANTITATIVE STOCK WAS TAKEN BY THE SEARCH PARTY WITH THE HELP OF SALESMEN / EMPLOYEES OF THE ASSESSEE FIRM. THE ASSESSEE CONTENTED THAT EACH AND EVERY ITEM OF STOCK CA RRIES LABEL / TAG ON WHICH SELLING PRICE IS NOTED, WHICH IS THE LABEL PRICE. THE ASSESSEE FURTHER CONTENDED THAT EACH PIECE CARRIES TWO PRICES; ONE LABEL PRICE WHICH IS TAG PRICE AND THE OTHER SELLING PRICE, WHICH IS LABEL PRICE REDUCED BY DISCOUNT OFFERE D. IN RESPECT OF OFFERING OF DISCOUNT TO THE CUSTOMERS, THE ASSESSEE HAD INITIALLY CONTENDED THAT ON THE DATE OF SEARCH, DISCOUNT ON ITS STOCK WAS B EING ALLOWED TO THE CUSTOMERS, AS WAS CUSTOMARY FROM YEAR TO YEAR. THE ASSESSEE CONTENDED THAT THE DISCOUN T SALE CONTINUED FOR PERIOD OF THREE MONTHS DURING THE SEASON STARTING FROM JUNE TO AUGUST. WHILE FURNISHING THE REPLY BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CONTENDED THAT THE DISCOUNT AT VARYING RATES WAS OFF ERED THROUGHOUT THE YEAR TO ALL THE CUSTOMERS. THE ASSESSEE BY WAY OF WRITTEN SUBMISSIONS FILED BEFORE DDIT (INV) - 2, PUNE UNDER SECTION 132(4) OF THE ACT EXPLAINED THAT WHILE FIXING THE SALE PRICE, THE GROSS PROFIT WAS ADDED TO THE COST AND THE PRICE W AS FURTHER MARKED UP AND LABEL PRICE WAS FIXED. IT WAS THE CONTENTION OF ASSESSEE THAT THE PRICING IS THUS MADE IN SUCH MANNER THE DISCOUNTS ARE OFFERED TO CUSTOMERS WITHOUT AFFECTING OUR PROFITS, THE TAGS / LABEL BEAR PRICE, DISCOUNT OFFERED AND SELLING PRICE, AS SUCH THE DISCOUNTED PRICE IS ACTUAL SELLING PRICE AND TO ARRIVE AT COST, THE AVERAGE GROSS PROFIT SHALL HAVE TO BE REDUCED THEREON. THE SECOND CONTENTION RAISED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE STOCK WAS VALUED AT COST O R MARKET VALUE WHICHEVER WAS LOWER AND ALSO THE SAID METHOD WAS BEING FOLLOWED CONSISTENTLY AND WAS ACCEPTED BY THE DEPARTMENT. ACCORDINGLY, THE ASSESSEE CONTENDED THAT THE STOCK WAS TO BE ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 15 VALUED AT SELLING PRICE I.E. LABEL PRICE MINUS DISCOUNT REDUCED BY GROSS PROFIT BARRING FEW ITEMS. FURTHER, EXPLANATION OF THE ASSESSEE WAS THAT FROM THE LIST OF INVENTORY SHEETS, IT WAS CLEAR THAT THE TOTAL VALUE OF STOCK WAS TAKEN BY ADDING UP THE TAG PRICE OR THE LABEL PRICE , THOUGH THE DISCOUNTED RATES WERE ALSO NOT ED ON THE SAID SHEETS , BUT THE TOTALS WERE NOT DRAWN AND ON VERIFICATION, IT WAS CLEAR THAT THE DIFFERENCE IN STOCK WORKED OUT BY SEARCH PARTY AT THE TIME OF SEARCH, WAS COMPUTED WITH REFERENCE TO LABEL / TAG PRICE AND NOT WITH REFERENCE TO SELLING PRICE ( DISCOUNTED PRICE). IN THIS REGARD, THE ASSESSEE EXPLAINED THAT IN CASE THE STOCK IS VALUED AT DISCOUNTED PRICE I.E. RS. 1,77,62,150/ - AND GROSS PROFIT @ 18.75% IS REDUCED FROM THE SAME, THEN DIFFERENCE BETWEEN STOCK AT COST AND STOCK AS PER TENTATIVE TRADI NG ACCOUNT ONLY BE RS. 15,29,865/ - . ACCORDING TO THE ASSESSEE, THIS DIFFERENCE WAS NOMINAL AS IT WAS IN THE BUSINESS SINCE LAST 20 YEARS. HOWEVER, IN ORDER TO AVOID DISPUTES AND LITIGATIONS, THE ASSESSEE WAS PREPARED TO OFFER DIFFERENCE OF RS. 15,29,865/ - AS ADDITIONAL INCOME UNDER SECTION 132(4) OF THE ACT. THE COPY OF EXPLANATION FILED BEFORE THE DDIT (INV) - 2, PUNE WAS ALSO FILED BEFORE THE ASSESSING OFFICER IN RESPONSE TO SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER AND IT WAS POINTED OUT THAT SINC E THE ADDITIONAL INCOME HAS BEEN OFFERED TO TAX, NO FURTHER INCOME HAS TO BE ADDED IN THE HANDS OF ASSESSEE. 2 1 . THE CASE OF ASSESSEE BEFORE US WAS THAT IN ORDER TO COMPUTE ADDITIONAL INCOME IN THE HANDS OF ASSESSEE, THE BASIS SHOULD BE THE DISCOUNTED P RICE, WHICH IS AVAILABLE ON EACH PIECE OF STOCK AND NOT THE LABEL PRICE AND OUT OF DISCOUNTED PRICE, GROSS PROFIT MARGINS SHOULD BE RE DUCED IN ORDER TO WORK OUT THE COST OF STOCK, WHICH IN TURN, SHOULD BE COMPARED WITH THE TOTAL STOCK AS PER THE TENTATIVE TRADING ACCOUNT ON THE DATE OF SEARCH, IN ORDER TO COMPUTE ANY ADDITION IN THE HANDS OF ASSESSEE. THE ASSESSEE IS DEALING IN RETAIL SALE OF SAREES AND DRESS MATERIALS, WHICH ARE BEING PURCHASED BY THE ASSESSEE FROM OPEN MARKET. AS PER ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 16 ACCOUNTING POLICIES , IT IS INCUMBENT UPON THE ASSESSEE TO MAINTAIN STOCK REGISTER OF ITEMS DEALT IN. HOWEVER, WHERE IT IS NO T SO FEASIBLE TO MAINTAIN STOCK REGISTER, IT IS THE DUTY OF THE ASSESSEE TO PREPARE STOCK LIST ON THE CLOSE OF THE YEAR I.E. 31 ST MARCH OF EACH YEAR. THE ASSESSEE IS A TRADER AND IS RUNNING THIS BUSINESS, AS CLAIMED BY IT FOR THE PAST 20 YEARS, THE TRADING RESULTS DECLARED BY THE ASSESSEE FROM YEAR TO YEAR REFLECT THAT THE ASSESSEE WAS SHOWING CONSTANT GROSS PROFIT @ 18.50%. DURING THE COURSE OF SEARC H ITSELF I.E. ON 15.06.2004, THE ASSESSEE WAS ASKED TO FILE THE COPY OF STOCK LIST AS ON 31.03.2004, BUT NO SUCH LIST WAS FILED BY THE ASSESSEE. THE ASSESSEE CLAIMS THAT IT IS MAINTAINING ITS STOCK AT COST OR MARKET PRICE, WHICHEVER WAS LESSER , BUT THE AS SESSEE HAS NOT EVEN MAINTAINED OR FILED THE STOCK LIST TO PROVE ITS CASE. IN THE ABSENCE OF SAID STOCK LIST, IT IS NOT EVEN FEASIBLE TO VERIFY THE VALUE OF OPENING STOCK. HOWEVER, THE AUTHORITIES BELOW HAVE ACCEPTED THE VALUE DECLARED BY THE ASSESSEE AS OPENING STOCK AND AFTER ADDING THE PURCHASES AND SUBTRACTING THE SALES, PREPARED A TENTATIVE TRADING ACCOUNT AS ON THE DATE OF SEARCH I.E. 15.06.2004 AND WORKED OUT THE GROSS PROFIT AVAILABLE WITH THE ASSESSEE AS PER ITS BOOKS ON THE DATE OF SEARCH I.E. RS .1.30 CRORES. FURTHER, DURING THE COURSE OF SEARCH ITSELF, QUERY WAS RAISED TO THE ASSESSEE, WHO IN THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT STATED THAT THEY HAD PREPARED THE STOCK LIST BUT HAD DESTROYED THE SAME. THE EMPLOYEES OF ASSESSEE FIRM ALSO CONFIRMED THE SAME. THE ISSUE WHICH ARISES BEFORE US IS WHERE THE STOCK LIST AS ON THE CLOSE OF YEAR IS NOT EVEN AVAILABLE WITH THE ASSESSEE, HOW THE CLAIM OF ASSESSEE THAT IT WAS MAINTAINING ITS STOCK AT COST OR MARKET PRICE, WHICHEVER WAS LESS ER , IS VERIFIABLE. FURTHER, IN THE ABSENCE OF ANY DETAILS AVAILABLE I.E. STOCK AS ON 31.03.2004, THE QUESTION OF DETERMINING THE COST OF STOCK AS ON THE DATE OF SEARCH I.E. 15.06.2004 BECOMES NOT FEASIBLE. ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 17 2 2 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH STOCK LIST FROM 31.03.1999 TO 31.03.2005. HOWEVER, THE ASSESSEE CLAIMED THAT IN ALL THESE YEARS, IT WAS PREPARING STOCK LIST BUT WAS DESTROYING THE SAME. IN SUCH CIRCUMSTANCES, THE CLAIM OF THE AS SESSEE THAT IT WAS MAINTAINING ITS STOCK PERFECTLY OVER THE YEAR S CANNOT BE ACCEPTED. UNDOUBTEDLY, THE STOCK DECLARED BY THE ASSESSEE FROM YEAR TO YEAR HAS BEEN ACCEPTED IN THE HANDS OF ASSESSEE. HOWEVER, THE ONUS WAS UPON THE ASSESSEE TO EXPLAIN THE STO CK POSITION AS ON THE DATE OF SEARCH AND THE SAME HAS NOT BEEN PROPERLY DISCHARGED BY THE ASSESSEE. FURTHER, NO VERIFICATION EXERCISE AS TO THE COST OF STOCK IS POSSIBLE IN THE ABSENCE OF ANY STOCK LIST BEING MAINTAINED BY THE ASSESSEE. 2 3 . N OW, COMING TO THE OTHER ASPECT OF THE ISSUE I.E. DURING THE COURSE OF SEARCH, WHEN PHYSICAL VERIFICATION OF STOCK WAS TAKEN, SEARCH PARTY FOUND THAT THERE WERE TWO TAGS ON MOST OF THE STOCK I.E. ONE WAS THE LABEL / TAG PRICE AND THE SECOND WAS THE DISCOUNTED PRICE. THE TOTAL OF THE TAG PRICE WAS RS.2.39 CRORES. THE ASSESSEE HAS CALCULATED THE DISCOUNT ED PRICE OF STOCK AT RS.1.77 CRORES. THE ASSESSEE GAVE EXPLANATION IN RESPECT OF LABEL PRICE AND THE DISCOUNT PRICE AND CLAIMS THAT FOR COMPUTING THE VALUE OF STOCK A VAILABLE WITH THE ASSESSEE, THE GROSS PROFIT SHOULD BE REDUCED FROM THE DISCOUNTED PRICE AND NOT FROM THE LABEL PRICE. IN THIS REGARD, THE ASSESSEE CLAIMS THAT EVEN THE DISCOUNT PRICE HAS PROFIT ELEMENT AND AS SUCH, THE SAME SHOULD BE TAKEN. THE ASSESSIN G OFFICER ON THE OTHER HAND, NOTED THAT DIFFERENCE BETWEEN THE LABEL PRICE AND THE DISCOUNT PRICE I.E. RS.2.39 CRORES MINUS RS.1.77 CRORES WAS RS. 62,14,473/ - , WHICH WAS TO THE TUNE OF 25.92% WITH REFERENCE TO LABEL PRICE. THE SAID DIFFERENCE BETWEEN THE L ABEL PRICE AND THE DISCOUNT PRICE WAS QUITE SUBSTANTIAL AND WAS TO THE TUNE OF OVER 25% WITH REFERENCE TO LABEL PRICE AND WAS EVEN HIGHER THAN THE GROSS PROFIT MARGINS SHOWN ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 18 BY THE ASSESSEE OF AROUND 18.50%. THE PARTNER IN HIS STATEMENT RECORDED STATED TH AT THERE WAS MARGIN OF 10% TO 15% PROFIT DURING THE DISCOUNT SALE, BUT IN CASE THE ASSESSEES CLAIM OF ALLOWING DEDUCTION OF GP AT 18.75% ON DISCOUNT PRICE IS ACCEPTED, THEN THIS WOULD RESULT IN WORKING OUT THE INVESTMENT OF ASSESSEE IN STOCK SUBSTANTIALLY BELOW THE COST. THE SAID IS THE FINDING OF ASSESSING OFFICER WHICH HAS BEEN UPHELD BY THE CIT(A). THE ASSESSEE BEFORE US HAS NOT BEEN ABLE TO CONTROVERT THE SAID FINDINGS OF CIT(A). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REPEATEDLY STAT ED THAT THE WORKING OF STOCK HAS TO BE MADE ON THE BASIS OF DISCOUNT PRICE BECAUSE THE ASSESSEE WAS EARNING LOWER MARGINS OF PROFIT DURING THE DISCOUNT SALE. WE ACCEPT THE SAID PROPOSITION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE T HAT WHEN DISCOUNT SALES ARE ON, THEN THE MARGINS OF PROFITS ARE LOWER THAN AS EARNED BY THE ASSESSEE DURING THE REGULAR PERIOD OF CARRYING ITS RETAIL BUSINESS. HOWEVER, THE GROSS PROFIT DECLARED BY THE ASSESSEE AT 18.50% FROM YEAR TO YEAR IS THE AVERAGE O F PROFITS EARNED BY THE ASSESSEE DURING THE REGULAR BUSINESS DAYS AND AVERAGED WITH THE DISCOUNT ED PROFIT EARNED DURING THE DAYS OF DISCOUNT SALE. THE GROSS PROFIT DECLARED BY THE ASSESSEE IS AVERAGE OF TWO AND THE SAME IS TO BE APPLIED TO THE LABEL PRICE IN ORDER TO WORK OUT THE COST OF STOCK AVAILABLE WITH THE ASSESSEE ON THE DATE OF SEARCH. THE PLEA OF ASSESSEE THAT THE SAID GP MARGINS SHOULD BE APPLIED TO THE DISCOUNT PRICE, IF SO APPLIED, WOULD GIVE DISTORTED VERSION OF ACCOUNTING AND THE SAME CANNOT BE ACCEPTED. THE ASSESSING OFFICER HAS ELABORATED UPON THE ISSUE AT PAGES 8 TO 12 OF THE ASSESSMENT ORDER AND WORKED OUT THE EXCESS STOCK AT RS.65,14,350/ - . THE CUMULATIVE GROSS PROFIT OF ANY YEAR IS AFTER TAKING INTO CONSIDERATION THE PROFIT MARGINS OF DISCOUNT SALES AND REGULAR SALES. THE ASSESSEE ARRANGES THE DISCOUNT SALE FOR LIMITED PERIOD OF THREE MONTHS AND REVERTS BACK TO ITS LABEL PRICE ONCE THE DISCOUNT SALE PERIOD IS OVER. THE GROSS PROFIT DECLARED BY THE ASSESSEE FOR THE RESPECTIVE YEARS AC COUNT FOR GROSS PROFIT MARGINS ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 19 OF ASSESSEE ON REGULAR DAYS AND THE DISCOUNT SALES. THE ASSESSEE ADMITTEDLY, REVERTS BACK TO THE LABEL PRICE AFTER THE DISCOUNT PERIOD IS OVER EXCEPT FOR LIMITED OLD STOCK. ACCORDINGLY, WE HOLD THAT THERE IS NO LOGIC IN ADO PTING THE DISCOUNT PRICE AS THE BASIS AND TO REDUCE THE GROSS PROFIT MARGIN AT 18.50% FOR WORKING OUT THE VALUE OF CLOSING STOCK ON THE DATE OF SEARCH. THE INVENTORY PREPARED BY THE SEARCH PARTY IS PLACED AT PAGES 93 TO 490 OF THE PAPER BOOK, WHICH REFLEC TS THE LARGE NUMBER OF ITEMS MAINTAINED BY THE ASSESSEE AND IN THE ABSENCE OF ANY STOCK INVENTORY BEING KEPT BY THE ASSESSEE, IT IS DIFFICULT TO VERIFY THE COST OF SO MANY ITEMS WHICH ARE AVAILABLE WITH THE ASSESSEE AS ITS STOCK. 2 4 . ANOTHER ASPECT WHICH NEEDS TO BE TAKEN CARE OF IS THAT THE OPENING STOCK AS ON 01.04.2004 HAD BEEN VALUED ON THE BASIS OF LABEL PRICE AND CONSEQUENTLY, THE STOCK WHICH WAS FOUND ON 15.06.2004 NEEDS TO BE VALUED ON THE SAID LABEL PRICE ITSELF, THOUGH DURING THAT PERIOD THE ASSE SSEE WAS OFFERING DISCOUNT. THE PLEA RAISED BY THE ASSESSEE IN THIS REGARD MERITS TO BE REJECTED, IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES OF THE CASE, WHERE THE ASSESSEE HAS NOT FURNISHED THE STOCK INVENTORY AS ON 31.03.2004 OR FOR EARLI ER YEARS OR LATER YEARS AND IS NOT IN A POSITION TO JUSTIFY ITS CLAIM THAT THE STOCK IS BEING VALUED AT STOCK OR MARKET PRICE, WHICHEVER IS LESS. ANOTHER ASPECT WHICH NEEDS TO BE KEPT IN MIND IS THAT WHEN THE ASSESSEE IS OFFERING DISCOUNT ON ITS STOCK, TH EN THE SAID STOCK IS NOT BEING VALUED AT LESS THAN COST BUT IN CASE THE DISCOUNTED PRICE IS TAKEN AND THEREAFTER, THE GROSS PROFIT MARGINS ARE REDUCED, THE VALUE OF STOCK WOULD BE BELOW THE COST PRICE AS THE ASSESSEE ADMITTEDLY, DURING THE COURSE OF DISCOU NT SALE IS NOT EARNING ITS REGULAR MARGINS OF PROFITS I.E. 18.50% BUT IS EARNING LESSER MARGINS OF PROFITS. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD . UPHOLDING THE ORD ERS OF ITA NO S. 1 6 3 & 1 6 4 /PN/201 4 M/S. RANGOLI & ANR. 20 AUTHORITIES BELOW, WE DISMISS THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 2 5 . THE FACTS A ND ISSUE IN ITA NO. 1 64 /PN/201 4 ARE IDENTICAL TO THE FACTS AND ISSUE IN ITA NO. 1 63 /PN/201 4 AND OUR DECISION IN ITA NO. 1 63 /PN/201 4 SHALL APPLY MUTATIS MUTANDIS TO ITA NO. 1 64 /PN/201 4 . 2 6 . IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 31 ST DAY OF AUGUST , 201 6 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; D ATED : 31 ST AUGUST, 201 6 . / PUNE ; D ATED : 31 ST AUGUST, 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - I I , PUNE ; 4. / THE CIT (CENTRAL), PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE