The DCIT, Cent Cir-1, Visakhapatnam V. M/s Prapath Enterprises, Visakhapatnam

ITA 183/VIZ/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2849 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2000-2001
• Appeal Filed On: 11-05-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Keywords: Search and seizure
• Section: 133A; 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.183/VIZAG/2007 ASSESSMENT YEAR : 2000-01 DCIT CENTRAL CIRCLE-1 VISAKHAPATNAM PRAPATH ENTERPRISES VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) C.O. NO.3/VIZAG/2008 ASSESSMENT YEAR : 2000-01 PRAPATH ENTERPRISES VISAKHAPATNAM DCIT CENTRAL CIRCLE-1 VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI SUBRATA SARKAR, DR RESPONDENT BY: SHRI C. SUBRAHMANYAM, CA ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A) ON FOLLOWING GROUNDS: 1. THE ORDER OF THE LD. CIT(A)-1, IS ERRONEOUS AND OPP OSED TO LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) IS WRONG IN CONCLUDING THAT AT THE T IME OF SEARCH AND SEIZURE ACTION U/S 132 OF THE I.T. ACT, 1961, T HE DEPARTMENT HAS NOT FOUND ANYTHING IN EXCESS OF STOCK ARE IN DE FICIT COMPARED TO BOOK ENTRIES BECAUSE THE ISSUE OF CLOSING STOCK REL ATES TO YEAR ENDING 31.3.2000 WHEREAS SEARCH AND SEIZURE ACTION WERE CONDUCTED ON 27.8.2003. IT IS NOT POSSIBLE TO PHYSI CALLY VERIFY STOCK RELATING TO FINANCIAL YEAR 1999-2000. 3. THE LD. CIT(A) ERRED IN ACCEPTING THE ASSESSEE PLEA REGARDING REVISING THE CLOSING STOCK IN THE BOOKS AFTER THE S TATUTORY ORDER WAS COMPLETED AND CERTIFIED BY THE AUDITOR U/S 44AB OF I.T. ACT, 1961. SUCH AUDIT REPORT BASED ON THE ASSESSEES CERTIFICA TE AND THE ASSESSEE CERTIFICATE IS BASED ON THE PHYSICAL VERIF ICATION OF CLOSING STOCK, THE CLOSING STOCK IS NOT AN ACCOUNTING ENTRY WHICH CAN BE REVERSED. 4. ANY OTHER GROUND THAT MAY BE PRAYED AT THE TIME OF HEARING. 2 2. THE ASSESSEE HAS ALSO PREFERRED THE CROSS OBJECT IONS ON THE GROUND THAT ASSESSING OFFICER IS NOT CORRECT IN ISSUING A NOTICE U/S 153A OF THE I.T. ACT IN AS MUCH AS THE ASSESSEES CASE IS THAT OF SURVEY U/S 133A AND NOT A CASE OF SEARCH U/S 132 OF THE I.T. ACT. THE C.O. IS FIL ED LATE BY 226 DAYS. THOUGH THE ASSESSEE HAS MOVED AN APPLICATION FOR CONDONATI ON OF DELAY BUT DURING THE COURSE OF HEARING OF THE APPEAL, THE ASSESSEE O PTED TO WITHDRAW ITS C.O. TO WHICH REVENUE HAS NO OBJECTION. ACCORDINGLY, WE DISMISS THE C.O. AS WITHDRAWN. 3. SO FAR AS THE REVENUES APPEAL IS CONCERNED, WE FIND THAT THOUGH THE REVENUE HAS RAISED TWO GROUNDS OF APPEAL BUT IT REL ATE TO AN ADDITION OF RS.10,35,200/- MADE BY THE A.O. IN THIS REGARD, TH E A.O. HAS OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT IN THE RETURN OF INCOME FILED U/S 153A, THE ASSESSEE HAS REDUCED THE PURCHA SES TO THE TUNE OF RS.10,35,200/- BEING PURCHASES ENTERED TWICE IN THE BOOKS OF ACCOUNTS. AT THE SAME TIME, THE ASSESSING OFFICER FOUND THAT ASS ESSEE HAS ALSO DECREASED THE CLOSING STOCK BY THE SAID AMOUNT TO NULLIFY THE EFFECT OF RECTIFICATION OF DOUBLE CLAIM OF PURCHASES. THE A.O. DID NOT ALLOW THE DEDUCTION OF THE CLOSING STOCK, SINCE CLOSING STOCK IS AN ITEM WHICH REFLECTED IN THE ACCOUNTS ONLY AFTER PHYSICAL INVENTORY AND IT CANNOT BE ALTE RED. THE A.O. FURTHER OBSERVED THAT PHYSICAL STOCK OF THE CLOSING STOCK I S CERTIFIED BY THE CHARTERED ACCOUNTANT IN THE AUDIT REPORT FILED U/S 44AB, WHIC H MEANS, THE CLOSING STOCK TO BE PHYSICALLY EXISTED AND DULY CERTIFIED BY THE CHARTERED ACCOUNTANTS. THUS, COULD NOT BE REDUCED BY THE ASSESSEE. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) W ITH THE SUBMISSION THAT THE CLOSING STOCK HAS BEEN ARRIVED AFTER CONSI DERING THE PURCHASES, SALES AND OPENING STOCK AND SINCE THE ERROR WAS COMMITTED IN THE ORIGINAL STATEMENT, SAME WAS RECTIFIED NOW BY EXCLUDING THIS DOUBLE ENTRY FROM THE CLOSING STOCK FIGURE. IT WAS FURTHER CONTENDED THA T UNDISPUTEDLY THE CLOSING STOCK TAKEN BY THE ASSESSEE IN THE RETURN OF INCOME WAS WORKED OUT BY TAKING THE OPENING STOCK PURCHASES AND SALES. ACCORDINGLY , WHEN THE ERROR OF PURCHASE WAS RECTIFIED, THE CLOSING STOCK HAS TO BE RECTIFIED TO THE SAME EXTENT. 3 5. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASS ESSEE, THE CIT(A) DELETED THE ADDITIONS AFTER HAVING OBSERVED THAT SI NCE THE SEARCH AND SEIZURE OPERATION HAS TAKEN PLACE AND THE ACCOUNTING ENTRIE S HAVE GOT A RE-LOOK AND RETURNS OF INCOME FILED, WHEREIN, THE RETURNED INCO ME IS DIFFERENT THAN THE RETURNED INCOME IN THE ORIGINAL RETURNS, THE ASSESS EE CANNOT BE PENALIZED FOR THE MISTAKE OF THE PURCHASE ENTRY. 6. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE T HE TRIBUNAL WITH THE SUBMISSIONS THAT AS PER THE ACCOUNTING STANDARD, TH E CLOSING STOCK ARE TO BE PREPARED ON THE BASIS OF THE PHYSICAL VERIFICATION AND THE STOCK INVENTORIES. ONCE THE CLOSING STOCK IS PREPARED, IT CANNOT BE RE DUCED ON THE BASIS OF DOUBLE ENTRIES IN THE PURCHASES. HE HAS ALSO PLACE D A RELIANCE UPON THE ORDER OF THE A.O. 7. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND HAS CONTENDED THAT NO PHYSICAL VERIFICATION WAS UNDERTAKEN AT THE TIME OF PREPARATION OF THE CLOSING STOCK. IT WAS RATHER PREPARED ON THE BASIS OF THE OPENING STOCK, PURCHASES AND SALES. THEREFORE, IF THE DOUBLE ENTR Y IS NOTICED IN THE PURCHASES AND IF IT HAS REDUCED, THE CORRESPONDING EFFECT SHOULD ALSO BE GIVEN IN CLOSING STOCK. IT WAS ALSO CONTENDED THAT ON THE BASIS OF THE REVISED CLOSING STOCK, THE ASSESSEE HAS REVISED ITS OPENING STOCK OF THE SUCCEEDING YEAR AND THE SAME WAS ACCEPTED BY THE REVENUE. THE REFORE, THE RECTIFIED CLOSING STOCK DECLARED BY THE ASSESSEES CANNOT BE A LTERED BY THE REVENUE. 8. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE RECORD, WE ARE OF THE VIEW THAT IF THE ASSESSEE HAS REDUCED THE CORRESPONDING OPENING STOCK AND CLOSING STOCK OF SUCCEEDING YEARS ON THE BASIS OF THE REDUCTION IN THE PURCHASES, THE CLOSING STOCK REDUC ED BY THE ASSESSEES DESERVES TO BE ALLOWED. BUT NO MATERIAL IS PLACED IN THIS REGARD AND BOTH THE PARTIES HAVE AGREED TO THE PROPOSITION THAT LET THE MATTER BE SENT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF THESE FACTS. WE ACCORDINGLY, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE F ILE OF THE A.O. WITH A DIRECTION TO VERIFY THE FACTS WHETHER THE CLOSING S TOCK WAS PREPARED ON THE BASIS OF OPENING STOCK, PURCHASES AND SALES AND ALS O WHETHER THE ASSESSEE 4 HAS MADE A CORRESPONDING DEDUCTION IN THE OPENING A ND CLOSING STOCK OF THE SUCCEEDING YEARS AND THE SAME WAS ACCEPTED BY THE R EVENUE. IF IT IS ACCEPTED BY THE REVENUE, THEN NO ADDITION IN THE IM PUGNED ASSESSMENT YEAR IS CALLED FOR. ACCORDINGLY, MATTER IS RESTORED TO THE FILE OF THE A.O. AFTER SETTING ASIDE THE ORDER OF THE CIT(A) FOR RE-ADJUDI CATION OF THE IMPUGNED ISSUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES AND THE C.O. OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 9.9.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 9 TH SEPTEMBER, 2010 COPY TO 1 DCIT, CENTRAL CIRCLE-1, VISAKHAPATNAM 2 PRAPATH ENTERPRISES, 23, VBC COMPLEX, FISHING HAR BOUR, VISAKHAPATNAM 3 THE CIT, HYDERABAD 4 THE CIT(A)-I, HYDERABAD 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM