` MANOHAR SONI, Jaipur V. ITO, Dausa

ITA 186/JPR/2011

• Counselvise Citation: 18623114 RSA 2011
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 03-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S L PODDAR
• Keywords: Bogus purchase; Loose papers
• Section: 133A; 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.186/ JP/2011 ASSESSMENT YEAR 2006-07 PAN AHUPS 6792 E SHRI RAM MANOHAR SONI VS. THE ITO PROP M/S. KISHAN LAL RAM MANOHAR WARD DAUSA NAYA KATLA, DAUSA DAUSA (APPELLANT ) (RESPONDENT) ITA NO.206/ JP/2011 ASSESSMENT YEAR 2006-07 PAN AHUPS 6792 E THE ITO VS. SHRI RAM MANOHAR SONI WARD DAUSA PROP M/S. KISHAN LAL RAM MANOHAR SO NI DAUSA NAYA KATLA, DAUSA (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SANJAY KUMAR ASSESSEE BY : SHRI S.L. PODDAR ORDER PER N.L. KALRA, AM:- THE ASSESSEE AS WELL AS REVENUE HAVE FILED APPEALS AGAINST THE ORDER OF THE LD. CIT(A), ALWAR DATED 05-01-2011 FOR THE ASSESSMENT YEAR 2006-07. 2 2.1 THE ASSESSEE IN ITS GROUND NO. 1 IS AGGRIEVED A GAINST CONFIRMATION OF ADDITION OF RS.18,32,543/- WHILE THE REVENUE IN ITS GROUND NO. 1 IS AGGRIEVED AGAINST RELIEF OF RS. 5,03,467/- BY NOT A CCEPTING THAT THE STOCK FOUND AT THE TIME OF SURVEY CANNOT BE TAKEN AT RS. 41,71,422 /-. 2.2 THE ASSESSEE IS DERIVING INCOME FROM PURCHASE A ND SALE OF GOLD AND SILVER ORNAMENTS AND IS ALSO SHOWING INTEREST INCOM E. SURVEY U/S 133A OF THE ACT WAS CONDUCTED AT THE BUSINESS PREMISES OF T HE ASSESSEE ON 9 TH DEC 2005. DURING THE COURSE OF SURVEY, FOLLOWING FACTS WERE NOTICED 1. THE ASSESSEE IS NOT MAINTAINING THE BOOKS OF ACC OUNT AS PER THE ACCOUNTING SYSTEM 2. THE ASSESSEE IS NOT MAINTAINING THE STOCK REGI STER. 3. NO PURCHASE AND SALES VOUCHERS WERE FOUND AT TH E TIME OF SURVEY 4. SILVER ORNAMENTS WEIGHING 179.481 KGS WERE FOUND AT THE TIME OF SURVEY AND THE VALUE WAS TAKEN AT RS. 22,43 ,512/-.GOLD ORNAMENTS WEIGHING 2.641 KG WERE FOUND AT THE TIME OF SURVEY AND THE VALUE WAS DETERMINED AT RS. 19,27,930/-. TH US THE TOTAL STOCK FOUND AT THE TIME OF SURVEY WAS VALUED AT RS. 41,71,442/- .5. IN THE ABSENCE OF BOOKS OF ACCOUNT, IT WAS NOT POSSIBLE TO ASCERTAIN THE STOCK OF GOLD AND SILVER JEWELLERY AS PER BOOKS OF ACCOUNT. 6. THE CASH FOUND AT THE TIME OF SURVEY WAS TO THE EXTENT OF RS. 13,510/- AND IN ABSENCE OF BOOKS OF ACCOUNT, S UCH CASH COULD NOT BE VERIFIED. 3 7. THE DOCUMENTS FOUND DURING THE COURSE OF SURVEY SHOWED THAT THE ASSESSEE IS ALSO INDULGING IN GIVIN G ADVANCE BY GETTING THE JEWELLERY PLEDGED. 8. THE LOOSE PAPERS AND DOCUMENTS FUND DURING THE C OURSE OF SURVEY SHOWED THAT THE ASSESSEE IS INDULGING IN UNACCOUNTED PURCHASES AND SALES OF GOLD AND SILVER JEWELLERY. 9. AT PAGE 3 OF THE ASSESSMENT ORDER, THE AO REFERR ED 18 DOCUMENTS FOUND DURING THE COURSE OF SURVEY. 2.3 OUT OF THESE 18 DOCUMENTS CERTAIN DOCUMENTS REL ATED TO THE ASSESSMENT YEAR UNDER CONSIDERATION. ON THE BASIS O F THE LOOSE PAPERS AND DOCUMENTS, THE ASSESSEE HAS SURRENDERED AN INCOME O F RS. 6,69,473/-FOR THE ASSESSMENT YEARS 1999-2000 TO 2004-05. THE SURRENDE R IS ON ACCOUNT OF UNACCOUNTED PURCHASES AND SALES AND THE EARNING OF INTEREST OUTSIDE THE BOOKS OF ACCOUNT. AT PAGE 4 OF THE ASSESSMENT ORDER , THE AO HAS REFERRED TO THE STATEMENT OF THE ASSESSEE RECORDED AT THE TIME OF SURVEY. IN THE STATEMENT, ASSESSEE HAS ADMITTED TO HAVE BEEN INDULGING IN PUR CHASES AND SALES OUTSIDE THE BOOKS OF ACCOUNT. THE AO HAS ALSO MENTIONED CER TAIN SALES AS IS AVAILABLE IN THE LOOSE PAPERS BUT NOT REFLECTED IN THE BOOKS OF ACCOUNT. 2.4 THE ASSESSEE PREPARED A TRADING ACCOUNT UPTO TH E DATE OF SURVEY. ON THE BASIS OF THE TRADING ACCOUNT, THE ASSESSEE ESTI MATED THE STOCK AT RS. 36,67,975/-. THE ASSESSEE HAS VALUED THE STOCK ON L IFO METHOD. THE AO 4 HAS ADOPTED FIFO METHOD. THEREFORE, THE AO ADDED A SUM OF RS. 503,467/- AS UNEXPLAINED STOCK FOUND AT THE TIME OF SURVEY. 2.5 THE AO NOTICED THAT ASSESSEE HAS DEBITED A SUM OF RS. 18,32,543/- IN RESPECT OF PURCHASE AND SALE OF JEWELLERY. THE JEWE LLERY WORTH RS. 9.75 LACS SHOWN TO HAVE BEEN PURCHASED FROM M/S. GLORIOUS GEM S VIDE BILL DATED 18 TH NOV. 2005. THE JEWELLERY WORTH RS. 8,57,543/- HAS B EEN PURCHASED FROM M/S. VINAYAK GEMS AND JEWELLERY VIDE BILL DATED 29 TH NOV 2005. AT THE TIME OF SURVEY, THE ASSESSEE WAS NOT HAVING ANY PURCHASE BILLS. THE AO IN HIS ORDER AT PAGE 6 HAS REPRODUCED THE RELEVANT EXTRACT S FROM THE STATEMENT OF THE ASSESSEE AT THE TIME OF SURVEY, NO DOCUMENT ETC WAS FOUND IN RESPECT OF PURCHASES TO THE EXTENT OF RS. 18,32,543/-. THE SA LES AFTER THE DATE OF SURVEY TILL 31-03-2006 IS ONLY TO THE EXTENT OF RS. 5,76,7 86/-. HENCE, THERE WAS NO JUSTIFICATION FOR MAKING HUGE PURCHASES. CONFIRMATI ON OF PURCHASE VOUCHERS SHOWED THAT THE CONFIRMATION HAS BEEN GIVEN BY THE SAME PERSON HAVING THE SAME PAN. THE BILLS DID NOT CONTAIN THE DETAILS OF THE ITEMS OF JEWELLERY PURCHASED. THE AO THEREFORE, HELD THE PURCHASES TO THE EXTENT OF RS. 18,32,543/- AS UNEXPLAINED. 2.6 THE LD. CIT(A) HAS DELETED THE ADDITION ON ACCO UNT OF EXCESS STOCK. THE LD. CIT(A) HAS CONFIRMED THE ADDITION OF RS. 18 ,32,543/- IN RESPECT OF 5 THE PURCHASES FROM TWO CONCERNS NAMELY M/S. GLORIOU S GEMS AND M/S. VINAYAK GEMS AND JEWELLERY. 2.7 WE HAVE HEARD BOTH THE PARTIES. THE STOCK ON TH E DATE OF SURVEY HAS BEEN VALUED ON THE PREVALENT MARKET RATE. IT HAS BE EN MENTIONED BY THE AO THAT THE ASSESSEE IS FOLLOWING LIFO METHOD FOR VALU ATION OF THE STOCK. IT IS TRUE THAT THE LIFO METHOD OF VALUATION OF STOCK HAS NOT BEEN ACCEPTED BY THE DEPARTMENT FOR EARLIER ASSESSMENT YEAR. THE OPTION IS ON THE ASSESSEE TO ADOPT METHOD OF VALUATION OF STOCK AS PER HIS CHOIC E PROVIDED THE CHOICE IS ONE OF THE ACCEPTED METHODS OF VALUATION OF THE STO CK THE REVENUE CAN CHANGE THE METHOD OF VALUATION OF STOCK IN CASE IT IS FELT THAT CHANGE IN METHOD OF STOCK IS NOT HELPING IN DETERMINING THE C ORRECT INCOME FOR A PARTICULAR ASSESSMENT YEAR. HOWEVER, IN CASE THE ME THOD OF VALUATION OF STOCK IS BEING CHANGED THEN IT IS INCUMBENT UPON TH E AO TO VALUE THE OPENING STOCK ON THE SAME BASIS. IN THE INSTANT CAS E, THE AO HAS NOT VARIED THE OPENING STOCK. THE OPENING STOCK OF A PARTICULA R ASSESSMENT YEAR IS THE CLOSING STOCK OF THE PRECEDING ASSESSMENT YEAR. IN CASE ANY DISTURBANCE IS MADE IN VALUATION OF THE STOCK THEN IT WILL HAVE A SNOW BALLING EFFECT. THIS WILL MEAN A CHANGE IN COMPUTATION OF INCOME FOR A N UMBER OF YEARS. ANY CHANGE IN THE VALUATION OF THE STOCK WILL BE REVENU E NEUTRAL BECAUSE ANY INCREASE IN VALUATION OF THE STOCK WILL HAVE TO BE ADJUSTED IN THE SUCCEEDING 6 YEAR. THE HON'BLE HIGH COURT IN THE CASE OF CIT VS MAHAVEER ALLUMINIUM LTD., 297 ITR 77 HAS REFERRED TO THE DECISION OF PR IVY COUNSEL IN THE CASE OF CIT VS AHEMDABAD NEW COTTON MILLS CO. LTD. AIR 193 0 PC 56 AND HELD THAT IF THERE IS ANY CHANGE IN THE CLOSING STOCK AT THE END OF THE YEAR THEN THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMEN T MADE IN THE OPENING STOCK OF THAT YEAR . IN THE INSTANT CASE, THE AO HAS NOT VALUED THE OPE NING STOCK ON THE SAME SYSTEM IN WHICH CLOSING STOCK HAS BEEN VALUED. THUS THE ADDITION MADE BY THE AO IN RESPECT OF STOCK IS NOT IN ACCORDANCE WITH LAW. 2.8 IT IS TRUE THAT NO BOOKS OF ACCOUNT WERE FOUND AT THE TIME OF SURVEY. THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE GEN UINENESS OF THE PURCHASES. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F RAJENDER PRASAD SUBHASH CHAND VS UNION OF INDIA 237 CTR 382 HAD AN OCCASION TO CONSIDER THE CASES WHERE THE BOOKS OF ACCOUNT WERE FOUND TO HAVE BEEN WRITTEN UPTO 26-04-02 AND THE SURVEY WAS CONDUCTED ON 06-05-02. THE HON'BLE HIGH COURT HELD THAT THE AO WAS RIGHT IN INVOKING THE PR OVISIONS OF SECTION 145(3) OF THE ACT AND REJECTED THE BOOKS OF ACCOUNT . NO ENTRIES FROM 26-04- 02 TO TILL THE DATE OF SURVEY WERE FOUND ENTERED IN THE BOOKS OF ACCOUNT AT THE TIME OF SURVEY. IN THE INSTANT CASE, NO BOOKS OF AC COUNT WERE FOUND DURING THE COURSE OF SURVEY. HENCE, IN THE INSTANT CASE, O NE CAN APPLY THE PROVISIONS OF SECTION 145(3) OF THE ACT. THERE WERE LOOSE PAPE RS AND DIARIES SHOWING 7 THAT THE ASSESSEE HAS BEEN INDULGING IN SALES OUTSI DE THE BOOKS OF ACCOUNT. THE AO HAS ESTIMATED THE SALES OUTSIDE THE BOOKS OF ACCOUNT. AT PAGE 8 OF THE ASSESSMENT ORDER, THE AO HAS MENTIONED THAT THE ASSESSEE IS MENTIONING ONLY CREDIT SALES IN THE BOOKS OF ACCOUNT AND THE C ASH SALES ARE NOT BEING RECORDED. CERTAIN LOOSE PAPERS MENTIONING AT PAGE 8 OF THE ASSESSMENT ORDER SHOW THAT THE ASSESSEE HAS MADE CASH SALES IT IS AL SO NOTICED THAT THE ASSESSEE HAS SURRENDERED AN INCOME OF RS. 6,69,473/- FOR THE ASSESSMENT YEAR 1999- 2000 TO 2004-05. THE AO HAS ALSO ADDED THE INCOME F ROM SALES OUTSIDE THE BOOKS OF ACCOUNT. THE AO HAS ALSO ADDED AN INCOME O N ACCOUNT OF INTEREST BEING NOT REFLECTED AFTER THE DATE OF SURVEY THOUGH INTEREST ON THE DATE OF SURVEY WAS SHOWN TO THE EXTENT OF RS. 34,648/-. LOO KING TO THE FACTS THAT NO BOOKS OF ACCOUNT WERE FOUND AND THE ASSESSEE IS IND ULGING IN PURCHASE AND SALES OUTSIDE THE BOOKS OF ACCOUNT AND ASSESSEE HAS ALSO SURRENDERED INCOME FROM SUCH ACTIVITIES, WE THEREFORE, FEEL THAT IT WI LL BE FAIR AND REASONABLE TO MAKE AN ESTIMATE OF TRADING ADDITION TO THE EXTENT OF RS. 2.00 LACS. THE INCREASE IN VALUATION OF STOCK IS DELETED AND THE A SSESSEE WILL NOT TAKE BENEFIT OF TRADING ADDITION AS STATED ABOVE BY INCREASING T HE STOCK. SINCE WE HAVE ALREADY HELD THAT PROVISIONS OF SECTION 145(3) ARE APPLICABLE THEREFORE, THE TRADING ADDITION IS REQUIRED TO BE MADE ON ACCOUNT OF BOGUS PURCHASES. THUS 8 GROUND NO. 1 OF THE ASSESSEE AND GROUND NO. 1 OF TH E REVENUE ARE DISPOSED OFF AS INDICATED ABOVE. 3.1 THE SECOND GRIEVANCE OF THE ASSESSEE IS THAT TH E LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 79,245/- OUT OF T OTAL ADDITION OF RS. 1,98,112/- WHILE THE REVENUE IN ITS GROUND NO. 2 IS AGGRIEVED AGAINST RESTRICTION OF ADDITION OF RS. 79,245/- AS AGAINST ADDITION OF RS. 1,98,112/- MADE BY THE AO. 3.2 DURING THE COURSE OF HEARING, THE LD. AR HAS NO T PRESSED THE GROUND NO. 2. HENCE THE SAME IS DISMISSED BEING NOT PRESSE D. 3.3 WE HAVE HEARD BOTH THE PARTIES. THE AO ESTIMATE D THE SALES OUTSIDE THE BOOKS OF ACCOUNT AT 25% OF THE DISCLOSED SALES. THE DISCLOSED SALES ARE OF RS. 26,41,492/-. THE UNDISCLOSED SALES WERE ESTIMAT ED AT RS. 13,20,746/-. WHILE MAKING ADDITION, THE AO HAS MENTIONED THAT HE IS INCREASING THE SALES BY 20% AND IS TAKING 25% AS NET PROFIT. THE LD. CIT (A) HAS NOTICED THAT THE AO HAS DETERMINED THE UNDISCLOSED SALES AT 50% OF T HE DISCLOSED SALES THOUGH IN THE ORDER HE HAS MENTIONED THAT HE IS INC REASING THE SALES BY 20%. KEEPING IN VIEW THESE FACTS, THE LD. CIT(A) REDUCED THE ADDITION TO RS. 79,245/- AS AGAINST RS. 1,98,112/- MADE BY THE AO. THERE IS AN APPARENT MISTAKE IN THE ASSESSMENT ORDER. THE AO HAS NOT PAS SED AN ORDER U/S 154 OF THE ACT. WE HAVE NOT SEEN ANY MATERIAL OR QUESTIONN AIRE TO INDICATE THAT THE 9 AO ACTUALLY WANTED TO INCREASE THE SALES BY 50% OF THE DISCLOSED SALES. CONSIDERING THE FACTS, WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN REDUCING THE PROFIT TO RS. 79,245/- AS AGAINST RS. 1,98,112/ - MADE BY THE AO. THUS GROUND NO. 2 OF THE REVENUE IS DISMISSED. 4.1 THE THIRD GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,13,400/- MADE BY THE AO ON ACCOUNT OF SALARY PAYMENT. 4.2 THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED SA LARY PAYMENTS TO THE EXTENT OF RS. 1,13,400/-. DURING THE COURSE OF SURV EY, NO DETAILS OF SALARY PAYMENTS WERE FOUND. THE AO THEREFORE, DID NOT ALLO W THE CLAIM OF SALARY PAYMENTS. 4.3 THE LD. CIT(A) NOTICED THAT THE ASSESSEE ADMITT ED DURING THE COURSE OF SURVEY IN RESPECT OF INDUCTION OF TWO EMPLOYEES NAM ELY SHRI GOPAL DAS AND SHRI RAJENDRA. THE TURNOVER DURING THE YEAR IS 35.6 4 LACS AS AGAINST RS. 19.78 LACS IN THE PRECEDING YEAR. THE LD. CIT(A) HA S ACCORDINGLY DELETED THE ADDITION OF RS. 1,13,400/-. 4.4 WE HAVE HEARD BOTH THE PARTIES. WE ARE NOT AWAR E AS TO WHOM SALARY OF RS. 1,13,400/- HAS BEEN DEBITED. WE ARE NOT AWAR E HOW MUCH SALARY HAS BEEN CLAIMED IN THE PRECEDING YEAR. IT IS TRUE THAT TURNOVER DURING THE YEAR IS MORE AS COMPARED TO PRECEDING YEAR BUT IN CASE THE NUMBER OF EMPLOYEE IS 10 THE SAME THEN THE INCREASE IN SALARY WILL NOT BE WI TH THE SAME RATIO IN WHICH TURNOVER HAS INCREASED. WE THEREFORE, FEEL THAT IT WILL BE FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE OUT OF SALARY TO RS. 4 0,000/-. 5.1 THE FOURTH GRIEVANCE OF THE REVENUE IS THAT TH E LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION FROM RS. 20,000/- TO R S. 11,500/- MADE BY THE AO ON ACCOUNT OF INTEREST INCOME WHILE THE ASSESSEE IN ITS GROUND NO. 3 IS AGGRIEVED AGAINST CONFIRMATION OF ADDITION OF RS. 1 1,500/-. 5.2 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. AR HAS NOT PRESSED THIS GROUND. HENCE, THE GROUND OF APPEAL OF THE ASS ESSEE IS DISMISSED BEING NOT PRESSED. 5.3 WE HAVE HEARD BOTH THE PARTIES. UPTO THE DATE O F SURVEY, THE INTEREST DISCLOSED BY THE ASSESSEE IS TO THE EXTENT OF RS. 34,648/- . SURVEY HAS BEEN CONDUCTED ON 9-12-2005. LOOKING TO THE INTEREST CRE DITED UPTO THE DATE OF SURVEY, THE LD. CIT(A) WAS THEREFORE, JUSTIFIED IN ESTIMATING SUCH INTEREST INCOME AT RS. 11,500/- AS AGAINST RS. 20,000/- MADE BY THE AO FOR THE PERIOD FROM 10 TH DEC. 2005 TO 31 ST MARCH 2006. THUS THE ACTION OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD. 11 6. IN THE RESULT, THE APPEALS OF THE ASSESSEE AS WE LL AS REVENUE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17-06 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 17 /06/2011 *MISHRA COPY FORWARDED TO :- 1. SHRI RAM MANOHAR SONI, DAUSA, 2. THE ITO, WARD DAUSA 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.186/JP/11) A.R, ITAT, JAIPUR 12 13 14