M/s. Hanee Traders, Valsad V. The Income tax Officer,Ward-2, Valsad

ITA 1974/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6592 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 10-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: PRAKRUTI R UPADHYAY
• Section: 207; 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. BEFORE: SHRI T.K. SHARMA, JUDICIAL MEMBER , AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER. ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) M/S. HANEE TRADERS OPPORTUNITY. LAL SCHOOL, HALAR ROAD, VALSAD. VERSUS INCOME TAX OFFICER, WARD-2 VALSAD . (APPELLANT) (RESPONDENT) PAN: AABFH 4850 L FOR THE APPELLANT: PRAKRUTI R. UPADHYAY, CA FOR THE RESPONDENT SHRI. RAJEEV AGARWAL CIT DR ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME TAX(APPEALS) DATED 15-02-2007 FOR THE ASSESSMENT YEAR 2005-06 RA ISING FOLLOWING GROUNDS:- 1. LEARNED A.O. HAS ERRED IN LAW AND ON FACTS TO R EJECT BOOK RESULT APPLYING PROVISIONS OF SEC. 145 OF I.T. ACT, 1961 LEARNED CIT(A) HAS ALSO ERRED TO CONFIRM ACTION OF ITO. 2. LEARNED A.O. HAS ERRED IN LAW AND ON FACTS TO AS S AN AMOUNT OF RS.6,14,431/- UNDER THE UNACCOUNTED SALES. LEAR NED CIT (APPLS) HAS ALSO ERRED IN CONFIRMING THE SAME. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A DEA LER IN GLASS SHEETS. IT IS ASSESSED AS A FIRM. GLASS SHEETS COME INTO VARI OUS SIZES AND ARE SOLD TO BUILDERS FOR USE IN FLATS CONSTRUCTED BY THEM. DUR ING THE ASSESSMENT YEAR IN QUESTION, WHILE VERIFYING THE BOOKS OF ACCO UNTS BY THE ASSESSEE, IT WAS SEEN BY THE ASSESSING OFFICER THAT ASSESSEE HAS NOT MAINTAINED QUANTITATIVE DETAILS OF VARIOUS TYPES OF GLASS SHEE TS IN WHICH HE WAS DEALING. THE ASSESSING OFFICER ACCORDINGLY CALLED FOR THE DETAILS IN TERMS 2 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) OF QUANTITY OF TOTAL PURCHASES AND SALES DURING THE YEAR. ACCORDING TO ASSESSING OFFICER THERE WAS DIFFERENCE IN CLOSING S TOCK SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME FILED WITH HIM AS COMPARED TO QUANTITY OF CLOSING STOCK AS PER BOOKS OF ACCOUNTS. THE ASSESS ING OFFICER WORKED OUT QUANTITATIVE DETAILS OF PURCHASE AND SALES MADE DURING THE YEAR ON THE BASIS OF PURCHASE BILLS AND SALE BILLS AND ACCORDIN GLY WORKED OUT FOLLOWING DIFFERENCE: TABLE:1 ITEM PURCHASE QNTY IN SQ.MT SALES QNTY. IN SQ.MT BALANCE 1 2 3 4(2-3) 2.5 MM GLASS (GUJ. GUARDIAN) 986.6262 663.0246 323.6016 6 MM GLASS 2284.6462 2035.1354 249.5108 12 MM GLASS 3003.5264 2794.4269 209.0995 5 MM GLASS 8275.9626 8384.6091 (-)108.6465 4 MM GLASS 10087.0510 9574.8732 512.1778 3 MM GLASS 2550.468 2029.3203 521.1477 3.5MM GLASS 13229.351 12499.7845 729.5665 8 MM GLASS 1272.3106 1205.1842 67.1264 2 MM GLASS 300.5166 276.5108 24.0058 34028.1872 40,456.3490 HE ACCORDINGLY WORKED OUT DIFFERENCE BY REDUCING Q UANTITY OF SALES FROM QUANTITY OF PURCHASES. THIS DIFFERENCE IS SHOW N IN COLUMN 4 ABOVE. THIS WAS TREATED AS CLOSING STOCK WHOSE VALUE WAS W ORKED OUT BY THE ASSESSING OFFICER AS UNDER: 3 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) TABLE: 2 ITEM BALANCE QUANTITY IN SQ.MTRS. (PURCHASE-SALES) RATE PER SQUARE METER VALUE 2.5 MM GLASS 323.5108 229.52 74,273 6 MM GLASS 249.5108 342.47 85,443 12 MM GLASS 209.0995 793.37 1,65,893 5 MM GLASS (-)108.6465 259 (-)28139 4 MM GLASS 512.1778 246.52 1,26,262 3 MM GLASS 521.1477 184.92 96,370 3.5 MM GLASS 729.5665 114.00 83,170 8 MM GLASS 67.1264 310.712 20,857 2 MM GLASS 45.322 95 4,305 10 MM GLASS 24.0058 637.54 15,304 TOTAL 671877 THEREAFTER, ASSESSING OFFICER DETERMINED A DIFFEREN CE IN CLOSING STOCK AT RS.5,93,323/- BY ADJACENT OPENING STOCK AND CLOSING STOCK TO THE DIFFERENCE AS UNDER: THUS THE VALUE OF QUANTITY REMAINING AT THE END OF THE YEAR OUT OF TOTAL PURCHASE DURING THE YEAR COMES TO RS.6,71,877 /-. SALES OF 5 MM GLASS ARE MORE THAN PURCHASE DURING THE YEAR. HENC E VALUE OF SUCH EXCESS SALES BEING RS.28,139/- IS DEDUCTED FROM VAL UE OF OPENING STOCK OF RS.210786/-. THE REMAINING OPENING STOCK WORKS OUT TO RS.210786 RS.281139/- = RS.182647/-. TAKING ALL THESE INTO ACCOUNT THE CLOSING STOCK IS WORKED OUT AS UNDER:- TABLE 3 OPENING STOCK AS DISCUSSED ABOVE I.E. RS.182647/ - ADD: VALUE OF QUANTITY REMAINING IN STOCK (PURCHASE SALES) (AS PER TABLE 2) RS.671877/- RS.854524/- CLOSING STOCK AS WORKED OUT LESS CLEARING STOCK DECLARED 261201 = 5,93,323/- 4 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) ON THE ABOVE BASIS THE ASSESSING OFFICER REJECTED T HE BOOKS OF ACCOUNTS AND PROCEEDED TO DETERMINE UNACCOUNTED SALES. HE A LLOWED A DISCOUNT OF 23,208/- BEING WASTAGE BY APPLYING 0.2% ON TOTAL SA LES AT RS.1,16,04,258/-. THE ASSESSEE HAD CLAIMED THAT TH IS WASTAGE IS RUNNING FROM 6.25% TO 18%. BUT THE ASSESSING OFFICER REJEC TED THE CLAIM AND ADOPTED THE (-2%) BREAKAGE ON SALES. THUS, BY GIVI NG DISCOUNT OF WASTAGE, ASSESSING OFFICER WORKED OUT DIFFERENCE IN STOCK AS UNDER: OPENING STOCK AS DISCUSSED AS PER TABLE 3 ABOVE RS .1,82,647/- ADD: VALUE OF QUANTITY REMAINING IN STOCK (PURCHASE SALES) AS PER TABLE 2 ABOVE RS.6,71, 877/- CLOSING STOCK AS WORKS OUT RS.854524/- LESS WASTAGE @ 0.2% ON SALES RS.23208 STOCK SHOULD HAVE BEEN OF AT RS. RS.8,31,316 LESS CLOSING STOCK AS PER BOOKS 261201 DIFF. IN STOCK 5,70,115/- TO THIS, ASSESSING OFFICER ALLOWED RATE DIFFERENCE OF 4% ON RS.5,70,115/- WHICH WAS CALCULATED AT RS.22,804/- RESULTING IN DE FICIT IN STOCK AT RS.5,47,211/- (5,70,115 22,804). HE WORKED OUT G P ON THIS FIGURE AT RATE OF RS.12.45% I.E. AT RS.68,140/- AND ADDED THE SAME TO RS.5,47,311/-. THIS RESULTED IN A FIGURE OF RS.6,14,415/- WHICH WA S TREATED AS UNACCOUNTED SALES AND WAS ADDED INTO A TOTAL INCOME . 3. AFTER REJECTING THE BOOKS, THE ASSESSING OFFICER DID NOT MAKE ANY ADDITION TO THE GP BECAUSE HE FOUND THAT DIFFERENCE IS OF 0.8% IN THE GP RATE OVER LAST YEAR WHICH WOULD RESULT INTO ADDITIO N OF RS.92,834/- ONLY, WHEREAS, HE HAS PROPOSED AN ADDITION OF RS.6,14,451 /-. 5 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) 4. THE LD. COMMISSIONER OF INCOME TAX(APPEALS)UPHEL D THE REJECTION OF BOOKS AND ALSO ADDITION MADE BY THE AS SESSING OFFICER BY OBSERVING AS UNDER: 6.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AS WELL AS THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER. AFTER HAVING TAKEN INTO ACCOUNT, THE PERTINENT FACTS, IT APPEARS THAT THE ASSESSING OFFICER HAS WORKED OUT THE SALES OF RS.6,14,451/- O UTSIDE THE BOOKS BASED ON ACTUAL WORKING OF QUANTITIES AS PROVIDED B Y THE APPELLANT FROM HIS RECORDS AND BILLS AND VOUCHERS. I FIND TH AT THE AO IS FAIR AND JUST TO HAVE CONSIDERED REASONABLE BREAKAGE AND WASTAGE IN QUANTITIES. THE ASSESSING OFFICER HAS REACHED HIS CONCLUSION BASED ON THE FINDING THAT THE APPELLANT DID NOT MAI NTAIN QUANTITATIVE RECORDS. EVEN AFTER CONSIDERING REASO NABLE PORTION OF BREAKAGES, IT CAN BE DEDUCED FROM THE WORKING GIVEN BY THE ASSESSING OFFICER THAT EITHER THE APPELLANT HAS SUP PRESSED HIS CLOSING STOCK OR THERE ARE INDICATION OF THE SALES OUTSIDE THE BOOKS. THE VALUE OF CLOSING STOCK AS PER VERSION OF THE AP PELLANT ITSELF, IF ACCEPTED, WOULD LEAD TO A DEFINITE CONCLUSION THAT THE APPELLANT HAS SUPPRESSED SALES TO THE EXTENT OF RS.6,14,451/-. T HERE IS NO FORCE IN THE ARGUMENT OF THE APPELLANT BECAUSE THE APPELLANT HAS FAILED TO FILE ACCURATE EVIDENCES WITH RESPECT TO QUANTITATIV E TALLY AND DEFINITE PORTION OF BREAKAGES. THE APPELLANTS CLA IM OF BREAKAGES UP TO 8% TO 15% IS NOT ACCEPTABLE AS THE SAME IS PR OJECTED TO BE VERY HIGH. LOOKING TO THE CLEAR CUT FINDING AND WO RKING GIVEN BY THE AO IN THE ASSESSMENT ORDER, THERE IS NOT PLAUSI BLE REASON TO REBUT THE SAME BUT I AM INCLINED TO ACCEPT THE FIND INGS GIVEN BY THE AO IN THE ASSESSMENT ORDER. THE APPELLANTS CLAIM OF BREAKAGES UP TO 8% TO 15% IS NOT ACCEPTABLE AS THE SAME IS PR OJECTED TO BE VERY HIGH. LOOKING TO THE CLEAR CUT FINDING AND WO RKING GIVEN BY 6 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) THE AO IN THE ASSESSMENT ORDER, THERE IS NOT PLAUSI BLE REASON TO REBUT THE SAME BUT I AM INCLINED TO ACCEPT THE FIND INGS GIVEN BY THE AO IN THE ASSESSMENT ORDER, THERE IS NOT PLAUSIBLE REASON TO REBUT THE SAME BUT I AM INCLINED TO ACCEPT THE FINDINGS G IVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE APP ELLANTS GROUND NO.2 IS, THEREFORE, REJECTED. THE ADDITION OF RS.6 ,14,451/- ON ACCOUNT OF UNACCOUNTED SALES IS THEREFORE, CONFIRMED. 5. BEFORE US LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED AS UNDER: 1. IN WORKING OUT QUANTITY DETAILS HE HAS NOT CONSI DERED QUANTITY OF OPENING STOCK, THOUGH DETAILS ARE SUBMI TTED; 2. HE HAS CONSIDERED WASTAGE AND BREAKAGES @ 0.2% A S AGAINST 6.25% TO 18% CLAIMED BY THE APPELLANT; (PAR A 4.2 1 PAGE 4 & 5 OF THE ASSESSMENT ORDER. PAGE NO.29/1 TO 29/4 O F PAPER BOOK); 3. RATE DIFFERENCE ON PURCHASES AVAILED BY THE APPE LLANT HAS TO BE REDUCED FROM PURCHASES AND TO THAT EXTENT PURCHA SES ARE REQUIRED TO BE REDUCED. AND RATES TAKEN IN VALUATI ON OF CLOSING STOCK ARE ALSO REQUIRED TO BE TAKEN AFTER CONSIDERI NG RATE DIFFERENCE. HOWEVER THE AO ADOPTED RATES FROM LAST PURCHASE BILLS; (PARA 5.1, PAGE 9 OF THE ASSESSMENT ORDER); 4. BOOKS OF ACCOUNTS ARE MAINTAINED, AUDITED AND AL SO ACCEPTED ALL ITEMS OF IT BY THE AO EXCEPT QUANTITY DETAILS. HE DID NOT FOUND ANY SINGLE INSTANT OF SUPPRESSION OF SALE S OR UNRECORDED PURCHASES; 5. APPELLANTS ITEM OF TRADE IS SUBJECT TO LEVY OF SALES-TAX WHICH IS ALSO AUTHORITIES OF THE STATE GOVERNMENT. THEY ACCEPTED TURNOVER OF PURCHASES AND SALES; 7 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) 6. THE APPELLANT IS VALUING ITS CLOSING STOCK ON IN VENTORY BASIS AT THE END OF EACH FINANCIAL YEAR. THE METHOD OF A CCOUNTING AS WELL AS METHOD OF VALUATION OF STOCK REMAINED UNCHA NGED IN THIS YEAR; 7. GP DECLARED BY THE APPELLANT IS QUITE COMPARABLE . CURRENT GP 12.45%, LAST YEAR GP IS 13.25%. THERE IS DIFFER ENCE BY ONLY 0.8% WHICH IS NORMAL AND NEGLIGIBLE BECAUSE BUSINES S IS NOT MATHEMATICS. IT HAS SHOWN NP OF RS.5,34,773/-, BEF ORE INTEREST AND REMUNERATION TO PARTNERS, WHICH IS ALSO SATISFACTOR Y LOOKING TO THE PROVISIONS OF SECTION 44AF OF THE ACT. THOUGH SEC. 44AF IS NOT APPLICABLE TO THE APPELLANT, IT SHOULD BE CONSIDERE D AS A GUIDING SECTION FOR DETERMINATION OF REASONABLENESS OF PROF IT CHARGEABLE TO TAX. 6. LEARNED AUTHORISED REPRESENTATIVE FURTHER RELIED ON FOLLOWING TWO JUDGMENTS: I. SURAT DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD. VS. JOINT COMMISSIONER OF INCOME TAX, ITAT, AHMEDABAD D BENCH (2006) 99 TTJ (AHD) II. MALANI RAMJIVAN JAGANNATH VS. ASSISTANT COMMISS IONER OF INCOME TAX, HIGH COURT OF RAJASTHAN (2007) 207 CTR (RAJ) 19 III. SHEKHAVATI ART PALACE VS. ASSTT. CIT (2008) TT J (JP. TRIB.) 552. 7. AGAINST THIS LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW REJECTION OF THE BOOKS ARE JUSTIFIED BECAUSE I. ASSESSEE IS NOT MAINTAINING QUANTITATIVE DETAIL S II. HE WAS NOT ABLE TO EXPLAIN THE DIFFERENCE IN Q UANTITIES OF CLOSING STOCKS WORKED OUT BY THE ASSESSING OFFICER. 8 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) ACCORDING TO ASSESSING OFFICER ASSESSEE SHOULD HAV E GREATER STOCK AS COMPARED TO WHAT IS SHOWN IN THE BOOKS OF ACCOUN TS BY THE ASSESSEE. THE DIFFERENCE WORKED OUT BY THE ASSESSING OFFICER WAS PRESUMED TO HAVE BEEN HOLD OUTSIDE HIS BOOKS AND VALUE OF SUCH UNRECORDED SALES WAS WORKED OUT AT RS.6,14,451/-. EVEN THOUGH, ASSESSIN G OFFICER HAS NOT BEEN ABLE TO POINT OUT ANY INSTANCE OF UNRECORDED S ALES AS ARGUED BY LEARNED AUTHORISED REPRESENTATIVE BUT FOR REJECTING THE BOOKS SUCH INSTANCES ARE NOT NECESSARY. THE ONLY REQUIREMENT OF SECTION 145 IS THAT A FINDING BE GIVEN THAT PROFITS FROM THE BOOKS OF ACC OUNTS SO MAINTAINED BY THE ASSESSEE, CANNOT BE CORRECTLY REDUCED. ON THE FACTS AVAILABLE BEFORE US, WHERE THERE IS NO RECONCILIATION OF STOCK DIFFE RENCE AS POINTED OUT BY THE ASSESSING OFFICER, REJECTION OF THE BOOKS IS A NATURAL INFERENCE. WE, ACCORDINGLY REJECT THIS GROUND OF THE ASSESSEE. 9. HOWEVER, WE ARE NOT CONVINCED THAT ADDITION TO T HE TOTAL INCOME WHO NECESSARILY BE MADE IF BOOKS ARE REJECTED. OVE R ALL FACTS OF THE CASE AND ITS HISTORY HAS TO BE TAKEN INTO ACCOUNT BEFORE PROCEEDINGS TO ESTIMATE THE INCOME. THE ASSESSEE HAS BEEN CLAIMING THAT IT IS INCURRING WASTAGE OF 6% TO 18%. THE ASSESSING OFFICER WITHOUT VERIFY ING THE CLAIM PROCEEDED TO ALLOW WASTAGE OF 0.2% ONLY. THIS IS A BNORMALLY LOW DISCOUNT GIVEN TO THE ASSESSEE. CONSIDERING THE TO TALITY OF THE FACTS, WE FEEL THAT A DISCOUNT OF 7.5% ON SALES SHOULD HAVE B EEN ALLOWED TO THE ASSESSEE. FURTHER, THE BASIS ON WHICH ASSESSING OF FICER HAS ADJUDGED RATES FOR WORKING OUT VALUE OF DIFFERENCE AT RS.6,7 1,877/- IS NOT CLEAR. THE ASSESSING OFFICER MENTIONS IN PARA 5.1.1 OF HIS ORDER THAT HE HAS ADJUSTED RATE AS PER LAST PURCHASE BILLS FOR WORKIN G OUT VALUE AT RS.6,71,877/-. HOWEVER, NO EXAMPLES HAVE BEEN GIVE N. BUT, WHERE ASSESSEE IS VALUING STOCK AT COST OR MARKET VALUE W HICHEVER IS LOW THEN 9 ITA NO.1974/AHD/2007 (ASSESSMENT YEAR 2005-2006) VALUATION OF THE STOCK SHOULD HAVE BEEN ACCORDINGLY ADJUSTED. FURTHER, THE BASIS OF RATE DIFFERENCE AT 4% IS ALSO NOT SUPP ORTED. IN VIEW OF THIS, THE DIFFERENCE SO WORKED OUT BY ASSESSING OFFICER A ND COMPUTATION OF ADDITION AT RS.6,14,451/- CANNOT BE UPHELDED. HOWE VER, WE CONSIDER BREAKAGE AT 7.5% OF THE SALES. IT WILL CREATE A DI FFERENCE OF RS.8,70,391/- WHICH WILL OFF SET THE ADDITION PROPOSED BY THE ASS ESSING OFFICER. IN VIEW OF THIS, ADDITION PROPOSED BY THE ASSESSING OF FICER AT RS.6,14,451/- CANNOT BE UPHELD. LOOKING TO THE OVER ALL FACTS AN D CIRCUMSTANCES OF THE CASE, WE SUSTAIN AN ADDITION OF RS.25,000/- ONLY. 10. THE ASSESSEE GETS THE RESULTANT RELIEF. AS A R ESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 9 TH APRIL, 2010. SD/- SD/- (T.K. SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED: 09/04/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.