Shri Shankarbhai Rambhai Patel, Borsad V. The Dy.CIT.,Circle-3, Baroda

ITA 2055/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73015 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 08-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 14-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S N DIVETIA
• Assessee Lawyers: J P JHANGID
• Keywords: Rejection of books of accounts; Retrospective amendment; Corroborative evidences; Valuation report
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NOS. 1791 & 2055/AHD/2010 (ASSESSMENT YEAR: 2003-04) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE3, 3 RD FLOOR, AAYKAR BHAVAN RACE COURSE CIRCLE, BARODA V/S SH. SHANKARBHAI RAMBHAI PATEL AT & PO: KAVITHA, TA: BORSAD (APPELLANT) (RESPONDENT) SH. SHANKARBHAI RAMBHAI PATEL AT & PO: KAVITHA, TA: BORSAD V/S THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE3, 3 RD FLOOR, AAYKAR BHAVAN RACE COURSE CIRCLE, BARODA (APPELLANT) (RESPONDENT) PAN: ADKPP8154 H APPELLANT BY : SHRI J.P. JHANGID, SR. D.R . RESPONDENT BY : SHRI S.N. DIVETIA ( )/ ORDER DATE OF HEARING : 08-01-2014 DATE OF PRONOUNCEMENT : 21 -02-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE TWO APPEALS, ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE, ARE AGAINST THE ORDER OF CIT(A)-IV, BARODA DATED 26.03.2010 FOR A.Y. 2003-04. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER:- ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 2 3. ASSESSEE IS AN ENGAGED IN THE TRADING AND PROCES SING OF TOBACCO AND BIDI PATTI. ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2 003-04 ON 29.8.2003 DECLARING TOTAL INCOME OF RS 22,86,807/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 31.3.2006 AND THE TOTAL INCOME WAS ASSESSED AT RS 1 ,01,80,865/-. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE MATTER BEFO RE CIT(A). CIT(A) VIDE ORDER DATED 26.3.2010 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS. 24, 27,523/- MADE ON ACCOUNT OF DIFFERENCE IN STOCK FOUND DURING THE COURSE OF S URVEY OPERATION TO RS. 1,62,827/-. THE LD. CIT(A) OUGHT TO HAVE APPRECIATE D THAT THE ADDITION WAS MADE ON THE BASIS OF DIFFERENT IN STOCK RECORDED DU RING THE COURSE OF SURVEY ACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS. 15, 29,016/- MADE ON ACCOUNT OF EXCESS SHORTAGE IN STOCK TO RS. 1,66,671/-. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE SHORTAGE IN STOCK DURING THE Y EAR UNDER REPORT IS 8.35% WHERE AS THE SAME IN THE IMMEDIATELY PRECEDIN G YEAR WAS ONLY 0.8% AND THAT THE ASSESSEE COULD NOT EXPLAIN THE SU DDEN INCREASE IN SHORTAGE IN STOCK OF 7.75% AND HENCE THE ADDITION W AS MADE. 4. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDE R:- 1.1 THE ORDER PASSED U/S.250 ON 26.03.2010 FOR A.Y. 2003-04 BY CIT(A)-IV, BARODA DISPOSING OFF THE APPEAL AGAINST ORDER U/S. 143(3) DATED 31.03.2006 IS ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NAT URAL JUSTICE SO FAR CONFIRMING THE ADDITION OF RS.1,19,256/- ON ACCOUNT OF ESTIMAT ED UNACCOUNTED SALE VALUE OF TOBACCO KANDI FOUND SHORT WHILE TAKING PHYSICAL INVENTORY OF STOCK DURING SURVEY AND OF RS. 21,08,892/- ON ACCOUNT OF VALUATI ON OF GODOWN CONSTRUCTION BEING DIFFERENCE BETWEEN THE ACTUAL COST INCURRED A ND ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AND THE AVERAGE OF VALUATIONS EST IMATED BY DVO AND REGD. VALUER. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE SHORTAGE OF TOBACCO KANDI AS UNACCOUNTED SALES AND CONFIRMING ADDITION OF RS.1,19,256/-. 2.2 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT AS FAR AS THE SHORTAGE OF TOBACCO KANDI IS CONCERNED, RATHER THAN ADDITION OF THE ENTIRE VALUE OF ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 3 ESTIMATED SALE AMOUNT, ONLY GROSS PROFIT EARNED ON THAT SALE VALUE SHOULD HAVE BEEN ADDED. 2.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT HAVE UPHELD THE ABOVE ADDITION. 3.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION OF RS.21,08,892/- IN REGARD TO VALUATION O F GODOWN BUILDING. 3.2 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT WH EN BOOKS OF ACCOUNTS HAD NOT BEEN REJECTED NOR ANY DEFECT WAS FOUND, THE COS T INCURRED ON CONSTRUCTION OF THE GODOWN BUILDING BY YOUR APPELLANT AND AS REC ORDED IN THE BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED SIMPLY ON THE GROUN D THAT THE SAME IS VALUED FOR HIGHER AMOUNT BY THE DVO. 3.3 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT TH E APPELLANT HAD FULLY AND PROPERLY EXPLAINED THE COST OF CONSTRUCTION INCURRE D AND DISCREPANCIES IN VALUATIONS MADE BY DVO AND REGISTERED VALUER FROM T IME TO TIME AS REGARDS THE VALUATION OF THE CONSTRUCTION WHICH OUGHT TO HA VE BEEN CONSIDERED BY CIT(A). WE FIRST TAKE UP REVENUES APPEAL (ITA NO. 1791/AHD /2010) 5. IN THIS CASE SURVEY WAS CONDUCTED AT BUSINESS PR EMISES OF THE ASSESSEE ON 13.3.2003 AND PHYSICAL VERIFICATION OF STOCK WAS UN DERTAKEN. DURING THE COURSE OF PHYSICAL VERIFICATION OF STOCK IT WAS NOT ICED THAT THERE WAS DIFFERENCE IN THE STOCK AS SHOWN IN THE STOCK REGISTER AND PHY SICAL STOCK AT ASSESSEES PLACE. THE PHYSICAL STOCK WAS FOUND TO BE MORE THAN THE BOOK STOCK IN THE CASE OF 'TOBACCO PATTI', 'TOBACCO DUST' AND ''TOBAC CO KANDI' AND WAS LESS IN CASE OF GOODS IN PROCESS. ASSESSEE WAS ASKED TO RECONCILE THE DIFFERENCE WHICH AO STATES THAT ASSESSEE WAS UNABLE TO RECONCI LE BUT WAS HOWEVER SUBMITTED THAT THE DIFFERENCE IN CERTAIN STOCKS LIK E 'TOBACCO KANDI', GOODS IN PROCESS AND 'TOBACCO PATTI' WAS DUE TO THE REASON T HAT THE STOCK WAS NOT CONSIDERED CORRECTLY. HOWEVER, ACCORDING TO THE AO THE ASSESSEE DID NOT BRING ANY SUPPORTING EVIDENCE IN SUPPORT OF ITS CON TENTION. HE WAS THEREFORE OF THE VIEW THAT IN THE ABSENCE OF ANY CONCRETE REA SONING FOR DIFFERENCE IN STOCK, IN CASE OF EXCESS STOCK, THE SAME WAS ACQUIR ED BY THE ASSESSEE OUT OF THE SOURCES NOT DISCLOSED IN THE BOOKS AND IN CASE OF SHORTAGE OF STOCK, THE SALE WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS. HE ACCORDINGLY WORKED OUT THE DIFFERENCE AND MADE ADDITION OF RS 24,27,523/- FOR THE ITEMS STATED IN ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 4 PARA 4 AND PAGE 3 OF THE ORDER. AGGRIEVED BY THE OR DER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONS IDERING THE SUBMISSIONS MADE BY THE ASSESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 2.2 I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE AND APPELLANT'S SUBMISSIONS. APPELLANT'S FIRST CONTENTION IS THAT TOBACCO KANDI OF 7320 KG, FOUND PHYSICALLY AT THE TIME OF SURVEY WAS WRONGLY INVENTORISED AS TOBACCO PATTI. IN THIS REGARD, APPE LLANT HAS DRAWN ATTENTION TO THE INVENTORY OF STOCK OF FINISHED GOODS, I.E. TOBACCO PATTI PREPARED AT THE TIME OF SURVEY AND Q.NO.15 PUT BY THE ITO CARRYING THE SURVEY TO THE APPELLANT. IN Q. NO.15, THE ITO A SKED THE APPELLANT TO EXPLAIN THE DIFFERENCE, BETWE EN 10530 KG, OF KANDI RECEIVED THROUGH CHALLAN AND 732 0 KG. OF KANDI FOUND PHYSICALLY AT THE TIME OF SURVEY. MOREOVER, IN THE INVENTORY OF STOCK OF TOBA CCO PATTI, AT SL.NO.2, THERE IS ENTRY OF 7320 KG. APPELLANT'S CONTENTION ABOUT KANDI STOCK'S INCLUSIO N IN TOBACCO PATTI IS ACCEPTED. DIFFERENCE BETWEEN PHYSICAL STOCK AND BOOK STOCK OF TOBACCO PATTI THUS GETS REDUCED TO 40469 KG. APPELLANT'S NEXT CONTENTION IS THAT 38675 KG, INCLUDED IN TOBACCO PA TTI STOCK FROM THE PROCESS ROOM AT THE TIME OF SURV EY WAS ACTUALLY GOODS IN PROCESS, DUE TO WHICH GOODS I N PROCESS WERE FOUND TO BE SHORT VIS-A-VIS BOOK STOCK BY 38675 KG. AS PER APPELLANT, THIS STOCK WAS FILLED UP IN GUNNY BAGS, WHICH WERE NOT STITCHED AND WAS WRONGLY CONSIDERED AS FINISHED GOODS BY THE SURVEY PARTY, THOUGH NO ENTRY FOR INCLUDING THE SAME HAD BEEN MADE TILL THEN IN THE STOCK OF FINISH ED GOODS. ALSO, ENTRY FOR REDUCING THE SAME FROM BOOK STOCK OF SEMI FINISHED GOODS HAD NOT BEEN MADE SINCE THE GUNNY BAGS WERE NOT STITCHED. IT IS POSSIBLE THAT AT THE TIME OF SURVEY, WHILE INVENTOR ISING STOCK LYING IN VARIOUS ROOMS, GOODS CATEGORIZ ED AS SEMI FINISHES GOODS IN THE STOCK REGISTER DUE TO THE GUNNY BAGS BEING NOT YET STITCHED WERE CONSIDERED AS FINISHED GOODS BY THE SURVEY PARTY, A PPELLANT'S CONTENTION FINDS SUPPORT FROM THE FACT THAT WHILE SEMI FINISHED GOODS WERE FOUND TO BE SHO RT, STOCK OF FINISHED GOODS WAS FOUND TO BE IN EXCESS. ASSESSING OFFICER'S OBSERVATION THAT THE TO BACCO PATTI AND GOODS IN PROCESS ARE SEPARATE AND DISTINCT AND CANNOT GET THE CHARACTER OF EACH OTHER IS NOT. TENABLE SINCE SEMI FINISHED GOODS ONLY GET CONVERTED TO TOBACCO PATTI. THE ASSESSING OFFICER C ONSIDERED SHORTAGE IN STOCK OF SEMI FINISHED GOODS TO MEAN SALE OF SEMI FINISHED GOODS OUTSIDE THE BOO KS. IT IS HIGHLY IMPROBABLE THAT A TOBACCO MANUFACTURER WOULD SELL THE PRODUCE AT SEMI FINISHE D STAGE, AS INFERRED BY THE ASSESSING OFFICER. APPELLANT'S CONTENTION THAT 38675 KG. WERE WRONGLY INVENTORISED AS TOBACCO PATTI THOUGH THEY WERE SEMI FINISHED GOODS IS ACCEPTED. ASSESSING OFFICER' S OTHER OBSERVATION THAT SALES, PURCHASES IN QUANTI TY AS WELL AS VALUE TERMS WERE FIXED ONLY IMPLIES THAT THE BOOK STOCK DID NOT REQUIRE ANY ADJUSTMENT. APPELLANT HAS NOT DISPUTED THE BOOK STOCK VALUE AND THIS OBSERVATION OF ASSESSING OFFICER IS THEREFORE , NOT RELEVANT TO THE ISSUE AT HAND. AFTER CONSIDERIN G 38675 KG. OF TOBACCO PATTI STOCK FOUND PHYSICALLY TO BE SEMI FINISHED GOODS, THE DIFFERENCE IN STOCK OF GOODS IN PROCESS FOUND PHYSICALLY AND THE BOOK STOC K WOULD BE 1.5 KG. ONLY, WHICH IS INSIGNIFICANT REQUI RING NO ADDITION TO THE INCOME. IN CASE OF TOBACCO PATTI, THE DIFFERENCE WOULD BE 1794 KG. EXCESS, I.E . PHYSICAL STOCK IS MORE COMPARED TO THE BOOK STOCK , THE VALUE OF WHICH AT THE RATE OF RS.21.5 PER KG. A PPLIED BY THE ASSESSING OFFICER WOULD BE RS.38571/- . IN RESPECT OF TOBACCO KANDI, APPELLANT HAS ADJUSTED 5000 KGS. OF TOBACCO DUST FOUND IN EXCESS AGAINST THE SAME AND HAS WORKED OUT THE SHORTAGE IN KANDI S TOCK TO BE 21210 KG, VIS-A-VIS THE BOOK STOCK. SINC E TOBACCO DUST AND TOBACCO KANDI ARE DIFFERENT OUTPUT S OF THE PROCESS, APPELLANT'S CONTENTION REGARDING ADJUSTMENT OF TOBACCO DUST STOCK OF 5000 KG. AGAINS T KANDI STOCK IS NOT ACCEPTABLE, APPELLANT WAS NOT ACCOUNTING FOR TOBACCO DUST IN THE STOCK REGISTER A ND ADDITION IN RESPECT OF THE SAME IS THEREFORE, JUSTIFIED. THE SHORTAGE IN KANDI STOCK WOULD, THERE FORE BE 26210 KG., WHICH AS ACCEPTED BY THE APPELLANT IS TO BE CONSIDERED AS UNACCOUNTED SALES. APPELLANTS CONTENTION ABOUT CONSIDERING ONLY THE GROSS PROFIT ON SUCH SALES AS APPELLANTS INCOME IS HOWEVER, NOT TENABLE DUE TO CORRESPONDING PURCHASES BEING ALREADY DEBITED IN THE BOOKS. ENTIR E SALE VALUE OF KANDI STOCK FOUND SHORT IS ADDED TO APPELLANTS INCOME. APPELLANTS SALE RATE FOR KANDI AS PER BILLS WAS RS. 4.55 PER KG. ON AVERAGE. ADDITION OF RS. 1,19,256/- IS THEREFORE REQUIRED TO BE MADE IN RESPECT OF SHORTAGE IN KANDI STOCK FOUN D AT THE TIME OF SURVEY, WHICH IS HELD TO BE SALE OUT SIDE THE BOOKS. TO SUM UP, ADDITION IS CONFIRMED TO THE EXTENT OF RS. 38571/- (EXCESS STOCK OF TOBACCO PATT I) PLUS RS. 1,19,256/- (UNACCOUNTED SALES OF TOBACC O KANDI) PLUS RS. 5,000/- (UNACCOUNTED STOCK OF TOBAC CO DUST), I.E. RS. 1,62,827/- AND THE BALANCE IS DELETED. ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 5 6. AGGRIEVED BY THE ORDER OF CIT(A), BOTH REVENUE A ND ASSESSEE ARE NOW IN APPEAL BEFORE US. 7. BEFORE US, THE LD. D.R. SUBMITTED THAT IN THE AS SESSMENT ORDER THE AO HAS NOTED THAT DESPITE VARIOUS OPPORTUNITIES GRANTED TO THE ASSESSEE BY THE AO, THE ASSESSEE COULD NOT RECONCILE THE BOOK STOCK WIT H THE PHYSICAL STOCK. HE FURTHER SUBMITTED THAT THE CONTENTION OF THE ASSESS EE THAT THERE WAS MISTAKE IN STOCK TAKING IS NOT SUPPORTED BY ANY EVIDENCE. H E ALSO SUBMITTED THAT THE PHYSICAL STOCK TAKING AT THE TIME OF SURVEY WAS DON E IN THE PRESENCE OF THE ASSESSEE AND HAD THERE BEEN ANY MISTAKE IN STOCK TA KING, THE SAME SHOULD HAVE BEEN POINTED OUT BY THE ASSESSEE BUT IN THE ST ATEMENT RECORDED AT THE TIME OF SURVEY, THE ASSESSEE HAD NOT POINTED OUT AN Y DISCREPANCY IN THE METHOD OF STOCK TAKING AND THEREFORE THE SUBMISSION OF THE ASSESSEE WAS WITHOUT ANY TANGIBLE BASIS. HE FURTHER SUBMITTED TH AT IN VIEW OF THE AFORESAID FACTS, CIT(A) HAD ALSO ERRED IN ACCEPTING THE CONTE NTIONS OF THE ASSESSEE WHICH WAS NOT SUPPORTED BY ANY MATERIAL. HE THUS SU PPORTED THE ORDER OF AO. 8. ON THE OTHER HAND, THE LD. A.R. REITEREATED THE SUBMISSIONS MADE BEFORE CIT(A). HE FURTHER SUBMITTED THAT THE RECONCILIATIO N WAS SUBMITTED BEFORE CIT(A) AND CIT(A) AFTER CONSIDERING THE SUBMISSIONS HAS GRANTED RELIEF. HE FURTHER SUBMITTED THAT WHEN SHORTAGE IN STOCK IS FO UND AT THE TIME OF SURVEY, THE ENTIRE AMOUNT OF DIFFERENCE CANNOT BE ADDED TO INCOME BUT AT THE MOST ADDITION COULD BE MADE OF THE GROSS PROFIT ELEMENT OF SUCH DIFFERENCE AND FOR WHICH HE PLACED RELIANCE ON THE DECISIONS IN THE CA SE OF ACIT VS SHRI INDUCTO ISPAT ALLOYS LTD (ITA NO 2784/AHD/06 ORDER DATED 5. 9.2013) AND IN THE CASE OF MAYUR SEJPAL (HUF) VS ITO (ITA NO 5444/MUM/2011 ORDER DATED 11.10.2012). HE FURTHER SUBMITTED THAT THE GROSS PR OFIT RATE AND THE NET PROFIT RATE FOR THE YEAR UNDER APPEAL WAS 22.96% AND 11.21 % RESPECTIVELY. ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 6 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT DURING THE COURSE OF SURVEY DIFFERENCE IN PHYSICAL STOCK AS COMPARED TO THE BOOK STOCK WAS FOUND. AO H AS NOTED THAT THE ASSESSEE COULD NOT RECONCILE THE DIFFERENCE. BEFORE CIT(A), ASSESSEE SUBMITTED RECONCILIATION STATEMENT AND OTHER SUBMIS SIONS. CIT(A) IN HIS ORDER HAS NOTED THAT THE SUBMISSIONS MADE BY ASSESSEE WER E FORWARDED TO THE AO FOR EXAMINATION AND HIS COMMENTS BUT THE AO IN THE REMAND REPORT HAS NOT OFFERED ANY COMMENTS. CIT(A) THEREFORE AFTER CONSID ERING THE SUBMISSIONS OF THE ASSESSEE GRANTED RELIEF TO ASSESSEE. IT IS ALSO A FACT THAT THAT AT THE TIME OF SURVEY THE PHYSICAL STOCK WAS TAKEN IN THE PRESE NCE OF ASSESSEE BUT NO MISTAKE/ERROR IN HE STOCK TAKING WAS POINTED AT THA T TIME. HAD THERE BEEN SOME MISTAKE IN THE STOCK TAKING THE ASSESSEE SHOUL D HAVE POINTED THE MISTAKE TO THE SURVEY PARTY AT THAT MOMENT. FURTHER , FROM THE COPY OF THE TRANSLATION OF THE STATEMENT THAT WAS RECORDED AND PLACED ON RECORD, IT IS SEEN THAT NO OBJECTION ON ACCOUNT OF ANY MISTAKE WAS RAI SED BY THE ASSESSEE. IN VIEW OF THE AFORESAID FACTS WE DO NOT AGREE WITH TH E CONTENTION OF ASSESSEE THAT THERE WAS MISTAKE IN STOCK TAKING. NOW WITH RE SPECT TO ADDITION MADE ON ACCOUNT OF DIFFERENCE IN STOCK, WE FIND THAT VARIOU S BENCHES OF THE TRIBUNAL HAVE HELD THAT WHEN THE DIFFERENCE IN STOCK IS FOUN D, ADDITION ON ACCOUNT OF GROSS/NET PROFIT OF SUCH DIFFERENCE CAN BE MADE INS TEAD OF THE ENTIRE DIFFERENCE BEING ADDED TO THE INCOME. CONSIDERING T HE TOTALITY OF THE AFORESAID FACTS AND THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION OF THE ENTIRE DIFFERENCE FOUND IN THE STOCKS AS INCOME OF THE ASSESSEE. CONSIDERING THE FACT TH AT THE GROSS PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION IS 22.96% WE ARE OF THE VIEW THAT IN THE PRESENT CASE, ENDS OF JUSTI CE SHALL BE MET IF THE ADDITION IS RESTRICTED TO RS 6 LACS (ROUNDED OFF) MADE ON TH E BASIS OF GROSS PROFIT I.E. (RS 2427523 * 22.96%) INSTEAD OF RS 24,27,523/- MAD E BY THE AO. WE THUS DIRECT ACCORDINGLY. 10. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY A LLOWED. ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 7 WE NOW TAKE UP ASSESSEES APPEAL ( ITA NO. 2055/AHD /2010) GROUND NO. 1 IS GENERAL AND REQUIRES NO ADJUDICA TION. GROUND NO. 2 IS WITH RESPECT TO ADDITION MADE ON ACCOUNT OF SHORTAGE OF STOCK FOUND AT THE TIME OF SURVEY. 11. THIS GROUND OF ASSESSEE IS INTERCONNECTED WITH GROUND RAISED BY REVENUE. SINCE THE GROUND RAISED BY REVENUE IS PARTLY ALLOWE D, FOR THE REASONS STATED THEREIN, THIS GROUND OF ASSESSEE IS ALSO PARTLY ALL OWED. 12. GROUND NO. 3 IS WITH RESPECT TO ADDITION MADE O N ACCOUNT OF CONSTRUCTION OF GODOWN. 13. AO NOTICED THAT DURING THE YEAR ASSESSEE HAD CO NSTRUCTED GODOWN ADMEASURING 26755 SQ FT AND HAD SHOWN CONSTRUCTION COST OF RS 124/SQ FT. AO NOTED THAT NO DETAILS REGARDING THE STRUCTURE WA S GIVEN BY THE ASSESSEE. AO WAS OF THE VIEW THAT THE COST OF CONSTRUCTION AP PEARED TO BE VERY LOW LOOKING AT THE QUALITY OF CONSTRUCTION, HEIGHT OF T HE GODOWN AND THAT THE ROOF WAS OF RCC. THUS TO ASSESS THE COST OF CONSTRUCTION , THE MATTER WAS REFERRED TO DVO. DVO ESTIMATED THE COST OF CONSTRUCTION TO B E AT RS 70,42,000/-(THE DETAILS OF WHICH ARE GIVEN BY A.O. ON PAGE 6 OF ORD ER) AS AGAINST RS 33,39,568/- SHOWN BY THE ASSESSEE IN ITS BOOKS OF A CCOUNTS. A.O. THEREFORE TREATED THE DIFFERENCE BETWEEN THE ESTIMATED COST B Y DVO AND THE COST OF CONSTRUCTION AS SHOWN BY ASSESSEE AS THE UNDISCLOSE D INVESTMENT IN THE CONSTRUCTION OF GODOWN TO BE FROM UNDISCLOSED SOURC ES AND ADDED THE SAME TO THE INCOME. AGGRIEVED BY THE ORDER OF AO ASSESSE E CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS MADE BY THE ASSESSEE, REMAND REPORT FROM AO, GRANTED PARTIAL RE LIEF TO THE ASSESSEE BY HOLDING AS UNDER:- ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 8 4.2 I HAVE CAREFULLY CONSIDERED THE MATTER. APPELL ANT HAS RELIED ON VARIOUS COURT DECISIONS THAT WHER E PROPER BOOKS OF ACCOUNTS ARE MAINTAINED AND EXPENDI TURE IS FULLY SUPPORTED BY VOUCHERS, REFERENCE TO VALUATION CELL IS NOT VALID UNLESS BOOKS OF ACCOUNT S ARE REJECTED AND ADDITION TO INCOME COULD NOT BE MADE SOLELY ON THE BASIS OF REPORT OF DVO. THE RAJK OT BENCH OF ITAT IN THE CASE OF NALANDA HOUSING DEVELOPMENT LTD. (2005) 98 TTJ (RAJKOT) 518, IN PAR A 22 OF ITS ORDER HELD THAT IT IS NOT NECESSARY TO REJECT THE BOOKS OF ACCOUNTS BEFORE MAKING THE REFE RENCE TO THE DVO. THE BENCH HELD THAT DUE TO NON FURNISHING OF DETAILS SUCH AS STRUCTURAL DESIGNS ET C. BY THE ASSESSEE TO THE VALUATION OFFICER, REFERE NCE U/S.L31(L)(A) WAS PROPER AND IT WAS APPROPRIATE TO GET GUIDANCE FROM A TECHNICALLY QUALIFIED GOVERNMENT VALUER. IT WAS HELD THAT IN VIEW OF SECT ION 142A, WHICH WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 15 TH NOVEMBER, 1972, ASSESSING OFFICER CAN REQUIRE THE VALUATION OFFICER TO MAKE AN ESTIMATE OF VALUE OF ANY INVESTMENT AND REPORT THE SAME TO HIM, WHERE SUCH ESTIMATE IS REQUIRED TO BE MADE FOR THE PURPOSE OF MAKING AN ASSESSMENT OR REA SSESSMENT. IN APPELLANT'S CASE, THE ISSUE REGARDING THE COST OF CONSTRUCTION OF GODOWNS, BEIN G UNDERSTATED IN THE BOOKS OF ACCOUNTS SURFACED AT THE TIME OF SURVEY U/S.133A. THE AUTHORISED OFFICER PHYSICALLY INSPECTED THE GODOWN AND REFERENCE TO DVO WAS SUBSEQUENTLY MADE AT THE TIME OF ASSESSMENT . IN VIEW OF DECISION OF RAJKOT BENCH IN THE CASE OF NALANDA HOUSING DEVELOPMENT LTD., REFERENCE TO T HE DVO TO ASCERTAIN THE COST OF CONSTRUCTION OF GODOWN IS HELD TO BE VALID. FURTHER, AS HELD BY CAL CUTTA HIGH COURT: IN THE CASE OF UNIT CONSTRUCTION LTD. (2003) 181 CTR (CAL) 82 : 260 ITR 189 (CAL), I T IS THE SUBSTANCE OF THE ORDER THAT THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION WHIC H IS-RELEVANT AND IT IS NOT NECESSARY THAT BOOKS OF ACCOUNTS MUST BE REJECTED EXPRESSLY OR THAT IT MUST BE RECORDED IN EXPRESS TERMS THAT THE BOOKS OF ACCOUNTS ARE NOT RELIABLE OR THE EXPLANATION IS NOT SATISFACTORY. THE VALUE ARRIVED AT BY THE DVO IS SIGNIFICANTLY HIGHER THAT THE COST DECLARED IN THE BOOKS OF ACCOUNTS BY THE APPELLANT EVEN AFTER TAKIN G APPELLANT'S OBJECTIONS INTO ACCOUNT AND REGISTERED VALUER'S REPORT OBTAINED BY THE APPELLANT. THE REGISTERED VALUER APPOINTED BY THE APPELLANT ALSO A RRIVED AT A VALUE SIGNIFICANTLY HIGHER THAN THE COS T DECLARED BY THE APPELLANT IN THE BOOKS OF ACCOUNTS. CONSIDERING ALL ASPECTS, THE COST OF CONSTRUCTION IS DIRECTED TO BE TAKEN AS AVERAGE OF VALUE ARRIVED AT BY THE DVO THROUGH REPORT DATED 30.9.2009, I.E. RS . 58,78,900/- AND REGISTERED VALUERS REPORT DATED 01 .08.2007, I.E. RS. 50,18,022/-. THE AVERAGE VALUE WORKS OUT TO BE RS. 54,48,461/- AND THE DIFFERENCE WITH REFERENCE TO DECLARED COST OF CONSTRUCTION, I. E. RS. 33,39,569/- IS OF RS. 21,08,892/-. ADDITION IS CONFIRMED TO THE EXTENT OF RS. 21,08,892/- AND THE BALANCE IS DELETED. 14. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US. BEFORE US, LD A.R. APART FROM REITERATING THE SUBMI SSIONS MADE BEFORE AO AND CIT(A) SUBMITTED THAT THE ASSESSEE MAINTAINS RE GULAR BOOKS OF ACCOUNTS AND THE SAME ARE SUBJECT TO AUDIT. HE FURTHER SUBMI TTED THAT IN THE PRESENT CASE, AO NEITHER EXPRESSED DOUBTS OVER THE CORRECTN ESS OF THE BOOKS OF ACCOUNTS NOR REJECTED THE BOOKS OF ACCOUNTS BUT STR AIGHTAWAY REFERRED THE MATTER TO THE DVO. HE PLACED RELIANCE ON THE DECISI ON OF HON'BLE APEX COURT IN THE CASE OF SARGAM CINEMA (2010) 328 ITR 513 (SC ) THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS C HOHAN RESORTS (2012) 253 CTR (P&H) 106. HE FURTHER SUBMITTED THAT DVO HA D WORKED OUT YEAR WISE BREAK UP OF THE ASSESSED COST OF CONSTRUCTION BASED ON THE YEAR WISE EXPENDITURE STATEMENT SUBMITTED BY THE ASSESSEE. AS PER THE WORKING OF DVO THE TOTAL DIFFERENCE WORKED OUT TO RS. 37,03,03 1/- OF WHICH THE DIFFERENCE ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 9 FOR THE YEAR UNDER CONSIDERATION WAS ONLY RS. 10,23 ,557/- AND THE BALANCE WAS IN RESPECT OF EARLIER YEARS I.E. 1999-2000, TO 2001-02. THE A.O. HOWEVER CONSIDERED THE TOTAL DIFFERENCE OF RS. 37,03,031/- AS THE INCOME FOR THE YEAR UNDER CONSIDERATION WHICH WAS NOT AS PER LAW. HE T HEREFORE SUBMITTED THAT THE CONSIDERING THE LEGAL AND FACTUAL POSITION, NO ADDITION IS CALLED FOR. LD.D.R. ON THE OTHER HAND SUBMITTED THAT BEFORE AO, ASSESSE E HAD NOT SUBMITTED THE DETAILS CALLED FOR OF EXPENSES INCURRED FOR CONSTRU CTION OF GODOWN. HE FURTHER SUBMITTED THAT THE VALUER OF THE ASSESSEE HAD ALSO VALUED THE GODOWN AT RS 50 LACS AND THEREFORE THE ADDITION WAS JUSTIFIED. H E THUS SUPPORTED THE ORDER OF AO. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT DURING THE YEAR ASSESSEE HA S CONSTRUCTED A GODOWN. A.O. IN HIS ORDER HAS NOTED THAT NO DETAILS REGARDI NG THE STRUCTURE OF THE BUILDING WAS GIVEN BY ASSESSEE AND THEREFORE THE MA TTER OF VALUATION WAS REFERRED TO DVO. DVO VIDE HIS REPORT DATED 30.03.20 06 VALUED THE GODOWN AT RS. 70,42,600/-. BEFORE CIT(A), A.O. SUBMITTED MOD IFIED VALUATION DATED 30.03.2009 OF DVO WHERE THE REVISED VALUATION WAS WORKED OUT AT RS. 58,78,900/-. CIT(A) HAS ALSO NOTED THAT AS PER THE VALUATION REPORT DATED 8.2.2007 SUBMITTED BY THE ASSESSEE THE VALUE OF GOD OWN WAS RS. 50,18,022/- AS AGAINST THE DECLARED COST OF CONSTRU CTION OF RS. 33,39,569/-. IT IS ALSO A FACT THAT THE EXPENDITURE IN CONSTRUCTION OF GODOWN WAS DONE BY ASSESSEE IN THE YEAR UNDER APPEAL AND EARLIER YEARS . THE PERCENTAGE OF EXPENSE, INCURRED DURING THE YEAR WORKS OUT TO AROU ND 26%. CONSIDERING THE FACT THAT VALUATION IS A SUBJECTIVE EXERCISE AND IN WHICH CASE THE ESTIMATES MADE OF CONSTRUCTION WOULD DIFFER FROM VALUER TO VA LUER. BEFORE US, ASSESSEE HAS PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. CHOHAN RESORTS (2012) 253 ITR (P & H) 106 AND OTHER DECISIONS. WE ARE OF THE VIEW THAT IN THE PRESENT CASE SINCE THE ASSESSEE HAS NOT MAINTAI NED BOOKS OF ACCOUNT WITH RESPECT TO THE COST OF CONSTRUCTION, THE RATIO OF DECISIONS RAISED BY ASSESSEE WOULD NOT APPLY. CONSIDERING THE TOTALITY OF FACTS, WE ARE OF THE VIEW ITA NOS. 1791 & 2055/AHD/2010 . A.Y. 2003 - 04 10 THE ESTIMATE OF ADDITION OF RS. 7,00,000/- WOULD ME ET THE ENDS OF JUSTICE. WE THUS DIRECT THE ADDITION BE RESTRICTED TO 7,00,000/ - AS AGAINST RS. 21,08,892/- SUSTAINED BY CIT(A). WE THUS DIRECT ACCORDINGLY. TH US THIS GROUND IS PARTLY ALLOWED. 16. THUS THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. 17. IN THE RESULT, THE APPEAL OF ASSESSEE AND REVENUE A RE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 21 - 02 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD