Shri Bharatkumar Mahadevprasad Shah, Ahmedabad V. DCIT, Circle-5(3), Ahmedabad

ITA 2272/AHD/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6180 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-09-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 16-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: PRASHANT SRIVASTAVA
• Keywords: Cost of acquisition
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2272/AHD/2018 (ASSESSMENT YEAR: 2015-16) SHRI BHARATKUMAR MAHADEVPRASAD SHAH, PROP: M/S. MEXX, 118, PRATHNA COMPLEX, OPP. DINESH CHAMBERS, INDIA COLONY CHAR RASTA, BAPUNAGAR, AHMEDABAD- 380024 V/S DCIT, CIRCLE-5(3), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: ALLPS 0947A APPELLANT BY : SHRI PRASHANT SRIVASTAVA, A.R. RESPONDENT BY : SHRI LALIT P. JAIN, SR. D.R. ( )/ ORDER DATE OF HEARING : 26 -09-201 9 DATE OF PRONOUNCEMENT : 09 -10-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-5, AHMEDABAD DATED 18.09.2018 PERTAINING TO A.Y. 2015-16. ITA NO. 2272 //AHD/2018 . A.Y. 2015-1 6 2 2. IN THIS CASE, SURVEY WAS CONDUCTED U/S 133A OF THE ACT. DURING THE COURSE OF SURVEY A STATEMENT OF OATH U/S 133A WAS RECORDED OF THE PROPRIETOR SHRI BHARATKUMAR MAHADEVPRASAD SHAH ON 18.12.2014. IN RE PLY TO QUESTION NO. 29 IT IS STATED THAT THE EXCESS STOCK OF RS. 76,30,290/- FOUND DURING THE COURSE OF SURVEY HAS NOT BEEN ACCOUNTED FOR IN THE BOOKS OF A CCOUNTS AND ALSO IT WAS ADMITTED THAT, THE SAME WAS HIS UNDISCLOSED INCOME AND ALSO ADMITTED TO PAY THE NECESSARY TAX ON IT. HOWEVER, ON VERIFICATION O F RETURN OF INCOME FILED FOR THE A.Y. 2015-16, IT IS SEEN THAT, THE ABOVE INCOME HAS NOT BEEN DISCLOSED IN THE RETURN OF INCOME. THEREAFTER A SHOW CAUSE NOTIC E WAS ISSUED TO THE ASSESSEE. 3. IN ITS REPLY, ASSESSEE STATED DURING THE COURSE OF SURVEY U/S 133A OF THE INCOME TAX ACT, 1961, THE TAX OFFICIALS TOOK INVENTORY OF MOBILE PHONES AND ACCES SORIES FOUND LYING AT GODOWN AND SHOWROOM MAINTAINED BY THE ASSESSEE, AS YOUR AS SESSEE IS THE DISTRIBUTOR OF VARIOUS BRANDS OF MOBILE PHONES AND ACCESSORIES VIDE 'ANNEXURE SF' OF THE SURVEY PANCHNAMA, AND VALUED THE STOCK FOUND LYING AT GODOWN AT 'MRP LESS 10% GROSS PROFIT' AND STOCK FOUND AT SHOWROOM HAS B EEN VALUED AT 'MRP LESS 2% GROSS PROFIT' IN VIEW OF THE ABOVE METHOD OF VA LUATION OF STOCK ADOPTED BY THE SURVEY TEAM THE DIFFERENCE IN THE VALUE OF STOC K OF RS, 76,30,290/- IS DETERMINED BY THE SURVEY TEAM,, ABSTRACT OF RELEVAN T CALCULATION OF THE SURVEY TEAM DETERMINING THE DIFFERENCE IN VALUE OF STOCK I S AS MENTIONED BELOW: DURING THE SURVEY, THE TAX OFFICIALS DID NOT FIND A NY DIFFERENCE BETWEEN THE PHYSICAL STOCK MAINTAINED BY THE ASSESSEE AND THE S TOCK MAINTAINED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE I.E. NO DIFFERENCE IN PH YSICAL QUANTITY OF GOODS LYING IN STOCK HAS FOUNDED BY THE SURVEY TEAM. THE ADDITIONA L INCOME IDENTIFIED BY THE TAX OFFICIALS ON ACCOUNT OF DIFFERENCE IN VALUA TION OF STOCK IS DUE TO THE METHOD OF VALUATION OF STOCK ADOPTED BY THE SURVEY TEAM AS MENTIONED ABOVE. THE BY THE SURVEY TEAM FOR VALUATION OF STOCK IS STRONGLY DISPUTED BY THE ASSESSEE AS THE SAME IS IN GROSS NEGLIGENCE OF VALUATION METHOD SUG GESTED BY ICAI AND THE ITA NO. 2272 //AHD/2018 . A.Y. 2015-1 6 3 INCOME COMPUTATION AND DISCLOSURE STANDARD ISSUED B Y INCOME TAX IN RESPECT OF VALUATION OF INVENTORY, WHICH SUGGESTS THAT INVENTO RY SHOULD BE VALUED AT COST OF MARKET VALUE WHICHEVER IS LOWER' THE ASSESSEE HAS BEEN AND VALUING STOCK AS PER THE ACCOUNTING STANDARD SUGGESTED BY ICAI FOR VALUING INVENTORY, I.E. COST OR MARKET VALUE WHICHEVER IS LOWER, WHICH IS ALSO EVIDENT FROM TAX AUDIT REPORT SUBMITTED BY THE ASSESSEE ALONGWITH THE RETURN OF INCOME FILE BY THE ASSESSEE FOR THE PREVIOUS YEAR UNDER CONSIDERATION AND FOR THE PREVIOUS YEARS PRECEDING THE PREVIOUS YEAR UNDER CONSIDERATION COPY OF THE SAME IS ENCLOSED HEREWITH FOR YOUR KIND CONSIDERATION VIDE EXHIBIT 1 SIMILAR PRACTICE OF VALUING STOCK HAS BEEN ADOPTED AND MAINTAINED BY THE ASSESSEE DURING THE YEAR UNDER CO NSIDERATION. DURING THE COURSE OF SURVEY, THE ASSESSEE WAS ASKED ABOUT THE PROFIT MARGIN EARNED BY THE ASSESSEE, TO WHICH THE ASSESSEE HAD R EPLIED THAT THE EARNS AN AVERAGE GROSS PROFIT MARGIN OF 10% ON COST IN CASE OF SALES MADE IN WHOLESALE MARKET SEGMENT AND AN GROSS PRO FIT MARGIN OF 296 ON COST IN CASE OF SALES MADE IN RETAIL MARKET SEGMENT THE SURVEY TEAM IN OR DER TO ARRIVE AT THE COST OF THE GOODS FOUND TYING IN STOCK USED THE AFORESAID I NFORMATION AND DEDUCTED THE AFORESAID GROSS PROFIT MARGIN FROM THE MRP PRINTED ON THE BOXES OF THE GOODS TO DETERMINE THE COST OF GOODS FOUND TYING IN-STOC K THEREBY DETERMINING UNDER VALUATION OF STOCK AND INSISTING TO OFFER THE SAME AS ADDITIONAL INCOME. THE SURVEY 'TEAM COMPLETELY IGNORED THE PURCHASE COST O F THE GOODS WHICH WAS EVIDENT FROM THE PURCHASE BILLS AVAILABLE WITH THE ASSESSEE DURING THE COURSE OF SURVEY. IT IS CUSTOMARY AND A RECOMMENDED PRACTICE OF EVERY BUSINESS TO RECORD THE STOCK AT THE BASIC PRICE /COST PRICE / PURCHASE PRICE MENTIONED IN THE PURCHASE HILL EXCLUDING TAXES, AS TAXES ARE ACCOUNT ED FOR SEPARATELY. SIMILAR PRACTICE OF RECORDING STOCK HAS BEEN ADOPTED BY THE ASSESSEE. THE SURVEY TEAM IN GROSS NEGLIGENCE OF THE AFORESAID FACT HAS GONE AHEAD WITH VALUING THE GOODS AT MRP LESS GROSS PROFIT MARGIN. IN REGARDS TO THE SAME WE ARE ENCLOSING HEREWITH COPY OF PURCHASE BILLS OF THE GOODS FOUND IN STOCK EVIDENCING THE PURCHASE PRICE OF THE GOODS FOR YOUR KIND CONSIDERA TION VIDE EXHIBIT-2. FURTHER WE WOULD LIKE TO SUBMIT BEFORE YOUR GOODSEL F THAT THE MANUFACTURERS OF MOBILE PHONES AND RELATED ACCESSORIES DO-NOT SELL T HEIR PRODUCTS DIRECTLY TO THE CONSUMERS, RATHER A DISTRIBUTION NETWORK IS CREATED BY THE MOBILE MANUFACTURING COMPANIES TO THE PRODUCTS AVAILABLE TO THE CONSUMER S. THE DISTRIBUTION NETWORK ITA NO. 2272 //AHD/2018 . A.Y. 2015-1 6 4 CREATED BY THE MOBILE MANUFACTURING COMPANIES TO SE LL THEIR PRODUCTS TO CONSUMERS IS CUSTOMARILY CALLED AS CHANNEL SAFES. U NDER THIS NETWORK, .LAYERS OF DISTRIBUTORS AND ARE FORMED WHO EARN THEIR RESPECTI VE OF MARGIN, WHICH IS NEGOTIATED BY THE RESPECTIVE SELLER AS PER ITS NEGO TIATING CAPACITY IS TAKEN CARE BY THE MRP FIXED BY THE MANUFACTURER FOR A PARTICULAR PRODUCT YOUR ASSESSEE IS IN THE BUSINESS OF TRADING OF M TELECOMMUNICATION INST RUMENTS ACCESSORIES AS DISTRIBUTOR OF VARIOUS BRANDS OF MOBILE TELECOMMUNI CATION DEVICES. THE MANUFACTURER OF THE BRANDED MOBILE COMMUNICATION DE VICES GOODS TO YOUR ASSESSEE IN THE CAPACITY AS OF THEIR RESPECTIVE BRA DED MOBILE TELECOMMUNICATION EQUIPMENTS AND ACCESSORIES, AND IN TURN YOUR ASSESS ES FURTHER SELLS SUCH GOODS TO DEALERS AND RETAILERS WHO FURTHER SELL SUCH GOOD S TO SMALL SIZE TRADERS AND CONSUMERS. THUS IN THE PROCESS OF MOVEMENT OF GOODS FROM MANUFACTURER TO CONSUMER THERE ARE LAYERS OF BIG AND SMALL TRADERS INVOLVED, WHOSE SHARE OF MARGINS ARE INCLUDED IN THE MRP FIXED BY THE MANUFA CTURER. THE GOODS ARE SOLD BY THE MOBILE BRAND COMPANIES TO THE ASSESSEE AT A PRICE BELOW THE MRP AS IS EVIDENT FROM THE PURCHASE BILLS SUBMITTED BEFORE YO UR GOODSELF, YOUR ASSESSEE IN TURN SELL THE GOODS IN THE WHOLESALE AND RETAIL MAR KET SEGMENT BY CHARGING AFOREMENTIONED AVERAGE GROSS PROFIT MARGIN ON COST / PURCHASE PRICE OF THE RESPECTIVE PRODUCT AND NOT ON THE MRP OF THE PRODUC T PRINTED ON THEIR PACKAGE. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, THE ADOPTION OF MRP OF THE PRODUCT AS THE FOR DETERMINING THE VALUE OF GOODS LYING IN-STOCK BY DEDUCTING RESPECTIVE GROSS PROFIT MARGIN IS NOT APP ROPRIATE AS YOUR ASSESSEE IS NOT BUYING OR SELLING THE GOODS AT MRP, IN REGARDS TO THE SAME WE ARE ENCLOSING HEREWITH COPY OF SALE BILLS OF THE GOODS FOUND TYIN G IN STOCK ON THE DATE OF SURVEY EVIDENCING THE PRICE AT WHICH THE AFORESAID GOODS W ERE SOLD FOR YOUR KIND CONSIDERATION VIDE EXHIBIT-2. FURTHER IN ADDITION TO THE SHOVE WE WOULD LIKE TO S UBMIT BEFORE YOUR GOODSELF HAT .MRP OF THE GOODS INCLUDES INDIRECT TAXES CHARGED O N THE SALE AND PURCHASE OF GOODS, WHICH ARE ACCOUNTED FOR SEPARATELY AND NOT P ASSED THROUGH PROFIT AND LOSS ACCOUNT, WHICH IS ALSO A PRACTICE MANDATED BY THE ACCOUNTING STANDARDS ISSUED BY ICAI AND BY INCOME TAX. THE INDIRECT TAX RATE, APPLICABLE ON THE MOBILE PHONES IS 15% SIMILAR PRACTICE IS FOLLOWED B Y THE ASSESSEE IN PREPARATION OF BOOKS OF ACCOUNTS WHICH IS EVIDENT FROM THE FINA NCIAL STATEMENTS SUBMITTED BEFORE YOUR GOODSELF ALONG WITH RETURN OF INCOME. A DOPT ION OF MRP BY THE ITA NO. 2272 //AHD/2018 . A.Y. 2015-1 6 5 SURVEY TEAM AS A BASE FOR DETERMINING VALUE OF GOOD S LYING IN STOCK ON THE AFORESAID FACT AS MRP INCLUDES THE AMOUNT OF INDIRE CT TAXES, WHICH NEEDS TO BE ADJUSTED ACCORDINGLY. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE YOUR ASSESSEE RETRACTS FROM THE OFFER OF ADDITIONAL INCOME OF RS. 76,30,290/- MADE ON ACCOUNT OF DIFFERENCE IN VALUATION OF STOCK DETERMINED BY S URVEY TEAM DURING SURVEY U/S 133A OF THE INCOME TAX ACT, 1961, AS THE SAID OFFER OF ADDITIONAL INCOME WAS MADE UNDER PRESSURE OF TAX OFFICIALS TO DECLARE ADD ITIONAL INCOME AND ALSO TO AVOID FURTHER PRESSURE OF TAX OFFICIALS TO BUY PEAC E OF MIND. 4. THE SUBMISSION MADE BY THE ASSESSEE COULD NOT CONVI NCE THE LD. ASSESSING OFFICER AND HE MADE ADDITION OF RS. 76,30,290/-. 5. AGAINST THE ABOVE SAID ADDITION, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. CONFIRMING ACTION OF THE A.O. FOR MAKING ADDITION OF RS. 76,30,290/- AS UNDISCLOSED INCOME ON THE BASIS OF STATEMENT U/S 133A OF INCOME TAX ACT W ITHOUT ANY CORROBORATIVE EVIDENCE TO SUBSTANTIATE THE ADDITION. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE IMPUGNED ORDER. NOW QUESTION BEFORE US IS WHETHER MERELY ON THE BASIS O F STATEMENT U/S 133A OF THE ACT AN ADDITION CAN BE MADE OR NOT. IN THIS CASE, ASSESSEE IS IN THE BUSINESS OF TRADING OF MOBILE, TELECOMMUNICATION INSTRUMENTS AN D RELATED ACCESSORIES AS DISTRIBUTOR OF VARIOUS BRANDS OF MOBILE DEVICES. TH E MANUFACTURER OF THE BRANDED MOBILE DEVICES SELLS GOODS TO THE ASSESSEE IN THE CAPACITY AS DISTRIBUTOR OF THEIR RESPECTIVE BRAND AND IN RETURN. ASSESSEE F URTHER SELL SUCH GOODS TO SUB DEALER AND RETAILERS. ITA NO. 2272 //AHD/2018 . A.Y. 2015-1 6 6 7. SO FAR VALUATION OF STOCK IS CONCERNED, SURVEY TEAM HAS VALUED TO STOCK AS PER BOOKS LYING AT GODOWN AT MRP LESS 10% GROSS PROFIT AND STOCK FOUND AT SHOW ROOM HAS BEEN VALUED AT MRP LESS 2% OF GROSS PROFIT . NOWHERE, DIFFERENCE OF QUANTITY OF THE ITEMS WAS NOTICED BY THE SURVEY TEA M AND ON THE BASIS OF VALUATION, LOWER AUTHORITIES MADE AND CONFIRMED ADD ITION OF RS. 76.30,290/-. 8. IN SUCH CASE, WE DRAW SUPPORT FROM A LANDMARK JUDGM ENT OF HONBLE SUPREME COURT IN THE MATTER OF CIT VS. S. KHADER KAN SON (2 013) 352 ITR 480(SC) WHEREIN IT IS HELD THAT THE ACTION U/S 133A WOULD N OT HAVE ANY EVIDENTIAL VALUE AND IT COULD NOT BE SAID SOLELY ON THE BASIS OF ADD ITION: A SURVEY WAS CONDUCTED IN THE PREMISES OF THE ASSE SSEE-FIRM. ONE OF THE PARTNERS IN HIS STATEMENT OFFERED AN ADDITIONAL INC OME OFRS. 20 LAKHS FOR THE ASSESSMENT YEAR 2001-02 AND RS. 30 LAKHS FOR THE AS SESSMENT YEAR 2002-03 BUT THE STATEMENT WAS RETRACTED BY THE ASSESSEE STATING THAT THE PARTNER FROM WHOM THE STATEMENT WAS RECORDED DURING THE SURVEY OPERAT ION UNDER SECTION 133A OF THE INCOME-TAX ACT, 1961, WAS NEW TO THE MANAGEMENT AND HAD AGREED TO AN AD HOC ADDITION. THE ASSESSING OFFICER BASED ON THE AD MISSIONS MADE BY THE ASSESSEE RECOMPUTED THE ASSESSMENT. THE ORDER WAS S ET ASIDE BY THE COMMISSIONER (APPEALS) AND THIS ORDER WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE. HIGH COURT, THE HIGH COURT HELD THAT IN VIEW O F THE SCOPE AND AMBIT OF THE MATERIALS COLLECTED DURING THE COURSE OF SURVEY, TH E ACTION UNDER SECTION 133A WOULD NOT HAVE ANY EVIDENTIARY VALUE AND THAT IT CO ULD NOT BE SAID SOLELY ON THE BASIS OF THE STATEMENT GIVEN BY ONE OF THE PARTNERS OF THE ASSESSEE-FIRM THAT THE DISCLOSED INCOME WAS ASSESSABLE AS LAWFUL INCOME OF THE ASSESSEE. ON APPEAL TO THE SUPREME COURT: ITA NO. 2272 //AHD/2018 . A.Y. 2015-1 6 7 9. APART FROM THAT IN THE CASE OF PULLANGODE RUBBER PR ODUCE COMPANY LTD. VS. STATE OF KERALA 91 ITR 18 WHEREIN IT IS HELD SUCH A DMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID T HAT IT IS A CONCLUSIVE: ENTRIES MADE BY THE ASSESSEE IN THE ACCOUNT BOOKS TREATING A PORTION OF THE GENERAL EXPENDITURE AS EXPENSES TOWARDS IMMATURE PL ANTS AND CAPITALISING SUCH PORTION AMOUNT TO AN ADMISSION THAT THE AMOUNT IN QUESTION WAS LAID OUT OR EXPENDED FOR THE CULTIVATION, UPKEEP OR MAINTENAN CE OF IMMATURE PLANTS FROM WHICH NO AGRICULTURAL INCOME WAS DERIVED DURING THE PREVIOUS YEAR FOR THE PURPOSE OF EXPLANATION (2) TO SECTION 5 OF THE KERA LA AGRICULTURAL INCOME-TAX ACT, 1950. SUCH ADMISSION IS AN EXTREMELY IMPORTANT P IECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE. IT IS OPEN TO THE A SSESSEE WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THE ASSESSEE SHOULD B E GIVEN A PROPER OPPORTUNITY TO SHOW THAT THE BOOKS OF ACCOUNT DO NOT DISCLOSE THE CORRECT STATE OF FACTS. 10. AS WE CAN SEE, STATEMENT WAS MADE BEFORE THE SURVEY TEAM BY THE ASSESSEE BUT ABOVE SAID STATEMENT NOT CORROBORATED BY INDEPENDEN T EVIDENCE AND IT IS PERTINENT TO MENTION HERE THAT THERE WAS NO DIFFERE NCE OF THE QUANTITY AND ADDITION HAS BEEN MADE BY THE LOWER AUTHORITIES BY ADOPTING APPROACH WHICH COULD NOT BE DEMONSTRATED TO BE RATIONAL. THE ASSES SEE ON THE OTHER HAND, STATES TO HAVE ADOPTED THE METHOD OF VALUATION OF S TOCK AS PER REGISTERED ACCOUNTING STANDARD AS-2 ISSUED BY ICAI. THE VALUAT ION OF STOCK BY ASSESSEE AT COST OR MARKET VALUE WHICHEVER IS LOWER AS PRESC RIBED BY AS-2, THUS CANNOT BE FAULTED. THE ADDITION MADE ON ACCOUNT OF DIFFERE NCE IN METHOD OF VALUATION OF STOCK IS THUS NOT SUSTAINABLE IN LAW. ITA NO. 2272 //AHD/2018 . A.Y. 2015-1 6 8 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 09- 10- 2019 SD/- SD/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 09/10/2019 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