Kanaka Maha Laxmi House, Suryapet V. Income Tax Officer, Suryapet

ITA 2279/Hyd/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2136 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 27-02-2020
• Assessment Year: 2007-2008
• Appeal Filed On: 06-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A C ROUT
• Keywords: Valuation report
• Section: 40A(3); 234B; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES SMC, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO. 2279/HYD/2018 ASSESSMENT YEAR: 2007-08 KANAKA MAHA LAXMI SILK HOUSE, SURYAPET [PAN: AACFK3668A] VS THE INCOME TAX OFFICER, SURYAPET (APPELLANT) (RESPONDENT) FOR ASSESSEE : SMT. S.SANDHYA, AR FOR REVENUE : SHRI A.C.ROUT, DR DATE OF HEARING : 27-02-2020 DATE OF PRONOUNCEMENT : 19-03-2020 O R D E R THIS IS ASSESSEES APPEAL FOR THE AY.2007-08, DIRECT ED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)10, HYDERABAD, DATED 20-09-2018. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FI RM, TRADING IN CLOTHS. IT HAD FILED ITS RETURN OF INCOME FOR THE AY.2007-08 ON 15-11-2007 DECLARING TOTAL INCOME OF RS.10,184/-. THERE WAS A SURVEY ACTION U/S.133A OF THE INCOME TAX ACT [ACT] ON 31-08-2006 IN THE BUSINESS PRE MISES OF THE ASSESSEE-FIRM AND THEREFORE, THE RETURN OF INCO ME FILED BY THE ASSESSEE WAS TAKEN UP FOR SCRUTINY. 3. DURING THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE TAX ACT, VARIOUS DETAILS WERE CALLED-FOR. ASSESSEE SUBMIT TED THE DETAILS SUCH AS BOOKS OF ACCOUNT, ORIGINAL BILLS OF P URCHASES AND SALES, COPY OF PARTNERSHIP DEED, COPY OF THE 3CD REPORT, ITA NO. 2279/HYD/2018 :- 2 -: COPIES OF TRADING A/C, PROFIT & LOSS A/C, BALANCE SH EET AND CAPITAL A/CS OF PARTNERS, LIST OF SUNDRY CREDITORS AND COPIES OF BANK STATEMENTS. THE ASSESSEE WAS ALSO DIRECTED TO FUR NISH THE RECONCILIATION OF THE CLOSING STOCK FOR THE PERIOD FR OM 01-04- 2006 TO 31-08-2006 AND 01-09-2006 TO 31-03-2007. WITH REGARD TO THIS POINT, ASSESSEE SUBMITTED THAT - IT IS UNABLE TO PROVIDE RECONCILIATION FOR VALUATION OF CLOSING STO CK AS THEY HAVE NOT MADE AVAILABLE, THE STOCK VALUATION MADE BY THE DEPARTMENT EVEN THOUGH THE ASSESSEE-FIRM MADE A SPE CIFIC REQUEST VIDE LETTER DT.22-01-2008 . THEREFORE, THE ASSESSEE WAS SERVED WITH A COPY OF THE VALUATION REPORT MADE AT THE TI ME OF SURVEY. IN THE LETTER DT.21-12-2009, THE ASSESSEE SUB MITTED ITS BUSINESS MODEL AS UNDER: ON SHOP IS RETAIL SHOP AND NOT FIXED PRICE SHOP. WE USED TO SELL THE CLOTH ON BARGAINING. TO FACILITATE OUR SALES BOY/G IRL, THE COST PRICE WILL BE INCREASED BY 20% TO 25% IN THE CASE OF SAREES AN D LADIES DRESS MATERIALS AND MADE IT DOUBLED AND WILL BE INDICATED AS CODE PRICE IN TELUGU LANGUAGE WHICH CANNOT BE UNDERSTOOD BY THE C USTOMER. THIS DOUBLED FIGURE FURTHER ENHANCED TO SOME EXTENT AND INDICATED ON TAG AS SALE PRICE. OUR SALE BOY TRIES TO SELL FROM THE PRICE INDICATE IN ENGLISH AND PERMITTED TO SELL THE CLOTH FOR HALF OF THE CODE PRICE WHICH IS IN TELUGU LANGUAGE. I WOULD LIKE TO CLARIFY FOR THE SAME WITH A SMALL EXAMPLE. IF THE COST PRICE OF A PARTICULAR SAREE I S RS.100/-, THIS CAN BE INCREASE BY SAY 25% AND MADE IT DOUBLED. THEN IT BECOMES RS.250/-. THIS RS.250/- WILL BE THE CODE PRICE. THI S RS.250/- WILL FURTHER ENHANCED AND INDICATED ON CLOTH AS SALE PRI CE. OUR SALES MAN WILL START WITH THE SALE PRICE AND CONCLUDE WITH TH E HALF OF THE CODE PRICE. THE SELLING PRICE AND TIME TAKEN TO SALE WIL L DEPENDS UPON THE BARGAINING CAPACITY OF THE CUSTOMER AND CONVINCING CAPACITY OF THE SALES MAN. AT ANY COST, THE SALES MAN IS NOT AUTHOR IZED TO SALE THE PRODUCT AT LESS THAN THE HALF OF THE CODE PRICE. EV EN THAN SOME OF THE CUSTOMERS APPROACHES US TO FURTHER REDUCTION THAN T HE HALF OF THE AMOUNT MENTIONED AS CODE PRICE. THERE IS POSSIBILIT Y TO SELL AT LOWER THAN THE HALF OF THE CODE PRICE DEPENDS ON THE SITU ATION AND VALUE OF THE CUSTOMER. IN CASE OF SUITINGS AND SHIRTINGS, WE DON'T FOLLOW THIS PROCEDURE'. THE COST PRICE WILL BE INCREASED BY PRO FIT ELEMENT AND PREFIXED F BEFORE THAT. FOR EXAMPLE, IF THE COST PR ICE OF SHIRTING IS ITA NO. 2279/HYD/2018 :- 3 -: RS.50/- PER METRE WE USED TO ADD 20% AS OUR PROFIT WHICH COMES TO RS.60/-. THIS CAN BE SUFFIXED WITH F AND TAGGED AS F60 ON THE CLOTH FOLLOWED BY RS.100/- OR ANY THING ELSE SO AS TO FAC E THE BARGAINING OF THE CUSTOMER. OUR SALES MAN, IN THIS CASE, NOT ALL OWED TO SALE BELOW THE PRICE PREFIXED WITH F. THIS IS THE PROCEDURE FO LLOWED BY US FOR COATING THE CODE PRICE AND SELLING PRICE. THAN ADOP TING CODE PRICE/SELLING PRICE TO THE STOCK IS NOT REASONABLE OR NOT PRUDENT METHOD OF ARRIVING AT THE VALUE OF STOCK AS PER THE PROCEDURE LAID DOWN U/S 145 OF THE INCOME TAX ACT. IF YOU ADOPT T HE HALF OF THE CODE PRICE THE VALUATION OF STOCK WILL GET TALLIED. HEN CE WE REQUEST YOU TO KINDLY ADOPT THE SAME AND WHICH CAN BE ACCEPTABLE P ROCEDURE. WE WOULD LIKE TO BRING TO YOUR NOTICE SOME OTHER CAUSE S WHICH RESULTS IN VARIATION IN VALUE OF STOCK. 1. SOME STOCK LYING IN THE SHOP MAY NOT BE IN SALAB LE CONDITION DUE TO DAMAGES, OBSOLESCE ETC. IN THIS CASE WE HAVE TO TAK E THE VALUE AS NIL. 2. SOME' STOCK BECOMES OUT OF FASHION. THEY CANNOT BE SOLD EVEN AT COST PRICE. THEN WE HAVE TO ADOPT THE REALIZATION V ALUE. 3. AT THE INTRODUCTION OF A PARTICULAR CLOTH THE CO ST PRICE WILL BE MORE. AFTER SOME TIME THE COST PRICE WILL BE REDUCED BY T HE SUPPLIER. THEN WE HAVE TO TAKE THE LATEST COST PRICE EVEN THOUGH T HE STOCK WAS PURCHASED AT HIGHER RATE. 4. IN THE CASE OF SUITINGS AND SHIRTINGS SOME CLOTH BECOMES WASTE FOR WHICH WE CANNOT ADOPT ANY VALUE. 3.1. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, TH E AO WAS OF THE OPINION THAT THE ASSESSEE IS MAKING GROSS PR OFIT (GP) OF AT LEAST 25% AND MORE. HE THEREFORE REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE GP @25% AND BROUGHT THE RESULTANT INCOME TO TAX. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS UNSECURED LOANS TO THE EXTENT OF RS.1,95,013/- AND SIN CE THE ASSESSEE COULD NOT FURNISH ANY DETAILS OF THE SAME, A O TREATED IT AS ASSESSEES INCOME. 3.2. FURTHER, AO ALSO OBSERVED THAT THE ASSESSEE HAS MADE PAYMENT TO THE EXTENT OF RS.47,747/- IN CASH IN VIOLATIO N OF ITA NO. 2279/HYD/2018 :- 4 -: PROVISIONS OF SECTION 40A(3) OF THE ACT. THEREFORE, HE TREATED 20% OF THE SALES AS INCOME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE CIT(A), WHO CONFIRMED THE ORDER OF AO AND THE ASSESSE E IS IN SECOND APPEAL BEFORE THE TRIBUNAL, RAISING THE FOLLOW ING GROUNDS: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE PROVIDED OPPORTUNITY BEFORE DECIDING THE APPEAL, OR CONSIDERED THE WRITTEN SUBMISSIONS FILED BEFORE HIM. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN A PPLYING THE PROVISIONS OF SEC.145 WITHOUT REJECTING THE BOOKS O F ACCOUNT. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING ADOPTION OF 25% OF THE TURNOVER AS THE G ROSS PROFIT AND FURTHER ERRED IN CONFIRMING THE ADDITION MADE OF RS .7,30,392/-. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.1,95,013/- WITHOUT CO NSIDERING THE FACT THAT IT DOES NOT REPRESENT THE CREDITS OBTAINED DUR ING THE YEAR UNDER CONSIDERATION. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.9,550/- MADE BY APPLY ING THE PROVISIONS OF SEC.40A(3) OF THE I.T. ACT. 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING LEVY OF INTEREST U/S 234B OF THE I.T. AC T. 8. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 5. LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSEE HAD FILED WRITTEN SUBMISSIONS BEFORE THE CIT( A) AND THE CIT(A) OUGHT TO HAVE GIVEN A PERSONAL HEARING TO E XPLAIN THE SAME BEFORE DISPOSING-OF THE APPEAL. ITA NO. 2279/HYD/2018 :- 5 -: 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, I FIND THAT THE CIT(A) HAD ISSUED NOTICES TO THE ASSESSEE BUT THE ASSESSEE DID NOT APPEAR BEFORE THE CIT(A) AND H AD ONLY FILED WRITTEN SUBMISSIONS. THE CIT(A) HAS CONSIDERE D THE SAME AND HAS DISPOSED-OF THE APPEAL. THEREFORE, THERE IS NO MERIT IN GROUND NO.2, RAISED BY ASSESSEE. HENCE, THE SAME IS DISMISSED. 6.1. AS REGARDS GROUND NOS.3 & 4 ARE CONCERNED, THE ESTIMATION OF GP FROM THE TURNOVER, I FIND THAT THE MANAG ING PARTNER OF THE ASSESSEE-FIRM HIMSELF HAD EXPLAINED THA T THE SALE PRICE OF THE CLOTHES IS FIXED @25% MARGIN AND THE REAFTER, IT IS DOUBLED, SO AS TO ENABLE THEM TO DECREASE THE PRI CE, SO THAT EVEN IF THE CUSTOMER BARGAINS HIS MARGIN WOULD NOT GO BELOW 25%. HE HAS ALSO SUBMITTED THAT THE READY-MADES WERE N OT SOLD BELOW THE SALE PRICE, WHICH IS FIXED WITH A MARG IN OF 20%. THUS, IT IS SEEN THAT ON AN AVERAGE, THE ASSESSEE IS SE LLING THE CLOTHES AT NOT LESS THAN 25% AND THE READY-MADES AT NOT L ESS THAN 20%. THE TURNOVER OF THE SAREES AND THE TURNOVER OF READY-MADES IS NOT SHOWN SEPARATELY. THEREFORE, THE AO AND THE CIT(A) HAVE ESTIMATED THE GP @25% OF THE TOTAL TURNOVER . HOWEVER, SINCE THE ASSESSEE IS SELLING THE READYMADE CLOTHES @20% OF THE TURNOVER AND THE SAREES AND OTHER CLOTHES @2 5%, I DEEM IT FIT AND PROPER TO RESTRICT THE ESTIMATION OF GP @22% OF THE TURNOVER, IN THE INTEREST OF JUSTICE. HENCE, GROU ND NOS.3 & 4 ARE TREATED AS PARTLY ALLOWED. 6.2. AS REGARDS GROUND NO.5 IS CONCERNED, THOUGH THE ASSESSEE SUBMITTED THAT THESE ARE LOANS PERTAINING TO EARL IER ITA NO. 2279/HYD/2018 :- 6 -: YEARS AND NOT TO THE YEAR UNDER CONSIDERATION, NO DETAIL S OF THE SAME WERE GIVEN EITHER BEFORE THE AO OR BEFORE THE CI T(A). EVEN BEFORE THE TRIBUNAL, NO DETAILS WERE GIVEN. THER EFORE, GROUND NO.5 IS REJECTED. 6.3. AS REGARDS GROUND NO.6 IS CONCERNED, I FIND THA T THE AO HAS DISALLOWED 20% OF THE PAYMENTS MADE IN CASH IN EX CESS OF RS.20,000/-, AND THE ASSESSEE HAS NOT GIVEN ANY EXPL ANATION TO JUSTIFY THE PAYMENT IN CASH. THEREFORE, I FIND NO RE ASON TO INTERFERE WITH THE ORDER OF CIT(A) ON THIS ISSUE. 6.4. GROUND NO.7 IS CONSEQUENTIAL IN NATURE. THE AO I S DIRECTED TO GIVE RELIEF IF ANY, TO THE ASSESSEE WITH RE GARD TO LEVY OF INTEREST U/S.234B OF THE ACT. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS TREATED AS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH, 2020 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED: 19-03-2020 TNMM ITA NO. 2279/HYD/2018 :- 7 -: COPY TO : 1. KANAKA MAHA LAXMI SILK HOUSE, D.NO.3-3-93, BODRA I BAZAR, SURYAPET. 2. THE INCOME TAX OFFICER, SURYAPET. 3. CIT(APPEALS)-10, HYDERABAD. 4. PR.CIT-3, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.