M/s. Gems Art & Plaza, JODHPUR V. ITO, JODHPUR

ITA 230/JODH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62038 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Assessee Lawyers: AMIT KOTHARI CAAR
• Keywords: Unexplained investment; Cost of acquisition
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBU NAL JODHPUR BENCH , JODHPUR BEFORE S/SHRI R.K. GUPTA, JM AND SANJAY ARORA, AM I.T.A NO. 230/JU/2010 ASSESSMENT YEAR: 2007-08 GEMS ART & PLAZA, NEAR CIRCUIT HOUSE ROAD, JODHPUR [PAN: AAEFG 3888 N] VS. THE INCOME TAX OFFICER, WARD- 2 (2), JODHPUR (ASSESSEEAPPELLANT) (REVENUERESPONDENT) ASSESSEE BY SHRI AMIT KOTHARI, CA-AR REVENUE BY SHRI G.R. KOKANI, JR.DR DATE OF HEARING 28/3/2012 DATE OF PRONOUNCEMENT 12/04/2012 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS), JODHPUR (CIT(A) FOR SHORT) DATED 03-03-2010, PARTLY ALLOWING THE ASSESSEE'S APPEAL CONTESTING ITS ASSESSMENT U/S . 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) DATED 15-12-2009 FOR THE ASS ESSMENT YEAR (AY) 2007-08. 2. THE BRIEF FACTS IN-SO-FAR AS ARE RELEVANT ARE TH AT THE ASSESSEE, A FIRM TRADING IN GEMS, DIAMOND & SILVER ORNAMENTS, HANDICRAFTS & ANT IQUE-WARE ITEMS, ETC WAS SUBJECTED TO SURVEY U/S. 133A OF THE ACT ON 13-03-2 007 AT ITS BUSINESS PREMISES AT CIRCUIT HOUSE ROAD, JODHPUR. A PHYSICAL INVENTORY OF THE ST OCK-IN-TRADE THEREAT WAS TAKEN, WHICH REVEALED STOCK AT RS. 253.00 LACS. THE ASSESS EE WAS FOUND TO BE NOT MAINTAINING ANY STOCK REGISTER/RECORD IN RESPECT OF THE TRADED GOODS. THE BOOK VALUE OF THE STOCK-IN- TRADE WAS DETERMINED BY DRAWING A TRADING ACCOUNT F OR THE PERIOD BEGINNING THE COMMENCEMENT OF THE RELEVANT YEAR, I.E., 01/4/2006, UP TO THE DATE OF STOCK TAKING (13-03- 2007), WHICH REVEALED A STOCK VALUE OF RS. 202.02 L ACS. THERE WAS THUS EXCESS STOCK WITH 2 THE ASSESSEE, I.E., WITH REFERENCE TO THE STOCK PER ITS BOOKS, SO DETERMINED, AS ON THAT DATE, VALUING RS. 50.98 LACS , WHICH WAS ADMITTED BY SHRI DHANPAT RAJ SINGHVI, P ARTNER, VIDE SURVEY STATEMENT, ALSO AGREEING TO RETURN THE SAID AMOUNT AS A PART OF THE FIRMS INCOME FOR THE YEAR BY WAY OF UNEXPLAINED INVESTMENT IN ST OCK. ON 22-03-2007, HOWEVER, THE ASSESSEE SUBMITTED THERE HAD OCCURRED SOME MISTAKE/ S IN WORKING OUT THE BOOK STOCK INASMUCH AS THE GOODS HAD BEEN RECEIVED FROM SOME S UPPLIERS, THOUGH NOT ACCOUNTED FOR AS PURCHASED FROM THEM IN ITS BOOKS, AS THE RELEVAN T PURCHASE BILLS HAD NOT BEEN RECEIVED FROM THE CONCERNED SUPPLIERS, ENCLOSING THE RELEVAN T BILLS, AGGREGATING TO RS. 27.96 LACS, SINCE RECEIVED, ALONG WITH. THE EXCESS STOCK WITH T HE ASSESSEE WOULD, THEREFORE, ONLY BE TO THE EXTENT RS. 23.02 LACS (RS. 50.98 LACS MINUS RS. 27.96 LACS). THE ASSESSE E'S SAID CLAIM WAS VERIFIED BY THE ASSESSING OFFICER (AO) DU RING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ACCEPTING THE SAME, SAVE FOR ONE PURCH ASE BILL OF M/S. DWARKA GEMS LTD. DATED 14-03-207 FOR RS. 1,22,139/-. THE EXCESS STOC K AS ADMITTED BY THE ASSESSEE VIDE ITS APPLICATION DATED 22-03-2007 WAS, THUS, MODIFIED TO THAT EXTENT, AND AN ADDITION FOR RS. 24.24 LACS (RS. 23.02 LACS PLUS RS. 1.22 LACS) ON A CCOUNT OF EXCESS STOCK, REPRESENTING UNEXPLAINED INVESTMENT THEREIN, WAS MADE VIDE THE A SSESSMENT FRAMED. THE SAME STOOD CONFIRMED IN APPEAL. THERE WAS NO EVIDENCE FOUND DU RING THE COURSE OF SURVEY IN RESPECT OF THE RECEIPT OF GOODS, AS BY WAY OF GOODS ON APP ROVAL NOTE, `CHALLAN ETC., SO THAT THE ASSESSEES CLAIM IN RESPECT OF THE GOODS FOR RS. 1. 22 LACS COULD NOT BE ADMITTED, AND STOOD RIGHTLY REJECTED BY THE AO. THE CLAIM OF THE GOODS HAVING BEEN OVERVALUED BY THE REVENUE AUTHORITIES WAS ALSO NEGATIVED BY HIM AS BE ING ONLY AN ALLEGATION WITHOUT BASIS, AND IN VIEW OF THE ASSESSEE'S ADMISSION, FIRSTLY, A T THE TIME OF SURVEY AND, SECONDLY, VIDE ITS LETTER DATED 22-03-2007, CONCEDING EXCESS STOCK . THE ASSESSEES CLAIM OF ITS BOOK STOCK AS ON 13-03-2007 BEING ACTUALLY HIGHER IN VIE W OF IT HAVING EARNED A HIGHER GROSS PROFIT RATE FOR THE CURRENT YEAR, I.E., AT 15.04%, AS AGAINST THE RATE OF 13.22% (I.E., AS OBTAINING FOR THE IMMEDIATELY PRECEDING YEAR) APPLI ED FOR IN WORKING OUT THE BOOK STOCK, ALSO DID NOT FIND FAVOUR WITH HIM. AGGRIEVED, THE A SSESSEE IS IN APPEAL. 3. BEFORE US, LIKE CONTENTIONS WERE RAISED, I.E., A S BEFORE THE AUTHORITIES BELOW. THE ASSESSEES CLAIM OF THE GOODS FROM M/S. DWARKA GEMS LTD. IS SUPPORTED BY AN AFFIDAVIT 3 FROM THE SAID CONCERN VIDE ITS LETTER DATED 11-12-2 009 (PAPER BOOK PAGES 35-41). ELABORATING ON THE SAME, THE LD. AR WOULD SUBMIT TH AT THE ASSESSEE HAS SOUGHT TO RECONCILE THE EXCESS STOCK AS UNDER, WHICH WE FIND WAS ALSO FURNISHED BEFORE THE FIRST APPELLATE AUTHORITY (PB PAGES 1-8): (AMT. IN R S.) (A) UNRECORDED PURCHASE S FOR WANT OF PENDING BILLS 1,22,139 (A) OVER-VALUATION OF STOCK 13,42,577 (B) IGNORING CURRENT GROSS PROFIT RATE 9,59,775 24,24,491 SUBMISSIONS WERE MADE BY HIM ON EACH OF THE THREE I TEMS OF THE RECONCILIATION, WHICH WE SHALL TAKE UP PRESENTLY, ISSUING OUR FINDINGS THERE ON BY EXAMINING THE FACTS AND ALSO TAKING INTO ACCOUNT THE REVENUES CASE/STAND IN ITS RESPECT. FINDINGS 4.1 AS REGARDS THE CLAIM FOR UNRECORDED PURCHASE FO R RS. 1.22 LACS FROM M/S. DWARKA GEMS LTD., THE ASSESSEES CLAIM IS NOT SUPPORTED BY ANY CONTEMPORANEOUS EVIDENCE. IT HAS ALSO NOT BEEN ABLE TO SUBSTANTIATE THE SAME WIT H ANY EVIDENCE AS TO THE RECEIPT OF THE GOODS BY THE ASSESSEE FROM THE SAID CONCERN PRIOR T O THE SURVEY DATE, AS WHERE GOODS ARE SENT ON APPROVAL BASIS, PENDING BILLING. SUCH EVIDE NCE BECOMES CRUCIAL AS SUBSEQUENT BILLS ARE TO BE RAISED ONLY ON THE BASIS THEREOF. I N FACT, THERE IS NO REFERENCE TO ANY SUCH CLAIM EITHER DURING SURVEY OR EVEN SUBSEQUENT THERE TO, WHICH IS INCOMPREHENSIBLE. THE ASSESSESS CLAIM IN THIS RESPECT STANDS RIGHTLY REJ ECTED. 4.2 THE ASSESSEE'S SECOND CLAIM IS FOR RS. 9.60 LACS (ITEM (C) OF THE RECONCILIATION AFORE- STATED), MADE ON THE BASIS OF A HIGHER OVERALL GROS S PROFIT (G.P.) RATE OBTAINING FOR THE CURRENT YEAR (15.04%) AS AGAINST AT 13.22% FOR THE IMMEDIATELY PRECEDING YEAR, WHICH WAS APPLIED IN DETERMINING THE BOOK STOCK AS AT THE SURVEY DATE. THIS WAS DONE IN THE ABSENCE OF DETERMINATION OF THE TRADING PROFIT EARN ED DURING THE CURRENT YEAR. HOWEVER, ON THE SUBSEQUENT CLOSURE OF THE ACCOUNTS FOR THE Y EAR, THE SAID RATE STANDS DETERMINED AT 15.04%, WHICH, THEREFORE, OUGHT TO BE GIVEN CREDIT FOR. THE ASSESSEE'S CLAIM IS NOT WITHOUT MERIT. THE STOCK WAS TAKEN ONLY AT FAG END OF THE Y EAR, SO THAT G.P. RATE FOR THE YEAR COULD 4 REASONABLY BE CONSIDERED AS HAVING BEEN EARNED AT T HE SAME RATE UP TO THE SURVEY DATE. THERE IS NOTHING TO SHOW THAT THE INCREASE IN THE G .P. RATE WAS LARGELY ON ACCOUNT OF A HUGE PROFIT HAVING BEEN EARNED DURING THE BALANCE 1 8 DAYS (14-03-2007 TO 31-03-2007) OF PREVIOUS YEAR. IN FACT, A G.P. RATE OF 13.22% UP TO 13-03-2007 WOULD IMPLY EARNING GROSS PROFIT AT AN EXORBITANT RATE OF NEARLY 32% ON THE SALES OF RS. 56.60 LACS MADE DURING BALANCE 18 DAYS OF THE YEAR. THE SAME, BESIDES BEIN G HIGHLY IMPROBABLE, WOULD BE WITHOUT ANY BASIS INASMUCH AS THERE IS NOTHING TO S UGGEST OF THE SAID SALES HAVING BEEN NOT MADE IN THE NORMAL COURSE OF BUSINESS, AT THE N ORMAL/GOING RATES. SURELY, IN THE ABSENCE OF ANY ADVERSE MATERIAL, OR ADDITIONAL INFO RMATION, THE ONLY VALID BASIS FOR DETERMINING THE BOOK STOCK, WHERE NO STOCK RECORDS STAND MAINTAINED, AS IN THE INSTANT CASE, WOULD BE TO APPLY THE AVERAGE GROSS PROFIT RA TE FOR THE YEAR UP TO THE DATE OF THE SAID DETERMINATION. AS SUCH, THE EXCESS STOCK CAN ONLY B E CONSIDERED AS EXPLAINED TO THAT EXTENT, I.E., RS. 9.60 LACS, ON THE BASIS OF THE BO OK RESULTS FOR THE RELEVANT YEAR AND, THUS, BY THE ASSESSEES BOOKS OF ACCOUNT. THERE IS, HOWEV ER, A VITAL DEFECT IN THE ASSESSEES CLAIM. HOW HAS THE GROSS PROFIT FOR THE CURRENT YEAR (OR A NY YEAR FOR THAT MATTER) BEEN ACTUALLY WORKED OUT IN THE ADMITTED ABSENCE OF ANY STOCK RECORDS ? IS IT THAT THE ASSESSEE HAS ACTUALLY WORKED OUT THE GROSS PROFIT AS THE DIF FERENCE BETWEEN THEIR PURCHASE AND SALE RATES OBTAINING FOR THE ENTIRE SALES DURING THE YEA R, SPAWNING ABOUT 9000 ITEMS? THAT POSSIBLY COULDNT BE, WITH, RATHER, THE LD. AR CONC EDING THAT IT IS A HERCULEAN TASK EVEN TO ASCERTAIN THE COST OF THE ITEMS IN STOCK WITH REFER ENCE TO THE PURCHASE BILLS, AND FOR WHICH A FIRM HAS DEVISED THE METHOD OF CODING, SO THAT TH E SAME IS WORKED OUT ON THAT BASIS FOR THE ITEMS IN STOCK AS AT THE YEAR-END. THE STOCK TA KING HAVING BEEN DONE AT THE FAG END OF THE YEAR, WITH NO EVIDENCE OF OUT-OF- BOOKS TRADING , WHY SHOULD NOT THEN THE ENTIRE EXCESS STOCK BE CONSIDERED AS ARISING OUT OF THE HIGHER GR OSS PROFIT FOR THE YEAR, I.E., RATHER THAN RESTRICTING IT TO RS. 9.60 LACS ONLY, AS BEING CONT ENDED BY THE ASSESSEE?. THIS, IN FACT, FORMS THE ONLY VALID GROUND FOR THE REVENUES OBJEC TION IN DENYING THE CREDIT FOR THE SAME; THERE BEING NO DENYING THE FACT THAT TO THE E XTENT OF ADDITIONAL GROSS PROFIT (I.E., OVER 13.22%), SINCE ACCEPTED BY THE REVENUE, THE AS SESSEES STOCK AS AT 13/3/2007 STANDS EXPLAINED WITH REFERENCE TO ITS TRADING RESULTS, AN D COULD NOT BE BROUGHT TO TAX AGAIN. THE QUESTION THUS BOILS DOWN TO ELIMINATING THE OTHER D ISCREPANCIES OR MISTAKES, IF ANY, IN 5 WORKING OR VALUING THE PHYSICAL STOCK, TREATING THE BALANCING FIGURE AS THE GROSS OPERATIONAL PROFIT FOR THE YEAR, AND WHICH BRINGS U S TO THE NEXT ERROR BEING AGITATED BY THE ASSESSEE. 4.3 THE ASSESSEES LAST CLAIM (ITEM (B) OF THE RECONCILIATION) IS FOR AN OVER-VALUATION OF STOCK, FOR THE BALANCING FIGURE OF RS. 13.43 LACS. TOWARD THIS, IT STATES THAT WHILE THE EMPLOYEES AS WELL AS THE PARTNER MADE A CLEAR STATE MENT THAT THE CODE OF DIFFERENT ITEMS ON GOLD AND SILVERY JEWELLERY IS ONE WHICH WOULD YI ELD ITS PRICE BY MULTIPLYING IT BY A FACTOR OF 4 AND 5 RESPECTIVELY, THE GOLD JEWELLERY HAS BEEN ADMITTEDLY VALUED BY ADOPTING A MULTIPLICATION FACTOR OF 5.5. THE ASSESSEE DID NO T OBJECT TO THE SAME AT THE TIME OF SURVEY ON ACCOUNT OF HEAVY MENTAL EXHAUSTION, AND T O WARD OFF THE SURVEY AUTHORITIES, WHO WERE PRESSURISING THE ASSESSEE FOR DISCLOSURE, SO THAT IT WAS NOT VOLUNTARY. WE ARE NOT INCLINED TO BE IN AGREEMENT WITH THE SAID CONTE NTION. THIS IS FOR THE REASON THAT THE EXCESS STOCK WAS ADMITTED, AND NOT RETRACTED AT ANY TIME. FURTHER, NO CLARIFICATION WAS ALSO ISSUED BY THE ASSESSEE SUBSEQUENT TO THE SURVE Y. IN FACT, IT CONFIRMED TO AN EXCESS STOCK OF RS. 23.02 LACS VIDE ITS LETTER DATED 22-03 -2007, THEREBY IN FACT CONFIRMING THE VALUATION OF THE STOCK TAKEN ON 13-03-2007. ALSO, T HE CLAIM IS DE HORS ANY MATERIAL INASMUCH AS IF THE SAME IS OVERVALUED, THE SAME COU LD BE EASILY PROVED WITH REFERENCE TO THE PURCHASE COST AS PER THE BOOKS OF ACCOUNT. THE STATEMENTS OF THE EMPLOYEES AS WELL AS BY THE PARTNER INDICATE A RANGE, AND CANNOT, THEREF ORE, BE CONSIDERED AS ACCURATE. SO, HOWEVER, IT IS CLEAR THAT THE REVENUE HAS ITSELF AD OPTED THE MULTIPLICATION FACTOR 4 AND 5.5 IN VALUING SILVER AND GOLD ITEMS RESPECTIVELY. AS S UCH, CONSIDERING THE FACTOR OF 5, THE GOLD JEWELLERY, VALUED AT RS. 150.95 LACS (AS ON TH E SURVEY DATE), BEARS AN OVERSTATEMENT TO THE EXTENT 1/11, I.E., AT RS. 13.72 LACS. ALSO, WE FIND STATEMENT TO THE EFFECT THAT THE GOODS ARE SOLD AT THE RATE ARRIVED AT BY MULTIPLYIN G THE CODE WITH THE FACTOR OF 5, SO THAT THE SAME REPRESENTS ITS SALE PRICE (VIZ. ANSWER TO Q. NO. 4 OF SH. PINTU LAL PANWAR S/O SH. FATEH KISHAN (WORKING AT UMAID FORTUNE/PB PG. 3 ). WE DO NOT FIND ANY SEPARATE TRADING ACCOUNT FOR GOLD ITEMS ON RECORD. THE SAME, IT IS APPARENT, CONSTITUTE THE ASSESSEE'S PRINCIPAL SALES. THE G.P. RATE OF 15% TH EREON WOULD YIELD A COST FACTOR OF 4.675, YIELDING A DIFFERENCE OVER RS. 22.64 LACS (RS. 150. 95 LACS * 15%). AT THE SAME TIME, THE 6 MAJORITY OF THE STATEMENTS CLARIFY THE MULTIPLICATI ON FACTOR TO YIELD THE COST, IN WHICH CASE WE HAVE ALREADY FOUND THE INFLATION BE TO AT RS. 13 .72 LACS. SOME OF THE CODES BEAR A MULTIPLICATION FACTOR OF 6. A COST, ASSUMING A G.P. RATE OF 15%, YIELDS A COST FACTOR AT 5.1, RESULTING IN AN INFLATION IN COST ESTIMATION BY RS. 10.95 LACS. THE REVENUE HAVING ITSELF ADOPTED THE CODE METHOD IN DETERMINING THE COST, VE RIFYING IT, AS IT APPEARS, ON SAMPLE BASIS, THE SAME ASSUMES CREDIBILITY. THE ASSESSEE'S CLAIM OF THE VALUATION BEARING AN OVER VALUATION TO THE EXTENT RS. 13.43 LACS, THUS, STAND S INDIRECTLY SUBSTANTIATED. THE DIFFERENT CALCULATIONS MADE BY US ARE ONLY BY WAY OF DISCOUNT ING THE SAME FOR THE MARGIN OF ERROR; THE SAME BEING NOT VERY PRECISE BUT ONLY INDICATIVE . THE SAME, AS IS EVIDENT, AGREE WITH THE ASSESSEE'S CLAIM OF THE SAME BEING OVER VALUED BY RS. 13.43 LACS. CONCLUSION 5. IN VIEW OF THE FOREGOING, THE VALUATION OF STO CK AS ON 13/3/2007, TAKEN AT RS. 253 LACS, IS TO BE CONSIDERED AS OVER-VALUED BY RS. 13 LACS A ND, ACCORDINGLY, TAKEN AT RS. 240 LACS. THE GROSS PROFIT FOR THE YEAR WOULD BE DETERMINED B Y ADOPTING THE GROSS PROFIT RATE AS OBTAINING FOR THE PERIOD UP TO 13/3/2007 ON THE BAS IS OF THE SAID FIGURE FOR STOCK, I.E., TAKING THE SALES AND PURCHASES FOR THE YEAR UP TO T HAT DATE, OR AT RS. 527.35 LACS AND RS. 573.98 LACS (AS AGAINST RS. 547.24 LACS AS PER THE ASSESSEES BOOKS) RESPECTIVELY. THE ASSESSEES INCOME FOR THE YEAR IS TO BE COMPUTED ON THE BASIS OF THE GROSS PROFIT, SO DETERMINED, WITH NO SEPARATE ADDITION FOR THE STOCK SURRENDERED DURING SURVEY. WE DECIDE ACCORDINGLY. 6. GROUND NOS. 5 AND 6 WERE NOT PRESSED AT THE TIME OF HEARING, WITH GROUND NO. 6 BEING EVEN OTHERWISE CONSEQUENTIAL IN NATURE. 7 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLO WED. SD/- SD/- (R.K. GUPTA) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: JODHPUR DATED: APRIL 12 , 2012 *MISHRA COPY TO: 1. M/S. GEMS ARTS & PLAZA, JODHPUR 2. THE ITO, WARD 2 (2), JODHPUR 3. THE CIT (A), JODHPUR 4. THE CIT, JODHPUR 5. THE D.R., I.T.A.T. 6. GUARD FILE (ITA NO.230/JU/2010) . B Y ORDER (ASSI STANT REGISTRAR) ITAT, JODHPUR BENCH 8