J.R. Packages (P) Ltd., Hosur V. DCIT, Coimbatore

ITA 2323/CHNY/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9403 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 31-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V M PRASAD
• Assessee Lawyers: N DEVANATHAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.2323/MDS/2013 ' (' / ASSESSMENT YEAR : 2009-10 M/S J.R. PACKAGES (P) LTD., 72-4 / B-5, 2 ND CROSS, BEHIND TELEPHONE EXCHANGE, ANNA NAGAR, HOSUR 635 109. PAN : AABCJ 0084 B V. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, COIMBATORE. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. N. DEVANATHAN, ADVOCATE ,-*+ . / / RESPONDENT BY : SH. M.S.V.M. PRASAD, CIT 0 . 1$ / DATE OF HEARING : 17.02.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 29.04.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) II, COIM BATORE, DATED 25.11.2013 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. SH. N. DEVANATHAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IS WITH REGARD 2 I.T.A. NO.2323/MDS/13 TO ESTIMATION OF PROFIT ON THE DEFICIT STOCK. ACCO RDING TO THE LD. COUNSEL, THERE WAS A SURVEY IN THE PREMISES OF THE ASSESSEE ON 13.03.2009. THE ASSESSING OFFICER CLAIMS THAT PHYS ICAL INVENTORY OF STOCK WAS TAKEN AND IT WAS ESTIMATED AT ` 98,61,818/-. ACCORDING TO THE LD. COUNSEL, THE STOCK, NAMELY, THE PAPERS WERE SPREAD OVER SEVERAL ACRES OF LAND. THEREFORE, IT IS NOT POSSIB LE FOR THE ASSESSING OFFICER TO TAKE PHYSICAL INVENTORY OF THE STOCK. T HEREFORE, THE FIRST CONTENTION OF THE LD.COUNSEL IS THAT THE PHYSICAL I NVENTORY TAKEN BY THE ASSESSING OFFICER IS NOT CORRECT. THE ASSESSIN G OFFICER HAS TAKEN SAMPLE STOCK AND ESTIMATED THE SAME AT ` 98,61,818/-. THE EXACT STOCK WAS NOT TAKEN BY THE ASSESSING OFFICER. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER ESTIMATED TH E MANUFACTURING COST AT 24%. ACCORDING TO THE LD. COUNSEL, THE MAN UFACTURING COST IS NOT 24% AND THE ESTIMATION MADE BY THE ASSESSING OFFICER IS ON THE HIGHER SIDE. ON A QUERY FROM THE BENCH WHAT WOULD BE THE REASONABLE MANUFACTURING COST? THE LD.COUNSEL VERY FAIRLY SUBMITTED THAT THE MANUFACTURING COST IN NORMAL CIR CUMSTANCES IS AROUND 10% TO 15% AND DEFINITELY NOT AT 24%. THERE FORE, ACCORDING TO THE LD. COUNSEL, THE ADDITION MADE BY THE ASSESS ING OFFICER ON THE DEFICIT STOCK IS NOT JUSTIFIED. 3 I.T.A. NO.2323/MDS/13 3. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS) COMPUT ED THE DEFICIT STOCK AT ` 55,75,603/- AS AGAINST THE DEFICIT STOCK COMPUTED B Y THE ASSESSING OFFICER AT ` 2,70,85,031/-. THE ASSESSING OFFICER, AFTER COMPUTING THE DEFICIT STOCK AT ` 2,70,85,031/-, HAS TAKEN THE GROSS PROFIT AT 20% AND MADE THE ADDITION OF ` 54,17,006/-. ACCORDING TO THE LD. COUNSEL, THE DEFICIT STOCK ESTIMATED BY THE ASSESSING OFFICER IS NOT CORRECT. ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) ESTIMATED THE DEFICIT STOCK AT ` 55,75,603/-. ACCORDING TO THE LD. COUNSEL, 20% CANNOT BE THE PROFIT OF THE ASSESSEE. THE ASSESSEE IS IN THE MANUFACTURING INDUSTRY AND HAS TO INCUR SEVE RAL EXPENDITURE TO MAINTAIN MACHINERY. THEREFORE, AT THE BEST, ACC ORDING TO THE LD. COUNSEL, THE PROFIT WOULD VARY FROM 12% TO 15%. TH EREFORE, THE CIT(APPEALS) WHILE RESTRICTING THE DEFICIT STOCK AT ` 55,75,603/-, OUGHT TO HAVE TAKEN THE PROFIT ON THE DEFICIT STOCK OF ` 55,75,603/-. ACCORDING TO THE LD. COUNSEL, THE ADDITION, AT THE BEST, CAN BE MADE ON THE PROFIT OF THE DEFICIT STOCK OF ` 55,75,603/- AND NOT THE ENTIRE DEFICIT STOCK OF ` 55,75,703/-. 4. ON THE CONTRARY, SHRI M.S.V.M. PRASAD, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT ADMITTEDLY THERE WAS SURVEY 4 I.T.A. NO.2323/MDS/13 OPERATION IN THE PREMISES OF THE ASSESSEE ON 13.03. 2009. PHYSICAL INVENTORY WAS TAKEN AND THE ASSESSING OFFICER COMPU TED THE DEFICIT STOCK AT ` 2,70,85,031/-. THE PHYSICAL STOCK OF INVENTORY WAS TAKEN IN CONSULTATION WITH THE EMPLOYEES OF THE ASSESSEE. THE ACCURACY OF THE PHYSICAL STOCK WAS ALSO CERTIFIED BY THE ASS ESSEES EMPLOYEES. THEREFORE, AT THIS STAGE, THE ASSESSEE CANNOT SAY THAT THE INVENTORY WAS NOT TAKEN PROPERLY. THE LD. D.R. FURTHER SUBMITTED THAT THE MANAGING DIRECTOR OF THE ASSESSE E-COMPANY HAS NOT DISPUTED THE MANNER IN WHICH THE PHYSICAL INVEN TORY WAS TAKEN. THEREFORE, THERE IS NO JUSTIFICATION IN THE CONTENT ION OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE PHYSICAL INVEN TORY WAS NOT TAKEN PROPERLY. IN FACT, ACCORDING TO THE LD. D.R. , THE PHYSICAL INVENTORY WAS TAKEN PROPERLY AND IT WAS QUANTIFIED BY THE ASSESSING OFFICER AT ` 98,61,818/-. AFTER CONSIDERING THE SALES AS PER SA LES TAX RETURN, THE ASSESSING OFFICER ESTIMATED THE DEFICIT STOCK AT ` 2,70,85,031/-. THE PROFIT ON THE DEFICIT STOCK WAS COMPUTED AT 20% AND THE ASSESSING OFFICER FOUND THAT THE PROFIT ON THE SALE OF DEFICIT STOCK WAS AT ` 54,17,006/-. HOWEVER, THE CIT(APPEALS) IN A DIFFER ENT METHOD CONFIRMED THE DEFICIT STOCK AT ` 55,75,603/-. SINCE THE DEFICIT STOCK AS ESTIMATED BY THE CIT(APPEALS) WAS LESS THA N THE PROFIT 5 I.T.A. NO.2323/MDS/13 ESTIMATED BY THE ASSESSING OFFICER, HE CONFIRMED TH E ADDITION MADE BY THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THERE WAS A SURVEY IN THE PREMISES OF THE ASSESSEE ON 13.03.200 9. THE ASSESSING OFFICER ESTIMATED THE PHYSICAL STOCK FOUN D DURING THE COURSE OF SURVEY, AT ` 98,61,818/-. THE ASSESSEE DISPUTED THE MANNER IN WHICH THE INVENTORY WAS TAKEN. THE CONTE NTION OF THE ASSESSEE BEFORE THIS TRIBUNAL IS THAT IT IS IMPOSSI BLE FOR THE REVENUE TO TAKE THE PHYSICAL STOCK OF THE ASSESSEE SINCE IT WAS SPREAD OVER SEVERAL ACRES OF LAND. THE FACT REMAINS THAT THE R EVENUE TOOK THE PHYSICAL INVENTORY AND THE EMPLOYEES OF THE ASSESSE E HAVE ALSO CERTIFIED THE ACCURACY OF THE INVENTORY TAKEN BY TH E REVENUE AUTHORITIES. THE MANAGING DIRECTOR OF THE ASSESSEE -COMPANY HAS NOT DISPUTED THE INVENTORY TAKEN BY THE REVENUE. T HEREFORE, IT IS TOO LATE FOR THE ASSESSEE TO CONTEND BEFORE THIS TR IBUNAL THAT THE INVENTORY WAS NOT TAKEN PROPERLY. 6. NOW COMING TO THE ACTUAL STOCK FOUND BY THE ASSE SSING OFFICER, THE CLOSING STOCK AS PER THE BOOKS WAS ` 3,69,46,849/-. THE SALES AS PER THE SALES TAX RETURN WAS ` 17,18,04,430/-. THE 6 I.T.A. NO.2323/MDS/13 ASSESSING OFFICER ADDED 20% AS GROSS PROFIT TO THE EXTENT OF ` 3,43,60,886/- AND ULTIMATELY ESTIMATED THE DEFICIT STOCK AT ` 2,70,85,031/-. THE CIT(APPEALS), HOWEVER, ESTIMATE D THE DEFICIT STOCK AT ` 55,75,603/-. THIS DEFICIT STOCK COMPUTED BY THE CIT(APPEALS) IS NOT CHALLENGED BY THE REVENUE. IN OTHER WORDS, THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE ORDER OF THE CIT(APPEALS) DETERMINING THE DEFICIT STOCK AT ` 55,75,603/-. 7. NOW THE QUESTION ARISES FOR CONSIDERATION IS WHE THER THE ENTIRE DEFICIT STOCK HAS TO BE TAKEN AS PROFIT OF T HE ASSESSEE OR THE PROFIT ELEMENT EMBEDDED IN THE DEFICIT STOCK HAS TO BE TAKEN AS INCOME OF THE ASSESSEE? THE ASSESSING OFFICER HIMS ELF HAS TAKEN ONLY 20% OF GROSS PROFIT ON THE DEFICIT STOCK ARRIV ED BY HIM. THEREFORE, IT IS OBVIOUS THAT THE REVENUE INTENDED TO TAKE ONLY THE PROFIT ELEMENT EMBEDDED IN THE DEFICIT STOCK. IN O THER WORDS, THE PRESUMPTION WAS THAT THE DEFICIT STOCK WAS SOLD BY THE ASSESSEE OUTSIDE THE BOOKS AND THE PROFIT ON SUCH SALE IS LI ABLE FOR TAXATION. THEREFORE, WHAT WE HAVE TO DO IS, WE HAVE TO ESTIMA TE THE PROFIT ON THE SO-CALLED SALE OF DEFICIT STOCK TO THE EXTENT O F ` 55,75,603/- 8. NOW COMING TO THE GROSS PROFIT, THE ASSESSING OF FICER DETERMINED THE GROSS PROFIT AT 20%. THE ASSESSING OFFICER HAS NOT 7 I.T.A. NO.2323/MDS/13 TAKEN THE PAST HISTORY OF THE ASSESSEE OR THE PROFI T, ETC. OF THE SIMILARLY PLACED INDUSTRIES. THE ASSESSING OFFICER WITHOUT ANY BASIS DETERMINED THE PROFIT AT 20%. THE ASSESSEE OTHERWI SE CLAIMS BEFORE THIS TRIBUNAL THAT THE PROFIT IN THIS KIND O F INDUSTRY IS 12 TO 15%. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ESTIMATION OF PROFIT AT 15% OF THE DEFICIT STOCK OF ` 55,75,603/- WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE MODIFIED AND THE ASSESSING OFFICER IS DIR ECTED TO TAKE 15% ON THE DEFICIT STOCK OF ` 55,75,603/- AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 29 TH APRIL, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 29 TH APRIL, 2016. KRI. 8 I.T.A. NO.2323/MDS/13 . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A) II, COIMBATORE 4. 0 81 /CIT, CENTRAL-III, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.