Shri Suresh Chandra Agrawal, Bhopal V. The A.C.I.T., Bhopal

ITA 237/IND/2010

• Counselvise Citation: 23722714 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: YESHWANT SHARMA
• Assessee Lawyers: PRADEEP KUMAR MITRA
• Section: 143(3); 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI R.C. SHARMA , AM ITA NO.222/IND/2010 A.Y. 2005-06 ACIT, CIRCLE-1(1), BHOPAL APPELLANT VS. SURESH CHANDRA AGRAWAL BHOPAL PAN AEKPA 5835 P RESPONDENT ITA NO.237/IND/2010 A.Y. 2005-06 SURESH CHANDRA AGRAWAL BHOPAL PAN AEKPA 5835 P APPELLANT VS. ACIT, CIRCLE-1(1), BHOPAL RESPONDENT DEPARTMENT BY SHRI PRADEEP KUMAR MITRA, SR. DR RESPONDENT BY SHRI YESHWANT SHARMA, CA -: 2: - 2 ORDER PER R.C. SHARMA, A.M. BOTH THESE CROSS-APPEALS ARE FILED BY THE REVENUE A ND ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-I, BHOPAL, DATED 28.1.2010 FOR THE AY 2005-06 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE I.T. ACT, 1961. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) ERRED IN 1. RESTRICTING THE ADDITION TO RS.4 LACS OUT OF TOTAL ADDITION OF RS.16,28,493/- MADE BY THE AO ON ACCOUNT OF ESTIMATION OF HIGHER G.P. RATE. 2. DELETING THE ADDITION OF RS.16,86,670/- MADE BY THE AO ON ACCOUNT OF UNACCOUNTED SALES IN POST SURVEY PERIOD. 3. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THAT THE ORDER OF THE LD. CIT(A) IS BAD IN LAW AND ON THE FACTS OF THE CASE. -: 3: - 3 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SEC. 145(3). 3. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS WRONG IN CONFIRMING ADDITION OF RS.4 LACS TOWARDS TRADING RESULT OF POST SURVEY PERIOD. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A N INDIVIDUAL PROP. OF M/S. SURESH CHAND & CO. AND IS ENGAGED IN THE RETAIL BUSINESS IN GOLD ORNAMENTS, DIAMOND O RNAMENTS, CLOTH MATTRESSES ETC. A SURVEY U/S 133A OF THE INCO ME-TAX ACT, 1961, WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 19.1.2005. IN THE COURSE OF SURVEY PROCEEDINGS, EXCESS STOCK TO THE EXTENT OF RS. 38,88,252/- AND EXCESS C ASH OF RS. 4,55,348.50 WERE FOUND AND THE SAME WERE SURRENDERE D BY THE ASSESSEE IN THE STATEMENTS RECORDED AT THE TIME OF THE SURVEY. THE ASSESSEE INCLUDED THE SAID DIFFERENCES TOTALING TO RS. 43,43,600/- IN HIS RETURN OF INCOME WHILE FILING TH E RETURN FOR -: 4: - 4 ASSESSMENT YEAR 2005-06. THE AO OBSERVED THAT THE V ERY FACT THAT THE EXCESS STOCK AND EXCESS CASH WERE FOUND DU RING SURVEY OPERATION, IT CLEARLY ESTABLISH THAT THE ASS ESSEE WAS ENGAGED IN MAKING PURCHASES OUTSIDE ITS BOOKS OF AC COUNT AND A LOGICAL CONCLUSION CAN BE DRAWN THAT SINCE HE WAS ENGAGED IN PURCHASES OUTSIDE BOOKS, HE WAS ALSO MAKING SALE S OUTSIDE HIS BOOKS OF ACCOUNT. HE, THEREFORE, CONCLUDED THAT THE ASSESSEE BOOKS OF ACCOUNT DID NOT REFLECT THE TRUE STATE OF THE BUSINESS OF THE ASSESSEE AND HE, ACCORDINGLY, REJEC TED THE SAID BOOKS OF ACCOUNT BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. AO APPLIED GP RATE OF 20 % ON THE TURNOVER AND WORKED OUT THE GP AT RS. 90,65,052/- LEADING TO THE ADDITION OF RS. 16,28,493/-. 6. THE AO ALSO DID NOT ACCEPT THE BOOK RESULT WITH RESPECT TO THE PERIOD FALLING AFTER SURVEY AND MADE AN ADDITION OF RS. 16,86,670/- ON ACCOUNT ESTIMATED UNACCOUNTED SALES FOR THE PERIOD FALLING AFTER SURVEY. 7. BY THE IMPUGNED ORDER, THE LD. CIT(A) RESTRICTED TH E DISALLOWANCE OF RS. 16,28,493/- MADE WITH RESPECT T O THE PERIOD FALLING PRIOR TO SURVEY TO RS. 4 LAKHS AFTER OBSERVING THAT -: 5: - 5 THE ASSESSEE HAS OFFERED ADDITIONAL INCOME OF RS. 4 3,43,601/- AND HIS RETURN OF INCOME WITH RESPECT TO THE PERIOD FALLING PRIOR TO SURVEY AND AFTER ANALYZING QUANTITY-WISE P URCHASE AND SALE OF GOLD ORNAMENTS AND DIAMOND ORNAMENTS, HE GA VE DETAILED FINDING AT PAGE 8, 9 &10 OF HIS ORDER AND ARRIVED AT A CONCLUSION THAT ADDITION TO THE EXTENT OF RS. 4 LAK HS WILL SERVE THE END OF JUSTICE. IN VIEW OF THE DETAILED FINDING RECORDED BY THE LD. CIT(A), WHICH ARE AS UNDER, WE DO NOT FIND ANY INFIRMITY FOR RESTRICTING THE ADDITION FOR THE PERIOD PRIOR T O SURVEY TO THE EXTENT OF RS. 4 LAKHS :- 4.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FACTS OF THE CASE. AS OBSERVED BY THE AO THAT DURING THE COURSE OF SURVEY CONDUCTED IN THE RELEVANT PREVIOUS YEAR ON 19.01.2005, EXCESS STOCK OF RS. 38,88,252/- AND EXCESS CASH OF RS. 4,55,348/- WERE FOUND AND THE SAME WERE SURRENDERED BY THE APPELLANT IN HIS RETURN OF INCOME. THIS FACT CLEARLY PROVES THAT THE APPELLANT HAD NOT ACCOUNTED FOR ALL THE PURCHASES OF THE STOC K MADE IN REGULAR BOOKS OF ACCOUNT MAINTAINED BY -: 6: - 6 HIM AND THATS WHY THE EXCESS STOCK WAS FOUND WHICH CLEARLY SHOWS THAT PURCHASES WERE MADE OUTSIDE THE BOOKS OF ACCOUNT. FROM THE EXCESS CASH FOUND INFERENCE CAN ALSO BE DRAWN THAT THE APPELLANT MADE SALES WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNT. SINCE, ALL THE PURCHASE AND SALES MADE WERE NOT RECORDED PROPERLY IN THE REGULAR BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT, IN MY CONSIDERED OPINION, THE AO WAS JUSTIFIED IN CONCLUDING THAT HE WAS NOT SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE BOOKS OF ACCOUNT. SINCE, BOOKS OF ACCOUNT FOR THE RELEVANT PREVIOUS YEAR WERE NOT FOUND TO BE CORRECT AND COMPLETE, THE PROVISIONS OF SECTION 145(3) WERE CLEARLY ATTRACTED IN THIS CASE. HENCE, THE AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145 (3) OF THE INCOME-TAX ACT, 1961, IN THE APPELLANTS CAS E. HOWEVER, IT IS PERTINENT TO NOTE HERE THAT THE APPELLANT HAD DISCLOSED AN ADDITIONAL INCOME OF RS. 43,43,601/- IN HIS RETURN OF INCOME WHICH WAS -: 7: - 7 EARNED UP TO THE DATE OF SURVEY I.E. 19.01.2005 AND , THEREFORE, THIS ADDITIONAL INCOME DECLARED BY THE APPELLANT TAKES CARE OF ALL THE DEFECTS AND DEFICIENCIES IN THE REGULAR BOOKS OF ACCOUNT MAINTAINED TILL THE DATE OF SURVEY U/S 133A OF THE ACT,1961 CONDUCTED ON 19.01.2005 AND NO FURTHER ADDITION WAS CALLED FOR IN RESPECT OF TRANSACTIONS UP TO 19.01.1995, OTHERWISE IT WOULD AMOUNT TO DOUBLE ADDITION. THEREFORE, IT WOULD BE RELEVANT TO EXAMINE WHETHER THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT FOR THE POST-SURVEY PERIOD WERE CORRECT AND COMPLETE IN VIEW OF SECTION 145 OF THE ACT. IT WOUL D BE FRUITFUL TO REPRODUCE TRADING ACCOUNTS FOR GOLD ORNAMENTS AND DIAMOND ORNAMENTS FOR THE POST SURVEY PERIOD FURNISHED BY THE APPELLANT AS UNDER : - GOLD ORNAMENT ACCOUNT 20.01.2005 TO 31.03.2005 ( PO ST SURVEY ) -: 8: - 8 PARTICULARS QTY. AMOUNT (RS.) RATE PER GM (RS.) PARTICUL ARS QTY AMOUNT RATE PER GM. (RS.) PURCHASE 30713.663 16293787 531 SALE 9472830 61341 14.00 648 PURCHASE 11457.426 6564884.00 573 CLOSING STOCK 32698.259 17554816.54 537 FREIGHT CARTAGE 5809.00 COMMERCIAL TAX 69877.00 GROSS PROFIT 754573.12 G.P.RATE % 12.30 TOTAL 42171.089 23688930.54 42171.089 23688930.54 DIAMOND ORNAMENT ACCOUNT 20.01.2005 TO 31.03.2005 ( POST SURVEY ) PARTICULAR S QTY AMOUNT (RS.) RATE PER GM.(RS.) PARTIC ULARS QTY AMOUNT (RS.) RATE PER GM. (RS.) DIAMOND GOLD DIAMON D GOLD OPENING 233.94 1277.220 4041804 17277.10 SALE 63.90 596.090 1467397.00 22963.96 PURCHASE 278.38 3472.310 5596577.00 20104.09 CLOSIN G STOCK 448.42 4153.44 0 8174587.50 18229.76 FREIGHT & CARTAGE 7473.00 9645854.00 COMMERC IAL TAX 16683.00 GROSS PROFIT -20552.50 G.P. RATE % -1.40 TOTAL 512.32 4749.530 9641984.50 TOTAL 512.32 47 49.53 0 9641984.50 IT IS A WELL RECOGNIZED PRINCIPLE OF COMMERCIAL ACC OUNTING TO ENTER IN THE PROFIT AND LOSS ACCOUNT, THE VALUE OF STOCK -: 9: - 9 IN TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR AT COST OR MARKET PRICE WHICHEVER I S THE LOWER. IN ORDER TO ASCERTAIN CORRECT PROFIT OF A YE AR, THE CLOSING STOCK HAS TO BE PROPERLY VALUED. ON PERUSAL OF THE ABOVE TRADING ACCOUNT, IT IS NOTICED THAT THE APPEL LANT HAD UNDERVALUED THE CLOSING STOCK AS REFLECTED IN T HE TRADING ACCOUNTS. IF THE TRADING ACCOUNT OF DIAMOND ORNAMENTS OF POST-SURVEY PERIOD IS EXAMINED, THE APPELLANT HAD SHOWN SALE OF JEWELLERY 63.90 CARAT O F DIAMOND. EVEN IF IT IS CONSIDERED THAT THE WHOLE OF THE JEWELLERY WAS SOLD FROM THE CURRENT PURCHASES, THE VALUE OF CLOSING STOCK WOULD COME HIGHER THAN THE AMOUNT REFLECTED BY THE APPELLANT. THE APPELLANT HAD PURCH ASED JEWELLERY CONTAINING 278.38 CARAT OF DIAMOND AT AN AVERAGE RATE OF RS. 20,104/- PER CARAT. EVEN IF THE JEWELLERY CONTAINING 6.390 CARET OF DIAMOND WAS SOL D, THE BALANCE JEWELLERY OUT OF CURRENT PURCHASES WOULD REMAINING THE CLOSING STOCK CONTAINING 214.48 (278. 38 63.90 ) CARAT OF DIAMOND. AT THE AVERAGE RATE OF PU RCHASE, THE VALUE OF THIS JEWELLERY LYING IN CLOSING STOCK WOULD -: 10: - 10 WORK OUT AT RS. 43,11,925/- (214.48 X RS.20,104/-) AND IF THE VALUE OF OPENING STOCK OF RS. 40,41,804/-IS TAKEN INTO ACCOUNT, THE TOTAL VALUE OF CLOSING STOCK OF D IAMOND ORNAMENTS WOULD WORK OUT AT RS. 83,53,729/-, AS AGA INST THE VALUE OF CLOSING STOCK SHOWN BY THE APPELLANT A T RS. 81,74,587.50. THUS, THE DIFFERENCE WORKS OUT TO RS. 1,79,142/-. IF IT IS CONSIDERED THAT THE SALES WERE MADE OUT OF OPENING STOCK ONLY, THEN THE BALANCE OPENING STOCK LYING AS ON 31.3.2005/- WOULD WORK OUT TO ORNAMENTS CONTAINING 170.04 (233.94 63.90 _ CARAT OF DIAMON D. THE VALUE OF THESE ORNAMENTS WOULD WORK OUT AT RS. 29,37,798/- (170.04 X RS. 17277.10) AND IF THE PURCHASES MADE DURING THE YEAR WHICH REMAINED UNSOL D IS TAKEN INTO ACCOUNT, THE VALUE OF CLOSING STOCK W ORK OUT AT RS. 85,34,375/- ( RS. 29,37,798 + RS. 55,96,577) , AS AGAINST VALUE OF CLOSING STOCK SHOWN BY THE ASSESSE E AT RS. 81,74,587/- RESULTING INTO THE DIFFERENCE OF RS . 3,59,788/-. HOWEVER, NORMALLY THE SALE IS MADE OUT OF THE OPENING STOCK AS WELL AS FROM THE PURCHASES MAD E DURING THE YEAR. HENCE, THE DIFFERENCE IN CLOSING S TOCK -: 11: - 11 WOULD BE EVEN MORE THAN THAT. IT IS ALSO PERTINENT TO NOTE HERE THAT THE APPELLANT HAD SHOWN LOSS IN TRADING ACCOUNT OF DIAMOND ORNAMENTS WHICH IS NOT ACCEPTABL E WHEN THE SALE PRICE ARE HIGHER THAN THE COST AND RA THER PRICES ARE INCREASING. SIMILAR IS THE SITUATION IN THE CASE OF TRADING ACCOUNT OF GOLD ORNAMENTS WHEREIN THE OPENING STOCK WAS VALUED AT RS. 531/- PER GRAM AND PURCHASES WERE MADE @ RS. 573/- PER GRAM AND CONSIDERING THE QUANTITY IN OPENING OF STOCK AND PURCHASES MADE THE AVERAGE COST WORKS OUT AT RS. 54 2/- PER GRAM, WHEREAS THE CLOSING STOCK WAS VALUED ON A N AVERAGE AT RS. 537/- ONLY. THUS, THIS FACT CLEARLY ESTABLISH THAT THE TRADING ACCOUNT PREPARED FOR THE POST SURVEY PERIOD DO NOT REFLECT CORRECT AND COMPLETE P ICTURE OF THE PROFITS EARNED BY THE APPELLANT. THEREFORE, CONSIDERING TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IN MY OPINION, IT WOULD BE JUSTIFIED IF AN AD DITION OF RS. 4,00,000/- IS MADE IN THE TRADING ACCOUNT OF TH E POST-SURVEY PERIOD. -: 12: - 12 WITH RESPECT TO THE TRADING ADDITION MADE FOR THE P ERIOD FALLING BEFORE THE SURVEY, WE FOUND THAT THE AO HAS APPLIED GROSS PROFIT RATE OF 20 %, WHEREAS IN THE EARLIER YEARS, WE FOUND THAT THE ASSESSEE WAS HAVING GROSS PROFIT RATE VARYING B ETWEEN 15.40 % TO 19.80 %. DURING THE YEAR, THERE IS ALSO SUBSTANTIAL INCREASE IN SALES. THEREFORE, THERE DOES NOT APPEAR TO BE ANY REASON FOR APPLYING HIGHER GROSS PROFIT RATE OF 20 %. THERE IS NO DISPUTE TO THE PROPOSITION THAT WITH THE RISE IN SALES, GROSS PROFIT RATE WILL DECLINE MARGINALLY, WHICH IS CONSI DERED AS A SACRIFICE FOR ACHIEVING HIGHER SALES. THE LD. CIT(A ) HAS DISCUSSED THE ISSUE IN LENGTH AND AFTER GIVING DETA ILED FINDINGS RESTRICTED THE TRADING ADDITION TO THE EXTENT OF RS . 4 LAKHS, WHICH DOES NOT REQUIRE ANY INTERFERENCE. 8. IN VIEW OF THE ABOVE OBSERVATION OF THE CIT(A), WE DISMISS GROUND RAISED BY THE REVENUE AS WELL AS ASS ESSEE WITH REGARD TO THE ADDITION MADE FOR THE PERIOD FALLING PRIOR TO SURVEY. 9. WITH RESPECT TO THE PERIOD FALLING AFTER SURVEY, WE FOUND THAT THE AO HAS WORKED OUT UNACCOUNTED SALE O F RS. -: 13: - 13 16,86,670/- BY TAKING INTO ACCOUNT, DISCLOSED TURNO VER FOR THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION, STOCK AS PER BOOKS OF ACCOUNT AS PER THE DATE OF SURVEY, STOCK F OUND ON PHYSICAL VERIFICATION AS ON THE DATE OF SURVEY. AFT ER APPLYING THE MATHEMATICAL FORMULA, THE AO HAS WORKED OUT EST IMATED UNRECORDED SALES BY KEEPING INTO VIEW THE EXCESS ST OCK OF RS. 38,88,252/- FOUND DURING THE COURSE OF SURVEY AS CO MPARED TO THE STOCK SHOWN IN THE BOOKS OF ACCOUNT. BY THE IMP UGNED ORDER, THE CIT(A) DELETED THE ENTIRE ADDITION, WE D O NOT FIND ANY MERIT IN THIS PART OF CIT(A)S ORDER. FROM THE RECORD, WE FOUND THAT BEFORE THE AO, THE ASSESSEE HAS FURNISHE D TRADING ACCOUNT WITH RESPECT OF SALE OF GOLD AND DIAMOND OR NAMENTS AFTER THE PERIOD OF SURVEY, WHEREIN GROSS PROFIT RA TE OF 12.30% WAS WORKED OUT IN RESPECT OF SALE OF GOLD ORNAMENTS , WHEREAS GROSS LOSS RATE OF 1.40 % WAS WORKED OUT IN RESPECT OF SALE OF DIAMOND ORNAMENTS. NOTHING COULD BE EXPLAINED BY TH E ASSESSEE WITH RESPECT TO SUBSTANTIAL FALL IN THE GR OSS PROFIT RATE AFTER THE PERIOD OF SURVEY NOR THE CIT(A) HAS POINT ED OUT ANY REASON MUCH LESS A COGENT REASON FOR SUCH A LOW GRO SS PROFIT IN RESPECT OF GOLD ORNAMENTS AND NEGATIVE GROSS PRO FIT OF 1.40 -: 14: - 14 % IN RESPECT OF DIAMOND ORNAMENTS. THERE APPEARS TO BE NO REASON MUCH LESS A COGENT REASON FOR NEGATIVE GROSS PROFIT IN THE CASE OF DIAMOND ORNAMENTS. ACCORDINGLY, WE MODI FY BOTH THE ORDERS OF THE LOWER AUTHORITIES WITH REGARD TO THE ADDITION MADE AFTER THE SURVEY PERIOD AND DIRECT THE AO TO A PPLY THE GROSS PROFIT RATE AS WORKED OUT BY THE ASSESSEE HIM SELF FOR THE PERIOD FALLING PRIOR TO SURVEY AND TO APPLY SUCH GR OSS PROFIT RATE EVEN FOR THE SALES EFFECTED AFTER THE PERIOD O F SURVEY I.E. 20 TH JANUARY, 2005, TO 31 ST MARCH, 2005, BOTH WITH RESPECT TO GOLD ORNAMENTS AND DIAMOND ORNAMENTS RESPECTIVELY A ND SUSTAIN THE TRADING ADDITION ACCORDINGLY. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED WHERE AS THE APPEAL OF THE REVENUE IS ALLOWED IN PA RT. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2011. SD/- SD/- (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 31 ST MAY, 2011. CPU* 315