P. Srinivas (HUF), Hyderabad V. ITO, Karimnagar

ITA 244/HYD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53756 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: RAVI SESHAGIRI RAO; CHAITANYA KUMAR
• Keywords: Unexplained expenditure; Business income
• Section: 133A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, AM AND SMT. ASHA VIJAYARAGHAVAN, JM ITA NO. 244/HYD/2009 ASSESSMENT YEAR 2005-06 SHRI P. SRINIVAS (HUF) GODAVARI KHANI PAN: AAGHP8478K VS INCOME-TAX OFFICER WARD-4, KARIMNAGAR APPELLANT RESPONDENT ITA NO. 245/HYD/2009 ASSESSMENT YEAR 2005-06 SHRI P. CHANDRAMOULI (HUF), GODAVARI KHANI PAN: ABOPP0614L VS INCOME-TAX OFFICER WARD-4, KARIMNAGAR APPELLANT RESPONDENT APPELLANT BY: SHRI RAVI SESHAGIRI RAO & SHRI CHAITANYA KUMAR RESPONDENT BY: SHRI V. SRINIVAS DATE OF HEARING: 16.9.2011 DATE OF PRONOUNCEMENT: 31.10.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM THE ABOVE TWO APPEALS PREFERRED BY DIFFERENT ASSES SEES ARE DIRECTED AGAINST THE SEPARATE ORDERS PASSED BY THE CIT-II, HYDERABAD DATED 12.12.2008 AND PERTAINS TO ASSESSMENT YEAR 20 05-06. SINCE IDENTICAL ISSUES WERE RAISED IN BOTH THE APPEALS, T HESE TWO APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, LET US NARRATE THE FACTS OF THE CASE IN I.T.A. NO. 244/HYD/2009 IN THE CASE OF SHRI P. SRINIVAS (HUF). THE CIT PASSED THE ORDER U/S 263 D T 12.12.2008, ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 2 PROPOSING TO REVISE THE ORDER OF ASSESSMENT FOR AY 2005-06 OF THE ASSESSEE PASSED ON 28.11.2006. 3. THE CIT HELD AS UNDER: 'ON 3.2.2005, A SURVEY WAS CONDUCTED AT EH BUSINESS PREMISES OF THE ASSESSEE. STOCK OF JEWELLERY WORTH RS. 26,56,574/- WAS FOUND DURING THE COURSE OF SURVEY. AFTER GIVING DISCOUNT FOR G.P. RATE AT THE RATE 20%, THE STOCK WAS VALUED AT RS. 21,25,404/- AND FURTHER DISCOUNT OF 15% WAS GIVEN TOWARDS IMPURITIES AND FINALLY THE VA LUE OF THE STOCK WAS TAKEN AT RS. 17,60,270/-. IT WAS STA TED BY THE ASSESSEE THAT OUT OF THIS TOTAL STOCK OF RS. 17 ,60,270/- , ORNAMENTS WORTH RS. 13,00,000/- BELONGED TO CUSTO MERS AND THE BALANCE AMOUNT OF AROUND RS. 5,00,000/- BELONGED TO HIM. IT WAS A NO ACCOUNT CASE AND IN T HE ABSENCE OF ANY EVIDENCE TO SUPPORT THE STOCK OF RS. 5,00,000/- THE ASSESSEE OFFERED IT AS INCOME AND PROMISED TO PAY TAX ON THE SAME. DURING THE COURSE OF SURVEY, INVESTMENT IN CHIT FUND TO THE EXTENT OF RS. 5 LAKHS, NSC CERTIFICATES IN THE NAMES OF CHILDREN WORTH RS. 56 THOUSANDS AND SHARES OF RS. 9000/- WERE ALSO DETECTED. IT WAS ALSO FOUND T HAT IMMOVABLE PROPERTY AT LAXMINAGAR WAS PURCHASED IN NOVEMBER, 1999. THE PROPERTY WAS LATER RENOVATED A LSO. PRIOR TO THAT THE ASSESSEE HAD PURCHASED 1/3 RD SHARE IN TIRUMALA COMPLEX IN THE YEAR 1992. IN THE BACK GRO UND OF THIS FACT, THE ASSESSEE HAS GIVEN IN WRITING VID E HIS LETTER DATED 13.4.2005 THAT HE WAS UNABLE TO EXPLAI N THE SOURCES FOR HIS OWN STOCK OF RS. 5 LAKHS AND WAS THEREFORE READY TO SURRENDER AS HIS UNDISCLOSED INC OME FOR THE YEAR.' 4. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASST. YEAR 2005- 06 ON 12.12.2005. FOLLOWING INCOMES WERE DECLARED IN THE RETURN OF INCOME. 1) ON ESTIMATED TURNOVER OF RS. 1,91,700, ESTIMATED @ 5% . 9,585 2) RS.5 LAKHS OFFERED DURING THE SURVEY 5,00,000 3) AGRICULTURAL INCOME 60,000 ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 3 5. ALONG WITH THE RETURN OF INCOME, A CAPITAL A/C A ND STATEMENT OF AFFAIRS AS ON 31.3.2005 WAS ALSO FILED. WHILE ON T HE DATE OF SURVEY AND TILL 13.4.2005 (ON THIS DATE A LETTER AS DISCUSSED ABOVE HAS BEEN FILED BY THE ASSESSEE), THE ASSESSEE WAS NOT IN A POSITIO N TO EXPLAIN THE SOURCE OF INVESTMENT IN THE STOCK, AS PER HIS CAPIT AL A/C, HE CLAIMED THAT RS. 8,91,661 WAS HIS CAPITAL ON THE OPENING DAY OF THE FINANCIAL YEAR 2004-05 AND HIS CAPITAL ON 31.3.2005 WAS DECLARED A S RS. 13,67,143. A STOCK OF GOLD AND SILVER AS ON 31.3.2005 WAS SHOW N AT RS. 26,87,890, CREDITORS TO THE EXTENT OF RS. 15,00,000 ON 31.3.2005 WERE ALSO CLAIMED. ON BEING ASKED TO EXPLAIN ALL THESE ON 20.11.2006, THE ASSESSEE FILED CAPITAL A/C AND STATEMENT OF AFFAIRS FOR THE ASST. YEAR 2004-05 FOR THE FIRST TIME DURING THE COURSE OF ASS T. PROCEEDINGS FOR THE ASST. YEAR 2005-06. VIDE THESE STATEMENTS OPENING C APITAL OF RS. 7,73,000 WAS CLAIMED FOR THE ASST. YEAR 2004-05 AND CREDITORS AS ON 31.3.2004 WERE CLAIMED AT RS. 12,00,000. 6. ON THE ABOVE FACTS THE CIT CONCLUDED THAT THE OR DER WAS ERRONEOUS FOR FOLLOWING REASONS: (I) WHILE ON THE DATE OF SURVEY AND UNTIL 13.4.2005 , THE ASSESSEE WAS CLAIMING THAT HIS OWN STOCK IS ONLY AB OUT RS. 5 LAKHS AND EVEN FOR THAT HE IS NOT IN A POSITION TO EXPLAIN THE SOURCE OF INVESTMENT, HE SUDDENLY STARTED CLAIMING AND JUSTIFYING THE STOCK OF RS. 26 LAKHS AND ABOVE BY W AY OF THE CAPITAL ACCOUNT AND STATEMENT OF AFFAIRS. TO JUSTI FY HIS STOCK HE NOW CLAIMED HIS OPENING CAPITAL FOR THE YEAR 200 5-06 AT RS. 8,91,661 AND ALSO CREDITORS TO THE EXTENT OF RS . 12 LAKHS AS ON 1.4.2004 AND RS. 15 LAKHS AS ON 31.3.2005. T HIS POSITION WAS AT TOTAL VARIANCE WITH THE FACTS DISCO VERED DURING THE COURSE OF SURVEY. THE ASSESSING OFFICER , WHILE FRAMING ASSESSMENT ORDER, PRESUMED THE OPENING STOC K OF RS. 20,50,545 AS FULLY EXPLAINED, WITHOUT MAKING AN Y QUERY AT ALL. FURTHER, THE CREDITORS TO THE EXTENT OF RS . 12 LAKHS ON ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 4 1.4.2004 AND RS. 15 LAKHS AS ON 31.3.2005 WERE ACCE PTED ON THE BASIS OF COPIES OF THEIR RETURN OF INCOME FI LED DURING THE COURSE OF HEARING. ALL THESE RETURNS OF INCOME WERE SUBMITTED BY THE CREDITORS AFTER 12.12.2005 WHEN TH E ASSESSEE FILED HIS OWN INCOME TAX RETURN. IN ANY C ASE, THIS CLAIM WAS ALSO AGAINST THE FACTS DISCOVERED DURING THE COURSE OF SURVEY. STILL THIS CLAIM WAS ALSO ACCEPT ED BY THE ASSESSING OFFICER WITHOUT ANY ATTEMPT TO VERIFY THE CLAIM MADE BY THE ASSESSEE. (II) DURING THE COURSE OF SURVEY, IT WAS CLAIMED TH AT ORNAMENTS WORTH RS. 13 LAKHS BELONGED TO THE CUSTOMERS. WHAT HAPPENED TO THE ORNAMENTS OF RS. 13 LAKHS WHICH BEL ONGED TO THE CUSTOMERS ON THE DATE OF SURVEY. SOME INCOM E WAS BOUND TO BE GENERATED ON WHATEVER WAS DONE ON THIS STOCK. WITHOUT MAKING A SINGLE QUERY, THE ASSESSING OFFICE R JUST IGNORED TO EXAMINE THIS ASPECT. (III) AS PER THE RETURN FILED BY THE ASSESSEE, THE STOCK WAS MORE THAN RS. 26 LAKHS. ON THIS STOCK, THE ASSESSEE EST IMATED HIS TURNOVER AT RS. 1,91,700 AND DECLARED A NET PROFIT @ 5%. BUSINESS INCOME OF RS. 9,585 DECLARED IN THIS MANNE R WAS ACCEPTED BY THE ASSESSING OFFICER WITHOUT MAKING A SINGLE QUERY. 7. IN VIEW OF THE ABOVE FACTS, THE ORDER PASSED BY THE ASSESSING OFFICER APPEARED TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE AS THE SAME WAS PASSED WITHOUT MAKING PROPER ENQUIRIES AND VERIFICATION. NOTICE U/S. 263 IN F. NO. 263/I/CIT-II/08-09 DATED 12.8.2008 WAS THEREFORE ISSUED AND ALL THESE FACTS WERE BROUGHT T O THE NOTICE OF THE ASSESSEE AND HE WAS REQUIRED TO EXPLAIN AS TO WHY A CTION U/S.263 SHOULD NOT BE TAKEN IN HIS CASE. ON 2.12.2008 THE ASSESSEES COUNSEL APPEARED AND SUBMITTED HIS WRITTEN REPLY. DURING T HE COURSE OF ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 5 HEARING, HE ORALLY REQUESTED THAT HE WILL BE SUBMIT TING HIS FINAL REPLY ON 8.12.2008. THIS TIME WAS GIVEN TO HIM. HOWEVER, O N 8.12.2008, NO REPLY WAS SUBMITTED AND NOBODY ATTENDED. FROM THE ABOVE CIRCUMSTANCES, IT IS CLEAR THAT THE CIT CONCLUDED T HAT THE ASSESSEE HAS NOTHING TO SAY AND WHATEVER HE WANTED TO SAY HAS BE EN STATED VIDE HIS WRITTEN SUBMISSIONS WHICH WERE GIVEN ON 2.12.2008. THE MAIN POINTS OF THE ASSESSEES REPLY ARE REPRODUCED BELOW: THE ASSESSING OFFICER MAKE AN ADDITION OF RS. 1,77,100 IN ADDITION TO THE AMOUNT OF RS. 5 LAKHS O FFERED BY THE ASSESSEE. THEREFORE, THE TOTAL ADDITIONS MA DE BY THE ASSESSING OFFICER TO THE INCOME AS PER BOOKS IS RS. 6,77,100. IT IS SUBMITTED THAT THE STOCK WAS VERIFIED AT THE TIME OF SURVEY AND THE ASSESSEE EXPLAINED THE STOCK DURING THE COURSE OF SURVEY. THE ASSESSING OFFICER ON 3.2.2005 FOUND THE STOCK AT RS. 26,56,754. AN EXPLANATION WAS SUBMITTED AT THE RELEVANT POINT OF TIME. THE ASSESSING OFFICER, ON VERIFICATION OF THE MATER IAL FACTS AVAILABLE AT THE PREMISES OF THE ASSESSEE AND CONSIDERING THE DETAILS AVAILABLE AT THE RELEVANT P OINT, ACCEPTED FOR THE AMOUNT OF RS. 5 LAKHS. HOWEVER, T HE ASSESSING OFFICER ARRIVED AT THE FURTHER EXCESS STO CK OF RS. 1,77,100 AND MADE THE ADDITION. THE ASSESSEE SUBMITS THAT EVEN IF THE ASSESSING OFFICER PROPOSED TO MAKE THE ADDITION TAKING INTO CONSIDERATION THE INCOMES IN RESPECT OF THE BALANCE OF THE STOCK NOT BELONGING TO THE ASSESSEE, THE ENTIRE ADD ITION COULD NOT HAVE BEEN RS. 6,77,100 AND THE SAME WOULD HAVE BEEN TELESCOPED AGAINST THE STOCK AVAILABLE. IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFICER ADOPTS TO ARRIVE AT THE INCOME CONSIDERING THE INCO MES OR BASED ON THE ASSETS ACQUIRED. IN THE CASE OF THE ASSESSEE, THE ASSESSING OFFICER ARRIVED AT THE INCO ME BASED ON THE STOCK AVAILABLE AT THE PREMISES OF THE ASSESSEE AT THE TIME OF SURVEY AND MADE AN ADDITION . THEREFORE, NO FURTHER ADDITION WAS MADE ON ACCOUNT OF ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 6 THE INCOMES IF ANY, DERIVED DURING THE PERIOD. IN THE CIRCUMSTANCES, IT IS SUBMITTED THAT THE ASSESSING O FFICER HAS TAKEN ONE VIEW THAT IF INSTEAD ESTIMATING THE I NCOME FROM THE ACTIVITY, HE ESTIMATED THE INCOME BASED ON THE ASSETS AVAILABLE. THEREFORE, THE ASSESSING OFFICER S METHOD IS ONE OF THE ACCEPTED METHODS FOR THE PURPO SE OF ARRIVING AT THE INCOME. IN THE CIRCUMSTANCES, T HE SAID METHOD CANNOT BE DISTURBED BY THE LEARNED COMMISSIO NER OF INCOME TAX WHILE PASSING ORDER U/S 263 OF THE I. T. ACT. IT CANNOT BE ALSO BE SAID THAT THE METHOD ADOPTED B Y THE ASSESSING OFFICER IS NOT CORRECT. THEREFORE, THE ASSESSMENT CANNOT BE CONSIDERED TO BE ERRONEOUS. IT IS FURTHER SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX DID NOT ARRIVE AT WHAT I S THE PREJUDICE CAUSED TO THE REVENUE AND DID NOT QUANTIF Y THE PROBABLE ADDITIONS TO BE MADE. IT IS ALSO NOT MENT IONED WHETHER THE ADDITION MADE OF RS. 6,77,100 IN ALL, INCLUDING THE INCOME OFFERED OF RS. 5 LAKHS AT THE TIME OF SURVEY, COULD BE CONSIDERED AS LESS THAN THE INCOME THAT CAN BE ARRIVED AT BY THE LEARNED COMMISSIONER OF INCOME-TAX ADOPTING ANY PARTICULAR METHOD. THEREFO RE, IT CANNOT BE CONSIDERED AS PREJUDICIAL TO THE INTEREST OF REVENUE. 8. CIT CONCLUDED THAT FIRST OF ALL, NEITHER THE RET URN OF INCOME NOR THE ASSESSMENT IS BASED ON ANY BOOKS OF A/C AS CLAI MED BY THE ASSESSEE. EVERYTHING IS BASED ON PURE ESTIMATION. UNDER THESE CIRCUMSTANCES, THE FACTS DISCOVERED DURING THE SURV EY, THE CAPITAL A/C AND THE STATEMENT OF AFFAIRS, SUBMITTED ALONG WITH THE RETURN OF INCOME BECOME RELEVANT FOR WORKING THE UNEXPLAINED INVESTM ENT IN STOCK AS WELL AS TURNOVER OF THE BUSINESS. THE ASSESSEES C LAIM IS THAT UNEXPLAINED STOCK OF RS. 6,77,100 HAS BEEN WORKED O UT BY THE ASSESSING OFFICER. THIS UNEXPLAINED STOCK HAS BEEN WORKED OUT ON THE PRESUMPTION THAT THE OPENING STOCK OF RS. 20,50,542 AS ON 1.4.2004 IS FULLY EXPLAINED. AS DISCUSSED IN EARLIER PARAGRAPH , THIS PRESUMPTION IS NOT BASED ON FACTS RATHER IT IS CONTRADICTED BY THE FACTS DISCOVERED ON THE DATE OF SURVEY AS WELL AS ASSESSEES OWN LETTER SUBMITTED ON ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 7 13.4.2008. UNDER THESE CIRCUMSTANCES, THE UNEXPLAI NED STOCK HAS NOT BEEN CORRECTLY WORKED OUT BY THE ASSESSING OFFICER. 9. THE ASSESSEES NEXT ARGUMENT IS THAT IF AN ADDIT ION HAS BEEN MADE IN A PARTICULAR MANNER FURTHER ADDITION CANNOT BE MADE FROM DIFFERENT CALCULATIONS. THIS IS NOT ACCEPTABLE. T HE ADDITION WHICH IS MADE ON THE BASIS OF UNEXPLAINED STOCK HAS NOTHING TO DO WITH EITHER THE STOCK OF RS. 13 LAKHS BELONGING TO THE CUSTOMER S OR A PROPER ESTIMATE OF THE TURNOVER OF THE ASSESSEE. THE INCO ME ON CUSTOMERS STOCK AND PROPER ESTIMATION OF BUSINESS INCOME ON T HE BASIS OF THE TURNOVER AND THE PROFIT RATE IS BOUND TO BE THERE I N ADDITION TO THE UNEXPLAINED STOCK ESTIMATED IN THE CASE OF THE ASSE SSEE. IN THE PRESENT CASE, AS DISCUSSED IN THE ABOVE PARA GRAPHS, 1. THE ASSESSING OFFICER HAS NOT AT ALL EXAMINED TH E ISSUES REGARDING THE UNEXPLAINED STOCK WITH THE ASSESSEE. 2. HE HAS NOT EXAMINED THE GENUINENESS OF THE CREDI TORS SHOWN BY THE ASSESSEE PARTICULARLY AS IT WAS CONTRADICTORY TO THE FACTS FOUND DURING THE COURSE OF SURVEY. 3. THE ASSESSING OFFICER HAS NOT MADE ANY EFFORT TO WORK OUT INCOME ON A STOCK OF RS. 13 LAKHS WHICH ON THE DATE OF SURVEY WAS CLAIMED TO BE BELONGING TO THE CUSTOMERS . 4. CONSIDERING THE OVERALL CIRCUMSTANCES, NO EFFORT HAS BEEN MADE BY THE ASSESSING OFFICER TO PROPERLY ESTIMATE THE TURNOVER OF THE ASSESSEE AND THE NET INCOME THEREON . 10. THE CIT THEREFORE, HELD THAT ASST. ORDER IS PRE JUDICIAL TO THE INTERESTS OF REVENUE IN SO FAR AS PROPER ENQUIRIES AND VERIFICATION HAVE NOT BEEN MADE ON ANY OF THESE FOUR ISSUES ENUMERATE D ABOVE. HE SET ASIDE THE SAME AND DIRECTED THE ASSESSING OFFICER T O MAKE PROPER ENQUIRIES ON THESE FOUR ISSUES AND PASS FRESH ASSES SMENT ORDER ON THE BASIS OF ENQUIRIES MADE BY HIM. ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 8 11. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. FOR THE CIT TO EXERCISE HIS JURISDICTION U/S 263, THE ORDER OF ASS ESSMENT SHOULD BE BOTH ERRONEOUS AND PREJUDICIAL TO THE REVENUE. THE ORDER OF ASSESSMENT CANNOT BE CONSIDERED AS ERRONEOUS MERELY BECAUSE THE CIT DOES NOT AGREE WITH THE CONCLUSION OF THE AO. I F THE AO HAS TAKEN A VIEW WHICH IS POSSIBLE AND NOT LEGALLY UNSUSTAINA BLE, THE CIT CANNOT INVOKE THE PROVISIONS OF SEC 263 TO IMPOSE HIS IDEA S AND CONCLUSION. 12. THERE WAS SURVEY ON THE ASSESSEE ON 13.2 2005. THEREAFTER THE ASSESSEE SEEMS TO HAVE FILED A RETURN OF INCOME FOR THE AY 2004-05 ON 14.3.2005. IN THE RETURN THE ASSESSEE HAS DISCLO SED CLOSING STOCK OF RS. 20,50,542/- OF GOLD AND SILVER. THIS RETURN SEE MS TO HAVE BEEN ACCEPTED AND NO ACTION TAKEN ON THE SAME. IN THE CO URSE OF ASSESSMENT FOR AY 2005-06, THE ASSESSEE HAS WORKED OUT THE PROFIT ON THE BASIS OF THE VALUE OF STOCK FOUND AT THE TIME O F SURVEY BY TAKING THE OPENING STOCK AS ON 1.4.2004. (SAME AS CLOSING STOC K FOR THE EARLIER PREVIOUS YEAR 2004-05 AS ON 31.3.2004). THE ASSESSI NG OFFICER COMPLETED THE ASSESSMENT ACCEPTING THE SAME. 13. THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER H ELD AS UNDER: AS SURVEY U/S. 133A WAS CONDUCTED DURING FY 2004-0 5 I.E. ON 3.2.2005, THE RETURN WAS SELECTED FOR SCRUTINY. TH E CASE POSTED FOR HEARING ON 12.8.2006, 7.7.2006, 27.10.2006, 1.1 1.2006 & 28.11.2006. A SHOW CAUSE LETTER DATED 1.11.2006 WA S ISSUED CALLING FOR CLARIFICATION FOR CUSTOMERS STOCK IN T HE ASSESSEES HANDS ON THE DATE OF SURVEY ON 3.2.2005. SUMMONS U /S. 131 DATED 23.11.2006 WAS ISSUED POSTING THE CASE TO 28. 11.2006. IN RESPONSE TO THE SHOW CAUSE LETTER DATED 1.11.200 6 THE ASSESSEE FILED CLARIFICATION BY HIS ARS LETTER DAT ED 28.11.2006 ALONG WITH COPY OF STATEMENT OF AFFAIRS ON 31.3.200 4. AFTER VERIFYING THE CLOSING STOCK OF THE ASSESSEE AS ON 3 1.3.2004, 3.2.2005 AND 31.3.2005 IT WAS FOUND THAT THE CLOSIN G STOCK ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 9 ADMITTED BY THE ASSESSEE ON 31.3.2005 AT RS. 26,87, 890/- IS FOUND TO BE IN EXCESS BY RS. 1,77,708/- (2887890 2510182) RECONCILIATION STATEMENT OF STOCK AS ON 31.3.2005 OPENING STOCK AS ON 1.4.2004 RS.20,50,542 ADD: VALUE OF STOCK SOLD OUT IN FY 2004-05 SALES RS.1,91,700 LESS: GP RS. 38,340 ----------------- RS. 1,53,360 ----------------- RS.22,03,902 ADD: VALUE OF EXCESS STOCK FOUND ON 3.2.2005 RS. 4 ,60,270 ----------------- TOTAL STOCK AVAILABLE FOR THE ASSESSEE ON HAND RS.2 6,64,172 LESS: STOCK SOLD IN FY 2004-05 RS. 1,53,360 ----------------- BALANCE CLOSING STOCK RS.25,10,812 AS SEEN FROM THE ABOVE RECONCILIATION STATEMENT OF STOCK AS ON 31.3.2005, THE ASSESSEE SHOULD HAVE STOCK WORTH RS. 25,10,812/- AS AGAINST ADMITTED CLOSING STOCK OF RS . 26,87,890/- THUS LEAVING EXCESS STOCK OF RS. 1,77,078/-. IN FA CT THE ASSESSEE DID NOT PURCHASE ANY STOCK BUT HE SOLD THE STOCK AVAILABLE FOR HIM WHICH HAS BEEN COMING FOR THE EAR LIER YEAR. THE ASSESSEE COULD NOT FURNISH DETAILS OF SUNDRY CR EDITORS WORTH RS. 2,00,000/- AND AS THERE ARE NO PURCHASES DURING THE YEAR 2004-05 AND ASSESSEE COULD NOT PRODUCE DETAILS OF T RADER CREDITORS, IT WILL BE TREATED AS VALUE TO KEEP STAT EMENT OF AFFAIRS ON 31.3.2005 BALANCED. THEREFORE, THE EXCESS VALUE OF STOCK WORTH RS. 1,77,078 OR RS. 1,77,100/- WILL BE TREATE D AS UNEXPLAINED EXPENDITURE IN PURCHASE OF SUCH EXCESS STOCK. IN THE ABSENCE OF REGULAR BOOKS OF ACCOUNT FOR AY 2 005-06 PARTICULAR STOCK REGISTER THE EXCESS VALUE OF STOCK OF RS. ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 10 1,77,100/- IS TREATED AS INCOME FROM OTHER SOURCES OF THE ASSESSEE. 14. AS CAN BE SEEN THAT THE AO HAS ACCEPTED THE RET URN FILED FOR AY 2004-05 IN SO FAR AS THE OPENING STOCK AS WELL AS C REDITORS. IF THERE ARE ANY QUESTIONS OR DOUBTS ABOUT THE SAME, IT CANNOT B E DONE IN THE ASSESSMENT FOR AY 2005-06. HOWEVER IN COMPUTATION O F THE STOCK POSITION, AO FOUND THAT THERE WAS EXCESS STOCK AS O N THE DATE OF SURVEY OF RS. 4,60,270/-. HE HAS TAKEN THE OPENING BALANCE OF STOCK AS RS. 20,50,542/- AND ADDED SALE FOR THE YEAR OF RS. 1,53,360/- TO THE OPENING STOCK AND ARRIVED AT A FIGURE OF RS. 22,03, 902/-. IT DOES NOT APPEAR TO BE RIGHT. THE ACCOUNTED STOCK AS ON THE D ATE OF SURVEY SHOULD BE ARRIVED BY TAKING THE OPENING STOCK AND R EDUCING THEREFROM THE SALES, IF ANY, MADE TILL THE DATE OF SURVEY. IF THE ENTIRE SALE HAD TAKEN PLACE BEFORE THE DATE OF SURVEY, THE SALE VAL UE SHOULD BE REDUCED FROM THE OPENING STOCK. IF NO SALE HAD TAKE N PLACE BEFORE THE DATE OF SURVEY, THERE SHOULD BE NO ADJUSTMENT TO TH E VALUE OF THE OPENING STOCK VALUE. THE DIFFERENCE BETWEEN ACCOUNT ED STOCK AS ABOVE AND THE ACTUAL STOCK AS FOUND IN THE SURVEY R EQUIRES TO BE EXPLAINED BY THE ASSESSEE. HENCE THE ADDITION OF TH E SALE VALUE TO THE OPENING STOCK AS MADE BY THE AO IS NOT CORRECT. 15. THEREFORE THE ASSESSEE HAS TO EXPLAIN THE ENTIR E SURPLUS OF STOCK FOUND AS ON THE DATE OF SURVEY IE., THE SURPL US OF RS. 26,64,172/- OVER AND ABOVE THE OPENING STOCK AS REDUCED BY THE SALES THAT HAVE TAKEN PLACE UP TO THE DATE OF SURVEY. BUT WE DO NOT AGREE WITH THE CIT THAT THE OPENING STOCK (BEING THE CLOSING STOCK OF THE EARLIER YEAR) AND CREDITORS OF THE EARLIER YEAR SHOULD ALSO BE EXAMIN ED. THE ASSESSEE HAVING FILED THE RETURN, WHICH HAS BEEN ACCEPTED, T HERE IS NO QUESTION OF THE CLOSING STOCK FIGURE FOR AY 2004-05/ OPENING STOCK FOR 2005-06 BEING INVESTIGATED IN THE COURSE OF ASSESSMENT FOR AY 2005-06. THE EXAMINATION, IF ANY, PERTAINS TO THE EARLIER YEAR. ITA NOS. 244 & 245/HYD/2009 SHRI P. SRINIVAS (HUF) & SHRI P. CHANDRAMOULI (HUF) ========================= 11 16. WE THEREFORE DIRECT THE AO TO EXAMINE THE SOURC E OF THE ADDITION TO STOCK AS ON THE DATE OF SURVEY, TAKING THE OPENI NG STOCK ON THE BASIS OF THE CLOSING STOCK OF GOLD AND SILVER AS PER THE RETURN FOR THE YEAR 2004-05, AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THEIR CASE. WITH THIS MODIFICATION THE ORDER OF REV ISION MADE BY THE CIT IS CONFIRMED. 17. IN THE RESULT, APPEALS OF BOTH THE ASSESSEES AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 31 ST OCTOBER, 2011 SD/- (CHANDRA POOJARI) SD/- (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED THE 31 ST OCTOBER, 2011 COPY FORWARDED TO: 1. SHRI P. SRINIVAS (HUF), PROP. SRI VASAI JEWELLER S, C/O. SHRI S. RAMA RAO, ADVOCATE,103, INDIRADEVI NILAYAM, 3-6-542 /4, ST. NO. 7, HIMAYATHNAGAR, HYDERABAD-500 029. 2. SHRI P. CHANDRAMOULI (HUF), PROP. SRI VENKATESWA RA JEWELLERS, C/O. SHRI S. RAMA RAO, ADVOCATE,103, INDIRADEVI NIL AYAM, 3-6- 542/4, ST. NO. 7, HIMAYATHNAGAR, HYDERABAD-500 029. 3. INCOME-TAX OFFICER, WARD-4, KARIMNAGAR. 4. THE CIT-II, HYDERABAD 5. THE ADDL. CIT, KARIMNAGAR RANGE, KARIMNAGAR. 6. THE DR, A BENCH, ITAT, HYDERABAD TPRAO