ACIT 20(1), MUMBAI V. JURAJ S. MEHTA, MUMBAI

ITA 2503/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79540 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 23-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 31-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Cost of acquisition
• Section: 143(3); 133A

Judgement Text

, INCOME TAX APPELLATE TRIBUNALMUMBAI BENCH ES I MUMBAI , , ! BEFORE S.SH.VIJAY PAL RAO,JUDICIAL MEMBER AND RAJEN DRA,ACCOUNTANT MEMBER ./ ITA NO.2503/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 ( $% / ASSESSEE) ( &'$% / RESPONDENT) ( ) / REVENUE BY : SHRI SUNIL AGRAWAL '*+ '*+ '*+ '*+ ) ) ) ) / ASSESSEE BY : SHRI RAKESH JOSHI ' ' ' ' ( (( ( +, +, +, +, / DATE OF HEARING : 23/07/2014 -.# ( +, / DATE OF PRONOUNCEMENT : 23/07/2014 PER RAJENDRA,AM ' ' ' ' : CHALLENGING THE ORDER DATED 15.01.2010 OF THE CIT(A )-31, MUMBAI, ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: I. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION ON ACCOUNT OF EXCESS STOCK FOUND DURING TH E COURSE OF SURVEY. II. THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT T HAT THE STOCK INVENTORY WAS PREPARED BY THE INCOME-TAX OFFICIALS WITH THE HELP OF ASSESSEE AND WAS VALUE WITH THE HELP OF ASSESSEE. III. THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT THE STOCK INVENTORY WAS SIGNED BY THE ASSESSEE AND THE ASSESSEE HAS VOLUNTARILY OFFERED THE ADDITI ONAL INCOME OF RS.50 LACS ON THE BASIS OF EXCESS STOCK WORKED OUT AT THE TIME OF SURVEY. IV. THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT T HAT THE ASSESSEE NEVER CHALLENGED THE INVENTORY OF STOCK AND ITS VALUATION BEFORE THE AO WHO DID SURVE Y U/S.133A AND IT WAS ONLY AFTER LAPSE OF 3 EARS ASSESSEE RETRACTED FROM ITS COMMITMENTS BY NOT DISC LOSING THE ADDITIONAL INCOME IN RETURN OF INCOME WHICH WAS AGREED BY IT AT THE TIME OF SURVEY. V. THE LD. CIT(A) HAS ERRED IN HOLDING THAT THERE I S DUPLICATION OF ITEMS IN INVENTORY OF STOCK AND THAT THERE IS OVER VALUATION OF STOCK WHICH WAS NOT BROUGHT IN NOTICE OF THE AO FOR LAST THREE YEARS; VI. THE ASSESSEE PRAYS THAT THE ORDER OF THE CIT (A PPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED . VII. THE ASSESSEE CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR TO SUBMIT ADDITIONAL NEW GROUND ACIT-20(1) R.NO. 603, 6TH FLOOR, PIRAMAL CHAMBER, PAREL, MUMBAI-400012 VS JUJRAJ S.MEHTA, PROP. M/S MITAM ELECTRIC HARDWARE MART, LISA APARTMENT, MAROL MAROSHI ROAD, ANDHERI(W), MUMBAI-400059 PAN:AADPM3144N ITA NO. 2503/MUM/2010 JUJRAJ S.MEHTA 2 WHICH MAY BE NECESSARY. 2. ASSESSEE AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF DEALING IN ELECTRICAL AND HARDWARE ITEMS, FILED HIS RETURN OF INCOME ON 31.10.2006 DECLARING TOTAL INCOME OF RS. 16.89 LAKHS.THE AO COMPLETED ASSESSMENT U/S 143(3) OF THE ACT ON 11.12.2008 DETE RMINING HIS INCOME AT RS. 51.89 LAKHS. IN THIS CASE A SURVEY ACTION U/S 133A WAS CONDUCTED AT THE BUSINESS PREMISES/GODOWN OF THE ASSESSEE ON 25.11.2005.DURING THE COURSE OF THE SUR VEY A DETAILED STOCK INVENTORY WAS PREPARED WITH THE HELP OF THE ASSESSEE.THE TOTAL STOCK INVEN TORY FOUND BASED ON PHYSICAL VERIFICATION OF THE STOCK AVAILABLE IN THE SHOP AND GODOWN OF THE ASSES SEE AS ON THE DATE OF SURVEY WAS WORKED OUT OF RS.52,76,024/-.THE STOCK INVENTORY SO PREPARED WAS DULY CONFIRMED BY THE ASSESSEE AS PER HIS STATEMENT RECORDED IN THIS REGARD AT THE TIME OF TH E SURVEY.ON THE BASIS OF THE FINDINGS OF THE SURVEY TEAM, THE ASSESSEE DISCLOSED ADDITIONAL INCOME OF R S. 50 LAKHS TO COVER UP THE DIFFERENCE IN VALUE OF UNDISCLOSED STOCK FOUND AT THE TIME OF SURVEY. THE ASSESSEE HAS ACCORDINGLY AGREED TO PAY THE ADDITIONAL TAX ON THIS INCOME. HOWEVER, AS AGAINST THE ABOVE,THE ASSESSEE DISCLOSED ONLY AN INCOME OF RS.15 LAKHS IN THE RETURN OF INCOME.ON BEING ASK ED TO EXPLAIN ABOUT THE SAME,HE SUBMITTED AS UNDER: I) 'KINDLY REFER TO PAGE NO.30 AND PAGE NO. 28 OF T HE STOCK STATEMENT TAKEN BY THE SURVEY PARTY. YOU WILL OBSERVE THAT ITEM NO.45 TO 50, 52, 58, 62 AND 64 011 PAGE NO.28 ARE SAME AS ITEM NO. 89 TO 98 OF PAGE NO.30. THIS HAS RESULTED INTO OVERCASTTING OF STOCK VALUATION BY RS. 8, 92,410/- II) THE SURVEY PARTY HAS CONSIDERED MRP OF GOODS WH ILE CALCULATING THE VALUATION OF STOCK, WE WOULD LIKE TO SUBMIT THAT THE ASSESSEE HAS PURCHASE D TILE GOODS BELOW MRP. WHEN MRP IS REPLACED BY COST, THE VALUATION OF THE STOCK WOULD BE REDUCE D AND IT WILL COME DOWN TO RS.26,33,3621-. A RECONCILIATION STATEMENT SHOWING THE VALUATION OF T HE STOCK ALONG WITH THE COPIES OF THE BILLS FOR PURCHASE OF ITEMS ALREADY SUBMITTED TO YOU IN OUR P REVIOUS HEARING WITH YOU. WE ARE ONCE AGAIN ENCLOSED HEREWITH TIRE RECONCILIATION STATEMENT WHI CH IS PREPARED BY TAKING THE PURCHASE COST OF THE ITEMS'. HOWEVER, THE AO DID NOT ACCEPT THE ABOVE MENTIONED SUBMISSIONS OF THE ASSESSEE HOLDING THAT THE OBJECTION RAISED BY HIM ABOUT THE INVENTORY OF CERT AIN ITEMS ON TWO TIMES WAS BASELESS, THAT VALUATION OF THE INVENTORY WAS VERIFIED BY THE ASSE SSEE AND WAS ACCEPTED BY HIM IN HIS STATEMENT RECORDED DURING THE COURSE OF SURVEY, THAT OBJECTIO NS RAISED BY THE ASSESSEE ABOUT MAXIMUM RETAIL PRICE OF GOODS WAS LIABLE TO BE REJECTED AS THE INV ENTORY WAS VALUED IN CONSULTATION ASSESSEE HIMSELF, THAT THE ASSESSEE HAD TAKEN OBJECTIONS AFT ER THE LAPSE OF THREE YEARS, THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ONLY THE ASSESSEE HAD OBJ ECTED TO THE VALUATION IN FORM OF AN AFFIDAVIT, THAT THE AFFIDAVIT WAS SELF-SERVING DOCUMENT AND WA S AFTERTHOUGHT TO REDUCE TAX LIABILITY. HE MADE ITA NO. 2503/MUM/2010 JUJRAJ S.MEHTA 3 ADDITION OF RS. 35 LAKHS TO THE INCOME OF THE ASSES SEE ON ACCOUNT OF EXCESS/FOUND DURING COURSE OF SURVEY THAT WAS NOT OFFERED TO TAX. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILE D AN APPEAL BEFORE THE FAA. IT WAS ARGUED BEFORE HIM THAT THE STOCK INVENTORY RAN INTO 30 PAG ES AND THE SURVEY PROCEEDINGS CONTINUED FOR MORE THAN HOURS, THAT THE ASSESSEE WAS NOT IN A POS ITION TO VERIFY THE STOCK INVENTORY, THAT WHILE FILING THE RETURN OF INCOME THE ASSESSEE HAD OFFERE D RS. 15 LAKHS AS ADDITIONAL INCOME FOR THE EXCESS STOCK AFTER VERIFYING THE FACTS OF THE CASE, THAT T HE ADDITION WAS MADE BY THE AO ONLY ON THE GROUND THAT THE ASSESSEE HAD ADMITTED ADDITIONAL INCOME OF RS. 50 LAKHS DURING THE COURSE OF SURVEY ON ACCOUNT OF UNACCOUNTED STOCK FOUND, THAT ASSESSEE H AD FILED AN AFFIDAVIT DATED 15.12.2005 ABOUT THE CORRECT POSITION OF THE STOCK, THAT THERE WERE MANY DISCREPANCIES IN THE STOCK INVENTORY, THAT STOCK WAS VALUED AT MRP, THAT THE GOODS WERE PURCHASED BY THE ASSESSEE BELOW MAXIMUM RETAIL PRICE, THAT ASSESSEE HAD FILED THE RECONCILIATION STATEMEN T BEFORE THE AO IN SUPPORT OF HIS CALCULATION OF EXCESS STOCK DISCLOSED AT RS. 15 LAKHS, THAT THE AO HAD REFUSED TO ACCEPT THE SAME, THAT THE ASSESSEE, IN RESPONSE TO QUESTION NO.13 OF THE STAT EMENT RECORDED AT THE TIME OF SURVEY HAD SPECIFICALLY REPLIED THAT THE STOCK WAS VALUED AT P ER COST PRICE, THAT VALUATION OF THE CLOSING STOCK SHOULD HAVE BEEN TAKEN ON THE COST PRICE AND NOT AT MRP THAT WAS WRONGLY APPLIED BY THE SURVEY TEAM, THAT THE SAID DISCREPANCY WAS DULY BROUGHT TO THE NOTICE OF THE AO AS PER ASSESSEE'S LETTER DATED 11.12.2008 ALONG WITH THE DETAILED RECONCILIA TION CHART AND NECESSARY SUPPORTING PURCHASE BILLS.THE AUTHORISED REPRESENTATIVE (AR) FURTHER ST ATED THAT IF THE DISCREPAN -CIES POINTED OUT BY THE ASSESSEE WERE RECTIFIED THAN THE VALUATION OF U NACCOUNTED STOCK WOULD BE REDUCED TO RS. 14.16 LAKHS.THE COMPARATIVE STATEMENT OF ACTUAL STOCK VAL UATION AND STOCK VALUED BY THE SURVEY TEAM DUE TO THE DISCREPANCY IN QUESTION WAS FURNISHED BY THE AR IN THE FOLLOWING TABULAR FORM: PARTICULARS AMOUNT REMARKS PROOF DUPLICATION OF STOCK ITEM 8,92,410/- ITEM NO. 45-50, 52, 58, 62 AND 64 ON PAGE NO.28 ARE SAME AS. ITEM NO,.89 TO 98 PAGE NO. 30. STOCK STATEMENT WITH REFLECTING THE TRANSACTIONS. OVERVALUING THE STOCK 26,42,662/- SURVEY TEAM VALUED STOCK' AT MRP INSTEAD OF PURCHASE PRICE RECONCILIATION STATEMENT AND COPIES OF PURCHASE BILLS. THE AR HAS ALSO GAVE WORKING OF DISCREPANCY OF RS. 14,60,424/- AND SAME WAS FURNISHED IN THE FOLLOWING TABULAR FORM: PARTICULARS AMOUNT ITA NO. 2503/MUM/2010 JUJRAJ S.MEHTA 4 STOCK TAKEN BY THE SURVEY TEAM 52,76,024/- LESS: DUPLICATION OF STOCK ITEM 8,92,410/- LESS: OVERVALUATION OF STOCK 26,42,662/- TOTAL 17,40,952/- LESS: STOCK AS PER BOOKS OF ASSESSEE 2,80,528/ - TOTAL UNACCOUNTED STOCK 14,60,424/- AFTER CONSIDERING THE STATEMENT OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT ASSESSEE HAD HAD FILED AN AFFIDAVIT DATED 15.12.2005 IN WHICH TH E DISCREPANCIES NOTICED IN THE WORKING OUT OF THE VALUE OF PHYSICAL STOCK FOUND ON THE DATE OF SURVEY WERE HIGHLIGHTED/POINTED OUT, THAT CERTAIN ITEMS WERE VALUED TWICE. HE DIRECTED THE AO TO FORWARD A COPY OF THE STOCK INVENTORY PREPARED BY THE SURVEY TEAM FOR VERIFICATION.AFTER GOING THROUGH IT HE HELD THAT ITEMS WORTH RS. 7.96 LAKHS WERE COUNTED TWICE WHILE PREPARING THE INVENTORY. HE HEL D THAT WAS NOT JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF UNACCOUNTED INVENTORY IN STOCK OF RS. 7, 96,190/-.HE FURTHER HELD THAT STAND TAKEN BY THE AO WAS NOT JUSTIFIED IF THE FACTS SUBMITTED BY THE ASSESSEE WERE FOUND TO BE CORRECT,THAT THE SURVEY TEAM HAD VALUED THE PHYSICAL INVENTORY ON THE BASIS OF MRP,WHEREAS THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE METHOD OF COST OR MARKET PRICE WHICHE VER WAS LESS.BEFORE HIM COPIES OF RELEVANT PURCHASE INVOICES/BILLS WERE FILED AND ON PERUSAL T HEREOF,HE FOUND THAT IN CERTAIN CASES THE PURCHASE INVOICES WERE OF THE DATES LATER THAN THE DATE OF S URVEY.HE HELD THAT INITIALLY THE ASSESSEE HAD WORKED OUT THE DIFFERENCE ON THAT ACCOUNT AT RS.26, 42,662/- BUT LATER ON A REVISED CHART WAS FURNISHED,THAT AS PER THE CHART THE DIFFERENCE WORK ED OUT FOR RS.25,34,491/-,THAT THE ASSESSEE WAS NOT MAINTAINING DAY TO DAY STOCK TALLY, THAT IT WA S NOT POSSIBLE TO VERIFY THE EXACT VALUE OF ALL THE ITEMS OF STOCK INVENTORY FOUND AT THE TIME OF SURVE Y. THEREFORE,HE DIRECTED THE AO TO WORK OUT THE VALUAT ION OF THE STOCK INVENTORY OF VARIOUS ITEMS FOUND AT THE TIME OF SURVEY AS ON THE DATE OF PURCH ASE,AND TO CONSIDER THE PURCHASE BILLS/INVOICES OF THE SAME ITEMS IMMEDIATELY BEFORE THE DATE OF SURVE Y.IN SHORT,HE DIRECTED THE AO TO CALL FOR THE RELEVANT PURCHASE INVOICES /BILLS OF THE ASSESSEE IMMEDIATELY BEFORE THE DATE OF SURVEY AND WORK OUT THE VALUE OF EACH ITEM OF THE INVENTORY FOUND A T THE TIME OF SURVEY IN A REVERSE MANNER.HE DIRECTED THAT IN CASE OF 52 DRUMS OF FEVICOL OF 50 KG EACH FOUND AT THE TIME OF SURVEY, THE VALUATION WAS TO BE MADE ON THE BASIS OF PURCHASE PRICE OF S UCH ITEMS BOUGHT IMMEDIATELY BEFORE THE DATE OF SURVEY.HE FURTHER DIRECTED THE AO THAT IN CASE THE ITEMS PURCHASED IN THE IMMEDIATELY PRECEDING BILL / INVOICE WERE FOUND TO BE LESS THAN THE TOTAL QUANTITY FOUND AT THE TIME OF SURVEY,HE MIGHT VALUE THE SAME ON THE BASIS OF NEXT PRECEDING PURCH ASE BILL BEFORE THE SAID PURCHASE-BILL.HE ALSO DIRECTED THE AO THAT IN ADDITION TO THE COST OF PUR CHASE, PROPORTIONATE WEIGHTAGE HAD TO BE GIVEN ON ACCOUNT OF DIRECT COST INCURRED FOR THE PURCHASE O F SUCH ITEMS AS DEBITED IN HIS TRADING AND P & L ITA NO. 2503/MUM/2010 JUJRAJ S.MEHTA 5 ACCOUNT. 4. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)STATED THA T THE ASSESSEE HAD ADMITTED AN ADDITIONAL INCOME OF RS.15.00 LAKHS DURING SURVEY PROCEEDINGS, THAT RETURN WAS FILED OF THREE YEARS,THAT INVENTORY WAS PREPARED IN CONSULTATION WITH THE ASS ESSEE HIMSELF. AUTHORISED REPRESENTATIVE (AR) STATED THAT THERE WERE DISCREPANCIES IN THE INVENTO RY PREPARED BY THE SURVEY TEAM, THAT THE ASSESSEE HAD FILED RECONCILIATION STATEMENT,THAT CERTAIN ITE MS WERE TAKEN INTO ACCOUNT TWICE,THAT HE WAS VALUING HIS STOCK ON COST PRICE,THAT THE INVENTORY WAS PREPARED AT MAXIMUM RETAIL PRICE, THAT ASSESSEE HAD PAID TAX ON THE ADDITIONAL INCOME OF R S. 15 LAKHS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL,THE FAA HAD DIRECTED THE AO TO WORK OUT THE VALUATION OF STOCK INVENTORY IN A PARTICULAR MANNER.HE HAD ALSO DIRECTED THE AO TO GI VEN PROPORTIONATE WEIGHTAGE ON ACCOUNT OF DIRECT COST INCURRED FOR PURCHASES. IN OUR OPINION, THE DIRECTIONS GIVEN BY THE FAA WERE BASED ON SOLID REASONING.WHILE GIVING EFFECT TO THE ORDER OF THE FAA,THE AO HIMSELF HAD VERIFIED THE PURCHASES AND HAD ARRIVED AT THE FIGURE OF STOCK WH ICH IS ALMOST SAME TO THE FIGURES MENTIONED IN THE RECONCILIATION STATEMENT FILED BY THE ASSESSEE. WE ALSO FIND THAT THE ASSESSEE HAD MADE A CATEGORICAL STATEMENT,DURING THE SURVEY PROCEEDINGS ,WHILE REPLYING TO QUESTION NO.13,THAT HE WAS VALUING HIS STOCK AT COST PRICE.IN THESE CIRCUMSTAN CES,THE FAA WAS JUSTIFIED IN DIRECTING THE AO TO TAKA THE COST PRICE AS THE BASE FOR VALUING THE STO CK ON THE DATE OF SURVEY. WE FIND THAT WHILE FINALISING THE ASSESSMENT,THE AO HAD COMPLETELY IGN ORED THE STATEMENT REGARDING VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE.SO,IN OUR OPI NION THE RECONCILIATION STATEMENT FILED BY THE ASSESSEE AND ENDORSED BY THE FAA REVEAL THE TRUE PI CTURE OF DIFFERENCE OF STOCK AS ON 25.11.2005. IT IS ALSO A FACT THAT THE ASSESSEE HAD ADMITTED AN AD DITION INCOME OF RS. 15 LAKHS IN THE RETURN FILED F OR THE YEAR UNDER CONSIDERATION AND HAD PAID TAX ON TH AT. CONSIDERING THE ABOVE CIRCUMSTANCES,WE ARE OF THE O PINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY FACTUAL OR LEGAL INFIRMITY.THEREFOR E,CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL (GROUND NO. 1 TO 5) AGAINST THE AO . AS A RESULT, APPE AL FILED BY THE AO STANDS DISMISSED 0+1 '*+ , 2 3 ( 4 UK 5 ( + 67 ORDER PRONOUNCED IN TH E OPEN COURT ON 23RD JULY, 2014 . 9 ( -.# : ;' 23 ,2014 . ( 4 B ITA NO. 2503/MUM/2010 JUJRAJ S.MEHTA 6 SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, ;'/ DATE: 23 JULY, 2014 S.K. 9 ( &+ D#+ 9 ( &+ D#+ 9 ( &+ D#+ 9 ( &+ D#+/ COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ E F , 4. THE CONCERNED CIT / E F 5. DR I BENCH, ITAT, MUMBAI / G4 &+' , ... 6. GUARD FILE/ 4 0 '+ &+ '+ &+ '+ &+ '+ &+ //TRUE COPY// 9' / BY ORDER, H/6 DY./ASST. REGISTRAR , /ITAT, MUMBAI