The DCIT, Central Circle-2(2), Ahmedabad V. M/s. Synthopharm Chemicals, Ahmedabad

ITA 2504/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1998 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-12-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 31-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MATHIRAMAN
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.2504/AHD/2009 A. Y. 2006-07 THE D. C. I. T. , CENTRAL CIRCLE- 2(2) , ROOM NO. 309, 3 TH FLOOR, AAYAKAR BHAVAN, ASHRAM ROAD, AHMEDABAD VS M/S. SYNTHOPHARM CHEMICALS, 404-E, SAHAJANAND COMMERCIAL COMPLEX, SHAHIBAUG, AHMEDABAD PA NO.AAHFS 7872 H (APPELLANT) (RESPONDENT) APPELLANT BY SHRI MATHIRAMAN, DR RESPONDENT BY NONE O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, AHMEDABAD DATE D 7-5-2009 FOR THE ASSESSMENT YEAR 2006-07, CHALLENGING THE ADDITION O F RS.8,16,350/- MADE ON ACCOUNT OF DIFFERENCE IN STOCK. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT ASSESSEE IS ASSOCIATED WITH SOHAM GROUP, WHICH WAS SUBJECTED TO SEARCH U/S 132 OF THE INCOME TAX ACT ON 10 TH MAY, 2006. THE AO NOTED THAT SURVEY AT THE FACTORY PREMISES IS CONDUCTED WHERE STOCK IS VALUED AT RS.45,53,816/ - WHEREAS AS PER THE BOOKS OF ACCOUNTS THE SAME WAS AT RS.51,70,357/-. T HERE WAS SHORTAGE OF STOCK OF RS.6,16,541/-. THE ASSESSEE CONTENDED THAT THE SURVEY PARTY HAD TAKEN AD HOC AND UN-AUDITED FIGURE OF THE OPENI NG STOCK AS ON 01- 04-2006 RELEVANT TO THE ASSESSMENT YEAR IN QUESTION INSTEAD OF TAKING THE CORRECT FIGURE. AS SUCH THE OPENING STOCK HAD B EEN INCORRECTLY ADOPTED AT THE HIGHER FIGURE OF RS.8,16,351/- AT TH E TIME OF SURVEY. THE AO HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE AS SESSEE BECAUSE VALUATION WAS FOUND ON THE DATE OF SURVEY AS ON 10 TH MAY 2006 WAS ITA NO.2504/AHD/2009 SYNTHOPHARM CHEMICALS 2 CORRECT. THE AO ACCORDINGLY MADE ADDITION OF RS.8,1 6,351/- IN THE ASSESSMENT YEAR UNDER APPEAL I.E. 2006-07 AND ALSO MADE ADDITION OF RS.30,827/- IN THE ASSESSMENT YEAR 2007-08 FOR ESTI MATED PROFIT OF 5% ON THE SALES. IT WAS BRIEFLY SUBMITTED BEFORE THE L EARNED CIT(A) THAT IT WAS NOT A CASE OF SEARCH AGAINST THE ASSESSEE AND T HAT NO ADVERSE INFERENCE SHOULD BE DRAWN AGAINST THE BOOKS OF ACCO UNTS MAINTAINED BY THE ASSESSEE MERELY ON UN-AUDITED FIGURE OF THE ST OCK. ONLY PROVISIONAL FIGURES WERE MAINTAINED BY THE SURVEY PARTY AND NO EXCESS STOCK WAS FOUND AT THE TIME OF SURVEY IN TERMS OF QUANTITY. N O DISCREPANCY WAS FOUND IN SALES AND PURCHASES AND NO INCRIMINATING D OCUMENT WAS RECOVERED TO REJECT THE BOOK RESULT OF THE ASSESSEE . THE ASSESSEE HAD CONSISTENTLY FOLLOWED THE PRACTICE OF VALUING RAW M ATERIAL AT COST AND THE FINISHED GOODS AT MARKET VALUE AND THE SAME SYSTEM IS FOLLOWED IN ALL THE YEARS IN WHICH NO DIFFERENCE HAD BEEN POINTED OUT. THE LEARNED CIT(A) NOTED THE DETAILED SUBMISSIONS OF THE ASSESSEE IN T HE IMPUGNED ORDER IN WHICH IT WAS EXPLAINED THAT THE FIGURE TAKEN BY THE AO ON THE BASIS OF SURVEY PROCEEDINGS IS INCORRECT BECAUSE THE CORRECT FIGURES ARE MENTIONED IN THE RECORD. IT WAS ALSO SUBMITTED THAT FOR SHORT AGE OF STOCK NO ADDITION CAN BE MADE AND AT THE MOST THE GROSS PROFIT RATE W OULD BE APPLIED ON THE DEFICIT TO TAKE THE PROFIT MADE OUTSIDE THE BOO KS OF ACCOUNTS. THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS PRESIDENT INDUSTRIES 258 ITR 654 WAS RELIED UPON. 3. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND THE MATERIALS AVAILABLE ON RECORD NOTED THAT TH ERE WAS NO DISCREPANCY IN THE QUANTUM OF STOCK. THE AO HAS NOT BROUGHT ANY DISCREPANCY IN RESPECT OF SALES, PURCHASES AND STOC K VALUED AT COST FOR MARKET VALUE AS THE CASE MAY BE AND THE METHOD OF V ALUATION OF THE STOCK IS CONSISTENTLY FOLLOWED BY THE ASSESSEE WHIC H HAS NOT BEEN CONTESTED BY THE AO IN THE EARLIER YEARS. THE LEARN ED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT CLOSING STOCK VALUA TION IS PREPARED ONLY ITA NO.2504/AHD/2009 SYNTHOPHARM CHEMICALS 3 ON PROVISIONAL BASIS AND IF DETAILS ARE EXAMINED TH ERE WOULD BE NO DISCREPANCY. THE ASSESSEE ALSO RECONCILED THE STOCK AS PER THE LIST PREPARED BY THE SURVEY PARTY AND THE BOOKS MAINTAIN ED BY THE ASSESSEE. THERE IS ONLY A DIFFERENCE IN WEIGHING AMOUNTING TO RS.11,740/- WHICH IS INSIGNIFICANT. THE LEARNED CIT(A) ACCORDINGLY ACCEP TED THE CONTENTION OF THE ASSESSEE AND NOTED THAT THE AO ONLY ON THE BASI S OF AD HOC ENTRIES MADE THE ADDITION OUT OF DIFFERENCE IN STOCK PARTIC ULARLY WHEN IT WAS LESSER IN STOCK FOUND AT THE TIME OF SURVEY. THE AD DITION WAS ACCORDINGLY DELETED. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. THE ASSESSEE SOUGHT ADJOURNMENT WHICH IS REJECTED SEPARATELY. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D DR AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND W E ARE NOT INCLINED TO INTERFERE IN THE ORDER OF THE LEARNED CIT(A). IT IS ADMITTED FACT THAT SEARCH AND SURVEY WAS CONDUCTED ON 10 TH MAY 2006 I. E. AFTER CLOSURE OF THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDE R APPEAL. AT THE TIME OF SURVEY, THE STOCK WAS FOUND LESSER AS COMPARED T O THE STOCK MAINTAINED IN THE BOOKS OF ACCOUNTS. THE AO, THEREF ORE, MADE THE ADDITION ON ACCOUNT OF INCREASE IN VALUATION OF CLO SING STOCK. SUCH COURSE OF ACTION BY THE AO IS NOT SUSTAINABLE IN LA W BECAUSE IF THERE IS A SHORTAGE OF STOCK, AT THE BEST IT COULD BE TREATED AS SALES MADE OUTSIDE THE BOOKS OF ACCOUNTS. BUT SUCH FACTS HAVE ALSO HAP PENED AFTER CLOSURE OF THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YE AR IN QUESTION. THEREFORE, ON THE CLOSURE OF THE FINANCIAL YEAR EVE N NO SUCH ADDITION COULD BE MADE IN THE CASE OF THE ASSESSEE BECAUSE S HORTAGE OF THE SOCK WAS FOUND IN MAY 2006 WHICH IS OUTSIDE THE ASSESSME NT YEAR UNDER APPEAL. THE ASSESSEE ALSO EXPLAINED BEFORE THE LEAR NED CIT(A) THAT ONLY PROVISIONAL AND TENTATIVE FIGURES HAVE BEEN TAKEN I GNORING THE FACTUAL MATERIAL AVAILABLE AT THE TIME OF SURVEY. THE LEARN ED CIT(A) ACCEPTED THE ITA NO.2504/AHD/2009 SYNTHOPHARM CHEMICALS 4 CONTENTION OF THE ASSESSEE BECAUSE THERE WAS NO DIS CREPANCY FOUND IN THE QUANTUM OF THE STOCK. THERE WAS ALSO NO DISCREP ANCY FOUND IN THE SALES AND PURCHASES PARTICULARLY WHEN ASSESSEE ONLY PREPARED VALUATION OF CLOSING STOCK ON PROVISIONAL BASIS. THE ASSESSEE WAS FOUND TO MAINTAIN CONSISTENT SYSTEM OF VALUATION OF STOCK. ALL THE FI GURES OF CLOSING STOCK WERE RECONCILED. THEREFORE, THERE WAS NO PURPOSE TO MAKE ADDITION AGAINST THE ASSESSEE IN THE ASSESSMENT YEAR UNDER A PPEAL WHEN PARTICULARLY THE SURVEY CONDUCTED DID NOT PERTAIN T O THE ASSESSMENT YEAR UNDER APPEAL. THE AO HAS ALSO NOT REJECTED THE BOOK RESULT OF THE ASSESSEE. THEREFORE, THE LEARNED CIT(A) WAS JUSTIFI ED IN HOLDING THAT SUCH AN ADDITION ON ACCOUNT OF VALUATION OF THE STOCK CA NNOT BE SUSTAINED. WE, ACCORDINGLY, DO NOT FIND ANY MERIT IN THE DEPAR TMENTAL APPEAL AND THE SAME IS ACCORDINGLY DISMISSED. 6. AS A RESULT, THE DEPARTMENTAL APPEAL STANDS DISM ISSED. ORDER PRONOUNCED ON 23 RD DECEMBER 2009 SD/- SD/- (A. N. PAHUJA) ACOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 23-12-2009 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD