DCIT, Central Circle-22, New Delhi V. Lagaan Sarees Pvt. Ltd., New Delhi

ITA 2601/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1151 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-09-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 01-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Validity of assessment
• Section: 143(3); 153A; 69B; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPPA: VICE PRESIDENT AN D SHRI C.L. SETHI : JUDICIAL MEMBER ITA NO. 2612/DEL/08 ASSTT. YR: 2006-07 M/S LAGAN SAREES PVT. LTD. VS. DCIT CENTRAL CIRCL E-21, SHOP NO. 17, SAROJNI NAGAR NEW DELHI. MARKET, NEW DELHI. PAN/GIR NO. AAACL2004L AND ITA NO. 2601/DEL/08 ASSTT. YR: 2006-07 DCIT CENTRAL CIRCLE-21, VS. M/S LAGAN SAREES PVT. LTD. NEW DELHI. SHOP NO. 17, SAROJNI NAGAR MARKET, NEW DELHI. ( APPLICANT ) ( RESPONDENT ) ASSESSEE BY : SHRI SANJEEV JAIN CA REVENUE BY : SMT. KAVITA BHATNAGAR CIT DR O R D E R PER, G.E. VEERABHADRAPPA, V.P: THESE CROSS APPEALS ARISE OUT OF THE ORDER OF THE CIT(APPEALS)-III, DATED 27-5-2008 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE IS A LIMITED COMPANY AND IS IN THE BUSINESS OF TRADING IN SAREES. A SEARCH U/S 132 OF THE INCOME-TAX ACT, 196 1 WAS CARRIED OUT IN CHACHA GROUP OF CASES ON 23-11-2005. APART FROM SEA RCH, ACTION AT THE ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 2 RESIDENCE OF THE DIRECTORS, A SURVEY WAS ALSO CARRI ED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE COMPANY. DURING SURVEY, A TRADING ACCOUNT WAS DRAWN FOR THE PERIOD 1-4-2005 TO 23-11-2005 BY GP M ETHOD , APPLYING GROSS PROFIT RATE OF 15% AS DECLARED BY THE ASSESSE E IN THE PREVIOUS YEAR. THE TRADING ACCOUNT DRAWN IS AS UNDER: PARTICULARS AMOUNT (RS.) PARTICULARS AMOUNT (RS.) TO OPENING STOCK 95,06,100.00 BY SALES 1,27,93,577.00 TO PURCHASES 1,35,15,592.00 BY CLOSING STOCK 1,21,47,151.00 TO GROSS PROFIT 19,19,036.00 2,49,40,728.00 2,49,40,728.00 3. THE PHYSICAL INVENTORY OF STOCK WAS ALSO PREPARE D AND THE VALUE OF STOCK WAS DETERMINED AT RS. 2,46,50,551/-. THE DIR ECTOR WAS ASKED TO RECONCILE THE DIFFERENCE IN PHYSICAL STOCK AND BOOK STOCK OF RS. 1,25,03,400/- (I.E. RS. 2,46,50,551 RS. 1,21,47,1 51/-). THE ASSESSING OFFICER CONSIDERED THE DEAD STOCK BE WORKED OUT AT RS. 15 LACS AND AFTER EXCLUDING THE SAME THE DIFFERENCE WAS ARRIVED AT RS. 2,31,50,551/-. DEDUCTING THEREFROM THE GROSS PROFIT @ 15%, THE COS T OF STOCK CAME TO RS. 1,96,27,968/- AND THERE WAS STILL A DIFFERENCE OF R S. 75,30,817/-. THE DIRECTOR WAS ASKED TO EXPLAIN THE DIFFERENCE. HE AG REED THAT HE WAS UNABLE TO EXPLAIN THE SAME AND AGREED TO OFFER RS. 75,00,0 00/- AS ADDITIONAL INCOME. WHEN THE RETURN OF INCOME WERE FILED, THE ASSESSEE DECLARED AN INCOME OF ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 3 RS. 4,95,770/- ON THE BASIS OF THE BOOK RESULTS AND THE AMOUNT SO AGREED TO BE SURRENDERED WAS NOT INCLUDED IN THE COMPUTATION OF INCOME. 4. VIDE LETTER DATED 13-8-2007, THE ASSESSEE EXPLAI NED AS UNDER: SALES ARE BOOKED IN ACCOUNTS NET OF TRADE DISCOUNT AND G.P. IS CALCULATED BASED ON NET SALES. ITEM-WISE STOCK RECORDS ARE NOT FEASIBLE TO MAINTAIN. THE STOCK IS PHYSICALLY VERIFIED AND VALUED BY THE DIRECTORS AT THE END OF THE YEAR IN THE PRESENCE OF THE AUDITORS. THE AFORE SAID METHOD HAS BEEN CONSISTENTLY FOLLOWED BY THE COMPANY AND THE INCOME TAX DEPARTMENT HAS ACCEPTED THE SAME DURING THE ASSESSMENT OF ALL THE PAST YEARS. 5. THE ASSESSING OFFICER DID NOT ACCEPT THE AFORES AID EXPLANATION AND WENT ON TO MAKE AN ADDITION OF RS. 75 LACS U/S 69B AS UNEXPLAINED INVESTMENT IN STOCK. 6. THE ASSESSEE WENT BEFORE THE CIT(APPEALS). BEFOR E THE CIT(A) IT WAS CLAIMED THAT THE SURVEY TEAM HAS ADOPTED TAG PRICE OF GOODS AS THE BASIS TO WORK OUT THE STOCK DIFFERENCE ON THE DATE OF SURVEY WAS, THEREFORE, ERRONEOUS. THIS WAS ALSO NOT AS PER THE METHOD OF VALUATION CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE DEPART MENT IN ALL THE EARLIER YEARS. RELIANCE WAS PLACED TO THE RELEVANT PORTION OF THE STATEMENT OF MR. P.K. WADHWA, THE DIRECTOR OF THE ASSESSEE COMPANY, RECORDED DURING THE COURSE OF SURVEY WHEREIN IT WAS POINTED OUT THAT TA G PRICES ARE MARKED UPTO 60% MORE THAN THE COST PRICE. THE CIT(A) RELYING UP ON THE ANSWER GIVEN BY SHRI WADHWA TO QUESTION NO. 24, 26 & 27, AGREED WIT H THE ASSESSEE THAT AVERAGE DISCOUNT GIVEN DURING THE YEAR WORKED OUT T O 29.58 ON THE BASIS OF ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 4 THE TAG PRICED. IT WAS STATED BY THE ASSESSEE THAT THE BILLS RAISED BY THE COMPANY MENTIONED THE TAG PRICE AND THE NET PRICE A T WHICH GOODS ARE SOLD AND DIFFERENCE BETWEEN THE TWO IS THE DISCOUNT. S UCH DISCOUNT TAKES CARE OF THE PRESENCE OF THE OBSOLETE STOCK THAT WERE HELD BY THE ASSESSEE. THE ASSESSEE EXPLAINED IN EARLIER PARAGRAPHS THE STOCKS OF MORE THAN 4 YEARS ARE VALUED AT 35% BELOW THE COST PRICE AND STOCK OF MOR E THAN 3 YEARS ARE VALUED AT 27% BELOW THE COST AND STOCK OF MORE THA N 2 YEARS ARE VALUED 10% BELOW THE COST. OLD DAMAGED STOCK ARE ALSO VALU ED ON THE BASIS OF THE MARKET ASSESSMENT BY THE DIRECTOR. SPECIFIC REFEREN CE WAS MADE TO CERTAIN BILLS ISSUED BY THE ASSESSEE IN THIS REGARD AS DIS CUSSED IN PARA 4.2 OF THE ORDER OF THE CIT(A). THE CIT(A) ON THE BASIS OF THO SE DISCUSSIONS CAME TO VIEW THAT THE ASSESSING OFFICER WAS NOT CORRECT IN STATING THAT NEITHER ANY DISCOUNT WAS REFLECTED IN THE SALE BILLS NOR ANY SE PARATE ENTRY WAS SHOWN IN THE PROFIT & LOSS ACCOUNT. HE FOUND AS A MATTER OF FACT THAT THE DISCOUNT WAS MENTIONED IN THE SALE BILLS AND NET SALE WERE ACCOU NTED IN THE BOOKS OF ACCOUNT AS ALSO THE PROFIT AND LOSS ACCOUNT. HE ALS O AGREED THAT THE TAG PRICE WAS APPROXIMATELY 60% MORE THAN THE COST PRICE. FO R EXAMPLE, IF THE COST PRICE IS RS. 100/- THEN THE TAG PRICE WOULD BE RS. 160/-. ON A TAG PRICE OF RS. 160/- THERE IS A PROFIT OF RS. 60/-, I.E. 37.50% ON THE SALE PRICE OF RS. 160/- AND IN THE TYPE OF RETAIL CLOTH TRADE, IN WHICH THE ASSESSEE IS ENGAGED, IT IS ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 5 IMPROBABLE THAT THE GROSS PROFIT WOULD BE AS HIGH A S 37.5%. ACCORDING TO HIM, THE APPROACH ADOPTED BY THE SURVEY PARTY FOR V ALUING THE PHYSICAL INVENTORY OF STOCK WAS ERRONEOUS AND SUFFERED FROM A PATENT MISTAKE AS THEY REDUCED THE GROSS PROFIT RATE FROM THE TAG PRICE IN STEAD OF REDUCING THE GROSS PROFIT RATE FROM THE ACTUAL SELLING PRICE TO WORK O UT THE ESTIMATED COST OF PHYSICAL STOCK. HE ALSO APPRECIATED THAT THE ASSES SEE HAD OBSOLETE STOCK ALTHOUGH NO EVIDENCES WERE FILED. THE LEARNED CIT(A ) ARRIVED AT THE STOCK DIFFERENCE IN THE FOLLOWING MANNER: 7. HE CONSIDERED THAT AVERAGE DISCOUNT DURING THE I MMEDIATELY PRECEDING ASSESSMENT YEAR WAS 21.17% AND AVERAGE DISCOUNT WIT HOUT CONSIDERING THE OBSOLETE STOCK WAS 23.85%. ACCORDING TO HIM IT WOUL D BE APPROPRIATE AND REASONABLE TO ESTIMATE THE DISCOUNT ON THE TAG PRI CE AT 22.5% FOR THIS YEAR. ACCORDINGLY, THE WORKING IS AS UNDER: STOCK AS PER TAG PRIES RS. 2,46,50,551/- LESS: DISCOUNT ON TAG PRICES @ 22.5% RS. 55,46 ,374/- STOCK AS PER ON SALE PRICE RS. 1,91,04,171/- LESS: G.P. @ 15% RS. 28,65,626/- STOCK AS PER COST PRICE RS. 1,62,38,551/- LESS: OBSOLETE/ DAMAGED STOCK RS. 15,00,000/- RS. 1,47,38,551/- STOCK AS PER BOOKS ON THE BASIS OF TRADING ACCOUNT PREPARED ON THE DATE OF SURVEY RS. 1,25,03, 400/- DIFFERENCE RS. 22,35,151/- ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 6 8. THE ADDITION TO THIS EXTENT WAS CONFIRMED AND TH E BALANCE GOT DELETED. IN RESPECT OF THE RELIEF GRANTED BY THE CIT(A) THE REVENUE HAS CHALLENGED AND IN RESPECT OF THE ADDITION MAINTAINED THE ASSES SEE IS BEFORE US. 9. WE HAVE HEARD BOTH SIDES. IN SUPPORT OF ITS CLAI M, THE ASSESSEE HAS ALSO FILED VOLUMINOUS PAPER BOOK RUNNING INTO 434 P AGES. IN OUR VIEW THE LEARNED CIT(A) HAS PROPERLY APPRECIATED THE FACTS O F THE CASE OF THE ASSESSEE AND HAS GIVEN PROPER REASONING IN RELATION TO WHAT COULD BE THE STOCK ON THE DATE OF SURVEY. AS ALREADY POINTED OUT THE STOCK WA S VALUED AT THE TAG PRICE WHICH, ADMITTEDLY, IS SUBSTANTIALLY HIGHER THAN TH E COST PRICE. THE ASSESSEE HAS NOT MAINTAINED DETAILED STOCK REGISTERS TO JUS TIFY THE CLAIM THAT THERE WAS NO QUANTITATIVE DIFFERENCE WHEN THE STOCK WAS I N FACT TAKEN AT THE TIME OF SURVEY IN THE PREMISES OF THE ASSESSEE. THE METH OD OF VALUATION OF STOCK ADOPTED BY THE ASSESSEE, AS OBSERVED BY THE CIT(A), ITSELF WAS FAULTY. THE CIT(A) HAS INVESTIGATED INTO THE ACTUAL SALE BILLS TO POINT OUT THAT A DISCOUNT WAS MUCH LARGER AND HAS GIVEN A DISCOUNT OF 22.5% ON THE TAG PRICE. ON THE TOTALITY OF THE CIRCUMSTANCES, IN OUR VIEW, THE C IT(A) WAS RIGHT IN HAVING ADOPTED A PROPER BASIS FOR ARRIVING AT THE STOCK D IFFERENCE THAT EXISTED BETWEEN THE PHYSICAL STOCK AND THE ACCOUNTING STOCK ON THE DATE OF SURVEY. WE, HOWEVER, FEEL THAT THERE COULD BE ACCUMULATED OBSOLETE DAMAGED STOCK AND THE DISCOUNT COULD BE SLIGHTLY HIGHER. WE, THER EFORE, ADOPT 25% DISCOUNT ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 7 OF TAG PRICE IN PLACE OF 22.5% ADOPTED BY THE CIT(A ). ACCORDINGLY, WE REWORK THE ADDITION TO BE CONFIRMED IN THE FOLLOWIN G MANNER: STOCK AS PER TAG PRIES RS. 2,46,50,551/- LESS: DISCOUNT ON TAG PRICES @ 25% RS. 61,62,6 38/- STOCK AS PER ON SALE PRICE RS. 1,84,87,913/- LESS: G.P. @ 15% RS. 27,73,187/- STOCK AS PER COST PRICE RS. 1,57,14,726/- LESS: OBSOLETE/ DAMAGED STOCK RS. 15,00,000/- RS. 1,42,14,726 STOCK AS PER BOOKS ON THE BASIS OF TRADING ACCOUNT PREPARED ON THE DATE OF SURVEY RS. 1,25,03, 400/- DIFFERENCE RS. 17,11,326/- 10. AS WE HAVE ALREADY POINTED OUT THAT THERE WAS A MISTAKE IN TAKING THE PHYSICAL STOCK BY THE SURVEY TEAM, IT IS IMPROPER T O MAKE AN ADDITION OF RS. 75 LACS. AS OBSERVED BY THE CIT(APPEALS), EXCEPT F OR THE STATEMENT RECORDED IN THE COURSE OF SURVEY THERE IS NO MATERI AL AS TO JUSTIFY SUCH A LARGE ADDITION. WE AGREE WITH THE REASONING GIVEN BY THE CIT(A) IN GIVING RELIEF TO THE ASSESSEE AND WE ENDORSE HIS FINDING ON THE B ASIS OF THE FACTS THAT ARE ELABORATELY DISCUSSED IN THE ORDER OF THE CIT(APPEA LS). 11. AS REGARDS THE VALIDITY OF ASSESSMENT ORDER PAS SED BY THE ASSESSING OFFICER U/S 153A IS CONCERNED, IN OUR VIEW, THE CI T(A) HAS CORRECTLY CAME TO THE CONCLUSION THAT ALTHOUGH ADDITION U/S 153A W AS IMPROPER AS NO NOTICE UNDER THE SAID SECTION WAS ISSUED, BUT ON THE BASIS OF THE PROCEEDINGS DRAWN DURING THE COURSE OF SURVEY, ESPECIALLY IN RELATION TO THE PHYSICAL STOCKS, ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 8 COULD BE THE SUBJECT MATTER OF ADDITION EVEN ON THE BASIS OF AN ADDITION MADE U/S 143(3) OF THE ACT. THE MENTIONING OF SECTION 15 3A, IN OUR VIEW, IN THE ASSESSMENT ORDER DOES NOT INVALIDATE THE EXERCISE M ADE BY THE ASSESSING OFFICER IN RESPECT OF THE ADDITION MADE. IN OUR VIE W, THE CIT(A) WAS RIGHT IN LAW IN DISMISSING THAT GROUND OF APPEAL OF THE ASSE SSEE. WE ENDORSE HIS FINDING ON THIS ISSUE. 12. THE ASSESSEE HAS TAKEN ONE MORE GROUND THAT TH E CIT(A) ERRED IN LAW AND ON FACTS IN REJECTING THE EXPLANATION OF THE AS SESSEE THAT REDUCTION ON ACCOUNT OF OBSOLETE STOCK OUGHT TO HAVE BEEN ALLOWE D BY THE CIT(A). IN OUR VIEW THE LEARNED CIT(A) HAS DEALT WITH THIS GROUND IN PARA 4.4 ON THE GROUND THAT THE ASSESSEES CLAIM OF HIGHER VALUE OF THE OB SOLETE STOCK IS NOT BASED ON ANY CONCRETE EVIDENCE. CREDIT OF RS. 15 LACS GIV EN BY THE ASSESSING OFFICER AS WELL AS THE SURVEY TEAM APPEARS TO BE RE ASONABLE. IN OUR VIEW, THE CLAIM THAT THE ASSESSEE HAS IN FACT SOLD THE OBSOL ETE STOCK FOR RS. 18 LACS AND ACCOUNTED FOR BY THE SAME HAS ALREADY BEEN CONSIDER ED BY US WHILE ADOPTING THE HIGHER DISCOUNT ON TAG PRICE, AS DISCUSSED IN T HE EARLIER PARAGRAPH. WE, THEREFORE, DECLINE TO INTERFERE ON THIS ASPECT OF T HE MATTER. 13. THE NEXT DISPUTE RELATES TO ADJUSTMENT OF STOCK OF RS. 4,36,819/- WHICH WERE RECEIVED PRIOR TO THE DATE OF SURVEY BUT THE BILLS THEREOF WERE NOT ENTERED IN THE BOOKS OF ACCOUNT TILL THE DATE OF SU RVEY. ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 9 14. WE HAVE HEARD BOTH SIDES. ALTHOUGH WE FIND THAT SHRI P.K. WADHWA, THE DIRECTOR NO WHERE STATED THAT THERE WERE SOME S TOCKS WHICH HAD BEEN RECEIVED AND HAD BEEN DECLARED IN PHYSICAL INVENTOR Y BY THE SURVEY TEAM BUT IN RESPECT OF WHICH BILLS/ CHALLANS WERE NOT RECEIV ED OR ENTERED IN THE BOOKS OF ACCOUNT TILL THE DATE OF SURVEY, BUT THE EVIDENC E IN THE FORM OF BILLS AND CHALLANS THAT WERE FILED BEFORE US IN THE PAPER BOO K, SHOW THAT T HE ASSESSEE HAD RECEIVED THESE STOCKS AND IN FACT APPEARS TO HA VE BEEN TAKEN IN THE PHYSICAL INVENTORY TAKEN BY THE SURVEY PARTY. THE A SSESSING OFFICER IS DIRECTED TO VERIFY THIS INFORMATION GIVEN AND IF WH AT IS CONTENDED BY THE ASSESSEE IS TRUE THAT SUCH VALUE HAS ALREADY BEEN E NTERED IN THE COMPUTATION OF THE PHYSICAL STOCK, THE SAME SHALL GET EXCLUDED, IF HE IS SATISFIED THE BILLS AND CHALLANS WERE NOT ENTERED IN THE BOOKS OF ACCOU NT TILL THE DATE OF SURVEY. TO THIS EXTENT THE ASSESSEES CONTENTION IS ACCEPTE D AND THIS ISSUE IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR GIVING THE REL IEF ONLY ON VERIFICATION. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON _________, 2009 ( C.L. SETHI ) ( G.E. VEERABHADRAPPA ) JUDICIAL MEMBER VICE PRESIDENT DATED: ______-10-2009. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 2612 & 2601/D/08 M/S LAGAN SAREES PVT. LTD. 10