ACIT CIR 2 THANE, MUMBAI V. MANOJ KUMAR RAMNIRANJAN SHARMA, THANE

ITA 2616/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88340 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 133A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI I.P. BANSAL, (JM) AND B.R.BASKARAN (AM) . . , . . , ./ I.T.A. NO.2616/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-2, 1 ST FLOOR, QUORESHI MANSION, GOKHALE ROAD, NAUPADA, THANE(W),400602 / VS. SHRI MANOJ KUMAR RAMNIRANJAN SHARMA, C-514, TIRUPATI PLAZA, STATION ROAD, BALAJI NAGAR, BHAYANDAR (W), THANE. ( / APPELLANT) .. ( / RESPONDENT) ./ !' ./PAN/GIR NO. :ANAPS5334G # / APPELLANT BY: SHRI VIVEK BATRA $ # / RESPONDENT: SHRI K SHIVRAM % & $ ' ( / DATE OF HEARING :5.1.2015 )* $ ' ( / DATE OF PRONOUNCEMENT : 20.2.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 18.11.2010 PASSED BY LD CIT(A)-II, THANE AND IT REL ATES TO THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE IS AGGRIEVED BYS THE DECISION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.23,50,000/- RELATING T O THE STOCK DIFFERENCE. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE STATED IN BRIE F. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF GREY CLOTH. HE GET THE WEAVING, ITA NO.2616/M/11 2 INTERMINGLE, MENDING AND CLIPPING ON JOB WORK BASIS FROM OUTSIDE SOURCES. HE BUYS YARN AND GIVE IT TO THE WEAVERS FOR MAKING GREY UNFINISHED CLOTH AND SALE THE SAME. REVENUE CARRIED SURVEY OPERATIO N U/S 133A OF THE ACT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 25.1.20 07. DURING THE COURSE OF SURVEY PROCEEDINGS INVENTORIES OF STOCK WAS TAKE N AND STOCK DIFFERENCE WAS ARRIVED AT RS.23.50 LAKHS. THE SURVEY TEAM ALS O FOUND CERTAIN DISCREPANCIES IN THE CREDITORS BALANCE. IN VIEW O F THE ABOVE, THE ASSESSEE AGREED TO OFFER ADDITIONAL INCOME OF RS.2 9.90 LAKHS CONSISTING OF STOCK DIFFERENCE OF RS.23.50 LAKHS AND CREDITORS DI FFERENCE OF RS.6.40 LAKHS. HOWEVER, WHILE FILING THE RETURN OF INCOME, THE ASSESSEE OFFERED ONLY RS.6.40 LAKHS. DURING THE COURSE OF ASSESSME NT PROCEEDINGS THE ASSESSEE EXPLAINED THAT HE HAD SOLD ALL THE STOCK B EFORE THE END OF FINANCIAL YEAR AND HENCE HIS CLOSING STOCK WAS NIL AS ON 31.3.2007. WITH REGARD TO THE INVENTORY ON THE DATE OF SURVEY, T HE ASSESSEE SUBMITTED THAT HE HAD SOLD THEM TO OUTSIDER AT SPECIFIC RATE S, HE SUBMITTED THAT THE GROSS PROFIT DECLARED BY HIM DURING THE YEAR UNDE R CONSIDERATION WAS COMPARABLE WITH THE RATE OF PERCENT WITH THE EARLIE R YEARS AND HENCE THE SAME SHOWS THAT THE GOODS WERE SOLD AT A PREVAILING MARKET RATE. HE FURTHER SUBMITTED THAT THE RATE ADOPTED BY A SURV EY OFFICIALS WAS VERY MUCH HIGHER SIDE AND HENCE IT HAD RESULTED IN STOCK DIFFERENCE AT RS.23.50 LAKHS WHICH CONSISTS OF DIFFERENCE IN VARIATION OF GRAY FABRICS AS AN YARN STOCK. THE ASSESSEE ALSO FURNISHED THE DETAILS OF SALE OF GRAY CLOTH TO THE AO. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SA ID EXPLANATION OF THE ASSESSEE AND ACCORDINGLY HE ADDED AN AMOUNT OF RS. 23.50 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DELETED THE ABOVE SAID ADDITION BY OBSERVING AS UNDER (PARAGRAPHS 11 TO 16 OF CIT(A)S ORDER) 11. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AS WELL A S THE ABOVE WRITTEN SUBMISSIONS FILED BY THE APPELLAN T. I HAVE ALSO PERUSED THE DOCUMENTS AND OTHER MATERIALS FILED ALO NG WITH THE ITA NO.2616/M/11 3 WRITTEN SUBMISSIONS. THERE IS MERIT IN THE ABOVE AR GUMENTS OF THE APPELLANT. THE SURVEY PARTY HAD TAKEN THE VALUE OF THE CLOSING STOCK AT RS.34/- PER METER OF THE DYED GREY CLOTH, RS. 32 /- PER METER OF THE GREY DYEING CLOTH AND RS. 30/- PER METER OF THE DEAD STOCK AND YARN AT THE RATE OF RS. 82/- PER METER TO ARRIVE AT THE TOTAL VALUE OF THE STOCK AT RS.44,83,962/-. ACCORDING TO THE AR OF THE APPELLANT, THESE RATES WERE APPLIED TO THE AVAILABLE STOCK ONL Y TO INCREASE ITS VALUE TO SHOW THE EXCESS STOCKS FOR DECLARATION OF ADDITIONAL INCOME OF RS.23,50,000/-. THESE RATES WERE APPLIED NOT ON THE BASIS OF ANY DOCUMENTARY EVIDENCE BUT ONLY TO ARRIVE AT A PARTIC ULAR FIGURE TO SHOW THE EXCESS STOCKS. THE AVERAGE RATES OF ALL TH E ITEMS NOT ONLY FOR THE YEAR UNDER CONSIDERATION COMES TO RS. 25/- PER YEAR BUT IN THE PREVIOUS TWO ASSESSMENT YEARS ALSO A.Y. 2004-05 AND 2005-06 THE AVERAGE PRICE OF THE ITEMS IN QUESTION WERE THE SAME. 12. FROM THE FACTS MENTIONED IN THE ASSESSMENT ORDE R IT CAN BE OBSERVED THAT THE AO HAS NOT MENTIONED THE AVAILABI LITY OF ANY DOCUMENTARY EVIDENCE ON THE BASIS OF WHICH THE AVER AGE COST PRICE OF THE STOCKS IN QUESTION HAVE BEEN TAKEN AT RS. 32 /- TO RS. 34/- PER METER. THE AO HAS SIMPLY STATED IN THE ASSESSMENT O RDER THAT THE ABOVE PRICE OF THE GOODS WAS TAKEN DURING THE COURS E OF SURVEY AS TOLD BY THE APPELLANT AND HIS REPRESENTATIVES. THI S CANNOT BE THE METHOD OF VALUATION OF THE CLOSING STOCKS. THE SUR VEY PARTY SHOULD HAVE ASKED THE APPELLANT OR HIS REPRESENTATIVE TO P RODUCE THE DOCUMENTARY EVIDENCE ON THE BASIS OF WHICH THEY HAV E BEEN QUOTING THE PRICE OF THE GOODS FOR THE PURPOSE OF VALUATION OF THE GOODS. 13. THE APPELLANT HAD CHALLENGED THIS METHOD OF VALUATI ON DURING THE COURSE OF ASSESSMENT PROCEEDINGS BUT THE AO DID NOT ACCEPT THESE ARGUMENTS AND PROCEEDED TO COMPLETE THE ASSES SMENT ON THE BASIS OF THE ABOVE VALUATION OF STOCKS. THE APPELLA NT HAS CONTENDED THAT THE SURVEY PARTY HAD VERIFIED THE BOOKS OF ACC OUNTS, STOCK REGISTER AND PHYSICAL STOCK DURING THE COURSE OF SU RVEY ACTION AND NO DISCREPANCY WAS POINTED OUT BY THE SURVEY PARTY IN THE PHYSICAL STOCKS. THE APPELLANT HAD TO ACCEPT THE VALUATION O F THE STOCK AT THE TIME OF SURVEY AT HIGHER PRICE DUE TO MENTAL PRESSU RE. 14. IN SUPPORT OF HIS ABOVE CONTENTIONS, THE APPELLANT HAS FURTHER CONTENDED THAT THE STOCK FOUND AT THE TIME OF SURVE Y WAS COMPLETELY SOLD OUT AND THE STOCK AS ON 31/03/2007 WAS NIL. TH E APPELLANT HAS ALSO FILED THE COPIES OF THE BILLS OF SALES OF THES E STOCKS AND FURTHER CONFIRMATION FROM THE PARTIES TO WHOM THE STOCKS WE RE SOLD DURING THE YEAR UNDER CONSIDERATION. PERUSAL OF THE SALE B ILLS SHOWS THAT THE ENTIRE STOCKS WHICH WERE AVAILABLE WITH THE APPELLA NT ON THE DATE OF SURVEY I.E. 25/01/2007, THE ENTIRE LOT OF THIS STOC K WAS SOLD OUT FROM ITA NO.2616/M/11 4 26/01/2007 TO 31/ 03/ 2007. COPIES OF THESE BILLS H AVE BEEN PLACED AT PAGES 1 TO 57 OF THE PAPER BOOK FILED BY THE APP ELLANT. PERUSAL OF THESE BILLS REVEAL THAT THE LEFTOVER STOCKS WERE SO LD BY THE APPELLANT FROM 26.01.2007 AT AN AVERAGE PRICE OF RS.24/- PER METER. FURTHER, THE APPELLANT HAS ALSO FILED THE CONFIRMATIONS FROM ALL THE PARTIES REGARDING THE ABOVE SALES MADE ALONG WITH THE SALE BILLS AND ALL THESE PARTIES ARE REGULAR INCOME TAX ASSESSEES. IN THE ABSENCE OF ANY EVIDENCE, CONTRARY TO THE ABOVE, IT IS VERY DIF FICULT TO IGNORE THESE DOCUMENTARY EVIDENCE BROUGHT ON RECORD BY THE APPELLANT. THESE FACTS WERE ALSO BROUGHT BEFORE THE AO BUT WER E TOTALLY DISREGARDED BY HIM. 15. IN SUPPORT OF ITS ABOVE CONTENTION THE AR OF THE AP PELLANT HAS ALSO PLACED ON RECORD THE WORKING OF THE COST OF PR ODUCTION OF THE GOODS PRODUCED BY HIM FOR THE YEAR ENDING ON 31/03/ 2005, 31/03/2006 AND 31/03/2007 (PLACED AT PAGES 110 TO 1 11 OF THE PAPER BOOK). WHICH ALSO SHOWS THE AVERAGE COST PRIC E OF THE GOODS MANUFACTURED FOR ALL THESE THREE YEARS, WAS APPROXI MATELY RS. 24/- PER METER. THE GROSS PROFIT RATE FOR THE ABOVE THRE E YEARS IS ALSO APPROXIMATELY THE SAME 16. IN VIEW OF THE FACTS AND CIRCUMSTANCES EXPLAINED AB OVE, IT IS DIFFICULT TO IGNORE THE ABOVE VITAL FACTS PLACED ON RECORD BY THE APPELLANT. ON THE OTHER HAND, THE AO HAS NOT PLACED ANY EVIDENCE ON RECORD REGARDING THE COST PRICE ADOPTED BY HIM F OR THE PURPOSES OF VALUATION OF THE STOCK INVENTORY AND ASSESSING I T ACCORDINGLY. THE STATEMENT OF THE APPELLANT DURING THE COURSE OF SUR VEY REGARDING COST PRICE OF THE CLOSING STOCK, WITHOUT BEING SUPP ORTED BY ANY DOCUMENTARY EVIDENCE, CANNOT BE TAKEN AS THE BASIS FOR VALUING THE STOCK AT THAT RATE. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENU E HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 6. THE FACTS THAT THE ASSESSEE HAS SOLD ALL THE GRA Y FABRICS BEFORE THE END OF FINANCIAL YEAR WAS NOT DISPUTED BY THE LD.DR . THE FACT THAT THE GROSS PROFIT RATE DISCLOSED IN THE YEAR UNDER CONSI DERATION WAS COMPARABLE WITH THE GP RATE DECLARED IN THE EARLIER YEARS WAS NOT DISPUTED BY THE LD.DR. HOWEVER, THE STOCK WASPS VALUED IN THE FINAN CIAL YEAR DURING THE COURSE OF SURVEY AS ON 25.1.2007. THE FACT THAT TH E QUANTITY OF PHYSICAL ITA NO.2616/M/11 5 STOCK AS WELL AS BOOK STOCK WAS THE SAME AND HENCE, DIFFERENCE IN STOCK VARIATION HAS ARISEN DUE TO ADOPTION OF HIGHER RATE FOR THE PURPOSE OF VALUATION. THE FACT THAT THE RATE ADOPTED BY THE REVENUE WAS ON THE HIGHER SIDE WAS PROVED BY THE FACT THAT THE ASSESSE E HAS SOLD MATERIAL AT LOWER RATE SUBSEQUENTLY. ALL THESE FACTS SHOW THAT THERE IS NO REASON TO MAKE ADDITION WITH REGARD TO THE STOCK DIFFERENCE O F GRAY CLOTH. FURTHER, WE NOTICE THAT THE YARN STOCK WAS CONSERVED BY THE ASSESSEE AND IT WAS NOT SOLD TO ANY OUTSIDER. THE PERUSAL OF THE ASSESS MENT ORDER SHOWS THAT THE SURVEY TEAM HAS VALUED THE YARN STOCK AT RS.6, 67,436/- AND THE ASSESSEE HAS VALUED THE SAME AT RS.6,27,436/- RESU LTING IN DIFFERENCE OF RS.40,126/-. IN THE CASE OF YARD FABRICS, WE NOTI CE THAT IT HAS BEEN SOLD TO OUTSIDER AND HENCE, WE WERE ABLE TO APPRECIATE T HE CONTENTION OF THE ASSESSEE. FURTHER WITH REGARD TO THE YARN STOCK, THE AVERAGE VALUE OF YARN PER KG. ADOPTED BY THE SURVEY TEAM AND THE ASS ESSEE WAS NOT PROPERLY EXPLAINED BY THE ASSESSEE. WE NOTICE THA T THE LF. CIT(A) HAS DELETED THE ADDITION WITHOUT APPRECIATING THIS DIFF ERENCE AND HENCE WE ARE OF THE VIEW THAT THE DIFFERENCE IN YARN STOCK I.E. RS.40,126/- NEEDS TO BE SUSTAINED. ACCORDINGLY, WE MODIFY THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO SUSTAIN THE ADDITION DUE TO CREDITORS DIFFERE NCE OF RS.40126/- AND DELETED THE DIFFERENCE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20 TH FEB, 2015 . )* % + , - 20 TH FEB, 2015 * $ .& / SD SD ( . . /I.P. BANSAL ) ( . . ,/ B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % & MUMBAI: 20 TH FEB,2015. . . ./ SRL , SR. PS ITA NO.2616/M/11 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. % 2' ( ) / THE CIT(A)- CONCERNED 4. % 2' / CIT CONCERNED 5. 6. 34 . '5 , ( 5 , % & / DR, ITAT, MUMBAI CONCERNED . 6 7 & / GUARD FILE. 8 % / BY ORDER, TRUE COPY 9 ! (ASSTT. REGISTRAR) ( 5 , % & /ITAT, MUMBAI