GREEN WORLD DEPT. STORES, MUMBAI V. I.T.O.23(2)(3), MUMBAI

ITA 2636/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2003 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 03-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 19-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Assessee Lawyers: N M PORWAL
• Keywords: Retraction
• Section: 143(3); 133A; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOS AIN, JUDICIAL MEMBER ./ I.T.A. NO. 2636 /MUM/ 2012 ( / ASSESSMENT YEAR : 2005 - 06 ) M/S GREEN WORLD DEPT STORES, SHOP NO.8, SAGAR GARDEN, LBS MARG, MULUND (W), MUMBAI - 400080 / VS. INCOME TAX OFFICER, 23(2)(3), MUMBAI. ./ PAN : ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AADFG7246F / APPELLANT BY : SHRI N M PORWAL / RESPONDENT BY : SHRI MAHESH SHAH / DATE OF HEARING : 15 .12. 2015 / DATE OF PRONOUNCEMENT : 15. 12. 2015 O R D E R PER B.R.BASKARAN, A . M : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.02.2012 PASSED BY LD CIT(A) - 33, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2005 - 06. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) ( A ) I N ENHANCING ADDITION RELATING TO DISCREPANCY IN STOCK. (B) I N NOT ALLOWING DEDUCTION U/S 40(B) OF THE ACT TO THE EXTENT ALLOWA BLE UNDER THE SAID PROVISIONS. 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TRADING OF READYMADE GARMENTS, ACCESSORIES ITA NO. 2636/ MUM/ 2012 2 ETC . THE DEPARTMENT CARRIED OUT A SURVEY OPERATION U/S 133A OF THE ACT AT THE PREMISES OF THE ASSESSEE ON 5.11.2004. DURING THE COURSE OF SURVEY OPERATIONS, THE SURVEY TEAM TOOK THE INVENTORY OF PHYSICAL STOCK AVAILABLE WITH THE ASSESSEE. THE SURVEY TEAM ALSO ESTIMATED THE BOOK STOCK BY ADOPTING THE GROSS PROFIT RATE OF 29.6%. IT WAS NOTICED THAT THERE WAS SHORTAGE OF STOCK TO THE TUNE OF RS.37,87,811/ - . WHEN THIS WAS POINTED OUT, THE ASSESSEE SURRENDERED A SUM OF RS.30.00 LAKHS AT THE TIME OF SURVEY OPERATIONS. T HE ASSESSEE HAD ALSO RENOVATED THE SHOP AND HENCE HE SUBMITTED TO THE SURVEY TEAM THAT THE DIFFERENCE, IF ANY, IN THE ESTIMATION OF RENOVATION EXPENSES VIS - - VIS EXPENSES ACCOUNTED SHOULD BE CONSIDERED AS INCLUDED IN THE OFFER OF RS.30.00 LAKHS. SUBSEQUENTLY, THE ASSESSEE FILED A RETRACTION LETTER DATED NIL BEFORE T HE ASSESSING OFFICER CLAIMING THAT THE STOCK WORTH RS.9,35,000/ - WAS TRANSFERRED TO THE SISTER CONCERN OF THE ASSESSEE NAMED M/S SMALL WORLD. FROM THE ORDER OF LD CIT(A), WE NOTICE THAT THE ASSESSEE HAS FILED THE ABOVE SAID RETRACTION LETTER ALONG WITH TH E RETURN OF INCOME FILED ON 31.10.2005. SUBSEQUENTLY, THE ASSESSEE FILED ANOTHER LETTER DATED 30.11.2007, WHEREIN HE AGREED TO OFFER A SUM OF RS.18,52,108/ - , WHICH WAS WORKED OUT BY THE ASSESSEE AS UNDER: - ( A ) DIFFERENCE IN STOCK (SHORTAGE) 37,87,811 ( B ) LESS: - TRANSFER TO M/S SMALL WORLD 9,35,703 ( C ) REVISED DIFFERENCE IN STOCK 28,52,108 ( D ) LESS: - OFFERED IN M/S SMALL WORLD 10,00,000 ( E ) INCOME SURRENDERED NOW 18,52,108 THE ASSESSING OFFICER ORIGINALLY COMPLETED THE AS SESSMENT ON 26.12.2007 ACCEPTING THE INCOME OF RS.18,52,108/ - SURRENDERED BY THE ASSESSEE. THE SAME WAS REVISED BY LD CIT U/S 263 OF THE ACT ON 12.02.2010, SINCE THE AO DID NOT PROPERLY EXAMINE THE INCOME SURRENDERED BY THE ASSESSEE DURING THE COURSE OF S URVEY OPERATIONS AS WELL AS THE STOCK DIFFERENCE NOTICED THEREIN. THE LD D.R SUBMITTED THAT THE APPEAL FILED BY THE ITA NO. 2636/ MUM/ 2012 3 ASSESSEE BEFORE THE TRIBUNAL CHALLENGING THE REVISION ORDER OF LD CIT HAS SINCE BEEN DISMISSED. 3. THE ASSESSING OFFICER PASSED THE ASSE SSMENT ORDER DATED 26.11.2010 U/S 143(3) R.W.S. 263 OF THE ACT, WHEREIN HE ADDED THE AMOUNT OF RS.30.00 LAKHS SURRENDERED BY THE ASSESSEE. THE AO ALSO RESTRICTED THE DEDUCTION U/S 40(B) OF THE ACT IN RESPECT OF REMUNERATION TO THE PARTNERS, TO THE AMOUNT ACTUALLY CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) ENHANCED THE ADDITION TO RS.37,87,811/ - I.E. TO THE EXTENT OF DIFFERENCE IN STOCK. IT IS PERTINENT TO NOTE THAT THE LD CIT(A) HAS, INITIALLY, PRESUMED T HAT THE DIFFERENCE IN STOCK RELATES TO EXCESS STOCK. THE LD CIT(A) ALSO CONFIRMED THE ORDER OF THE AO WITH REGARD TO THE DEDUCTION CLAIMED U/S 40(B) OF THE ACT. 4. WITH REGARD TO THE FIRST ISSUE, T HE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS ENHANC ED THE ADDITION WITHOUT GIVING NOTICE OF ENHANCEMENT TO THE ASSESSEE. HE FURTHER SUBMITTED THAT THE LD.CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS.37.87 LAKHS BY PRESUMING THAT THE DISCREPANCY IN STOCK WAS RELATED TO SURPLUS STOCK. HE SUBMITTED T HAT THE SURVEY TEAM HAS FOUND OUT ONLY SHORTAGE IN STOCK. HE SUBMITTED THAT THE SHORTAGE OF STOCK NORMALLY MEANS THAT THE ASSESSEE HAS SOLD THE GOODS OUTSIDE THE BOOKS AND HENCE NORMALLY THE GROSS PROFIT (GP) RE ALISED ON SALE OF STOCK WOULD BE ASSESSABLE TO TAX . IN SUPPORT OF THIS CONTENTION , THE LD. AR PLACED RELIANCE ON THE DECISION RENDERED BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF RAJNIK & CO. VS. ACIT (AP) (251 ITR 561) . HE FURTHER SUBMITTED THAT THE GP RATE HAS BEEN DETE RMINED AT 29. 6% AND THE SAME SHOULD BE APPLIED ON THE SHORTAGE OF STOCK. 5. THE LD. AR FURTHER SUBMITTED THAT THE SURVEY TEAM HAS FOUND OUT EX CESS STOCK OF RS.9.35 LAKHS IN THE SISTER CONCERN NAMED M/S SMALL WORLD AND THE ASSESS EE HAS EXPLAINED THE SAME AS TRAN SFER OF STOCK FROM THE ITA NO. 2636/ MUM/ 2012 4 ASSESSEES FIRM TO THE SISTER CONCERN. ACCORDINGLY, HE SUBMITTED THAT THE SAID TRANSFER SHOULD BE TAKEN INTO CONSIDERATION. HE SUBMITTED THAT THE GROSS PROFIT WORKED OUT ON THE SHORTAGE OF STOCK @ 29.6% WORKS OUT TO RS.11.20 LAKHS ONLY, WHERE AS THE ASSESSEE HAS OFFERED ADDITION AL INCOME OF RS.18.52 LAKHS . HE SUBMITTED THAT THE ASSESSEE OFFERED THE AMOUNT OF RS.30.00 LAKHS WITHOUT UNDERSTANDING ITS IMPLICATIONS ON THE NET PROFIT AND HENCE THE SAID ADMISSION SHOULD NOT BE GIVEN COGN IZANCE OF. BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD. VS. STATE OF KERALA AND ANOTHER (1973) 91 ITR 18 ( SC ) , THE LD. AR SUBMITTED THAT THE HONBLE SUPREME COURT HAS HELD THAT IT IS OPEN TO THE ASSESSEE TO SHOW THAT THE ADMISSION MADE IS INCORRECT. ACCORDINGLY HE SUBMITTED THAT THE SURRENDER OF RS.18.52 LAKHS MADE BY THE ASSESSEE IN THE ORIGINAL ASSESSMENT PROCEEDINGS IS VERY MUCH REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND ACCORDINGLY PRAYED THAT THE SAME SHOU LD BE DIRECTED TO BE SUSTAINED IN THE PLACE OF RS.37.87 LAKHS ENHANCED BY THE LD CIT(A). 6 . ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE ASSESSEE HIMSELF HAS ADMITTED IN THE STATEMENT THAT THE GP RATE IS A B OU T 38 TO 40% IN THE CASE OF BRANDED G OODS . HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER AND THE SA ID POSITION HAS ALSO BEEN ADMITTED BY THE ASSESSEE IN THE STATEMENT TAKEN FROM THE PARTNER OF THE FIRM. DESPITE ADMITTING THA T THE ASSESSEE HAS BEEN EARNING GP RATE 38 TO 40%, THE ASSESSEE HAS BEEN DECLARING GP OF AROUND 30 % ONLY IN ITS BOOKS OF ACCOUNT. WITH REGARD TO THE QUERY AS TO WHETHER THE SHORTAGE OF STOCK CAN BE CONSIDERED AS SALES OUTSIDE THE BOOKS, THE LD D.R AGREED THAT THE SAME MAY BE CONSIDERED TO BE SO. HOWEVER, HE SUBMITTED THAT THE GP SHOULD BE ESTIMATED AT THE RATE OF 40 %, IF THE ASSESSEES PLEA IS ACCEPTED BY THE TRIBUNAL . THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE COULD NOT SUBSTANTIATE HIS CLAIM THAT T HERE WAS TRANSFER OF STOCK FROM THE ASSESSEES ITA NO. 2636/ MUM/ 2012 5 CONCERN TO ITS SISTER CONCERN NAMED M/S SMALL WORLD AND HENCE THE SAID CLAIM SHOULD BE REJECTED. HE FURTHER SUBMITTED THAT THE ASSESSEE ITSELF HAS SURRENDERED A SUM OF RS.30.00 LAKHS AND HENCE THE ADDITION SH OULD BE SUSTAINED TO THE EXTENT OF RS.30.00 LAKHS. 7 . WE HEARD THE PARTIES AND PERUSED THE RECORD. IT IS AN ADMITTED FACT THAT THE SURVEY TEAM AS FOUND OUT SHORTAGE OF STOCK ONLY AND NOT EXCESS STOCK AS PRESUMED BY LD CIT(A). THE SHORTAGE OF STOCK WOU LD NORMALLY BE PRESUMED AS SALES MADE OUTSIDE THE BOOKS, IN WHICH CASE, THE GROSS PROFIT ARISING THERE FROM IS REQUIRED TO BE ADDED TO THE TOTAL INCOME. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS MADE BY THE LD A.R IN THIS REGA RD. WE NOTICE THAT THE DISCREPANCY IN STOCK WAS ARRIVED BY THE SURVEY TEAM BY ADOPTING GP RATE AT 29.6% ONLY. HENCE, AT THIS STAGE, IT MAY NOT BE PROPER TO ALTER THE GP RATE, AS SUGGESTED BY THE LD. DR. ACCORD INGLY, WE PROCEEDS TO DISPOSE O F THIS ISSUE B Y TAKING THE GP RATE OF THE ASSESSEE AT 29.6%. THE LD. AR SUBMITTED THAT THE GP RATE IS AFFECTED BY MAN Y FACTORS SINCE THE ASSESSEE IS DEALING IN GARMENTS, WHICH IS BADLY AFFECTED BY CHANGE IN FASHION. HENCE THE ASSESSEE WOULD BE CONSTRAINED TO SELL CERT AIN OLD FASHION ITEMS AT HEAVY DISCOUNT AND HENCE THE AVERAGE RATE OF GP WORKED OUT AT AROUND 30% ONLY . THIS EXPLANATION OF THE ASSESSEE ALSO APPEARS TO BE PLAUSIBLE AND HENCE WE PROCEED TO ADOPT THE GROSS PROFIT RATE @ 29.6%. 8 . THE WORKING RELATING TO STOCK DIFFERENCE IS GIVEN IN Q UESTION NO.39 IN THE STATEMENT TAKEN FROM THE PARTNER OF THE ASSESSEE. WE NOTICE THAT THE STOCK SHORTAGE OF RS.37,87,811/ - REPRESENTS COST OF SALES, WHICH IS 70.4% OF THE SALES VALUE. BY GROSSING UP THE SAME TO 100% , THE SALE S VALUE SHOULD HA VE STOOD AT RS.53,80,413 / - . HENCE , THE G ROSS P ROFIT THAT SHOULD HAVE BEEN REALIZED BY THE ASSESSEE SHOULD STAND AT RS.15,92,602/ - ( RS. 5380413 / - ( - ) RS. 3787811 / - ). ACCORDINGLY , WE ARE OF THE VIEW THAT THE ADDITION RELATING TO GP ON THE STO CK SHORTAGE MAY BE MADE TO THE EXTENT ITA NO. 2636/ MUM/ 2012 6 OF RS.15,92,602 / - . HOWEVER, WE NOTICE THAT THE ASSESSEE HIMSELF HAS SURRENDERED A SUM OF RS.18,52,108/ - , WHICH IS MORE THAN THE GP WORKED OUT ABOVE. HENCE, UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE ADDITI ONAL INCOME OF RS.18,52,108/ - SURRENDERED BY THE ASSESSEE IS ADEQUATE ENOUGH TO COVER UP THE DEFICIENCIES NOTICED BY THE SURVEY TEAM. 9 . THE LD. DR SUBMITTED THAT THE ASSESSEE HIMSELF HAS SURRENDERED A S UM OF RS.30 LAKHS IN THE STATEMENT TAKEN FROM HIM AN D HENCE, THE ADDITION SHOULD BE SUSTAINED AT LEAST TO THAT EXTENT. ON THE CONTRARY, T HE LD. A. R SUBMITTED THAT THE ADMISSION MADE BY ASSESSEE IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT THE SAME IS NOT CONCLUSIVE. THE LD.A . R SUBMITTED THAT THE ASSES SEE, IN THE RETRACTION LETTER , HAS CLEARLY STATED THAT IT HAS ADMITTED THE AMOUNT OF RS.30 LAKHS WITHOUT PROPERLY UNDERSTANDING THE LIABILITY THAT MAY ARISE ON ACCOUNT OF STOCK DISCREPANCY. THE LD. AR FURTHER SUBMITTED THAT THE SHORTAGE OF STOCK WOULD AT THE MOST GIVE RISE TO ADDITION TOWARDS GP AND HENCE, THE ADMISSION OF RS.30 LAKHS MADE WITH THE ASSESSEE WITHOUT UNDERSTANDING ALL THE IMPLICATIONS SHOULD BE IGNORED . THE LD A.R ALSO PLACED RELIANCE ON THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD (SUPRA). 10. WE FIND MERIT IN THE SUBMISSIONS MADE BY THE LD. AR. FIRST OF ALL , STOCK SHORTAGE OF RS.37.87 LAKHS HAS BEEN ARRIVED ON ESTIMATED BASIS I.E. BOOK STOCK HAS BEEN ESTIMATED BY ADOPTING GP RATIO OF 29.6%. THERE IS ALSO MERIT IN THE SUBMISSIONS OF THE ASSESSEE THAT THE EFFECT OF STOCK SHORTAGE WAS NOT PROPERLY UNDERSTOOD BY THE PARTNER OF THE ASSESSEE FIRM. W E HAVE EARLIER NOTICED THAT THE ADDITIONAL INCOME SURRENDERED IN THE ORIGINAL ASSESSMEN T PROCEEDINGS IS MORE THAN THE GROSS PROFIT THAT SHOULD HAVE BEEN EARNED ON SALE OF STOCK SHORTAGE. HENCE, WE ARE OF THE VIEW THAT THE ASSESSEE HAS PROVED THAT THE ADMISSION OF RS.30.00 LAKHS MADE BY IT WAS WRONG. HENCE, WE ARE OF THE VIEW THAT THE ADMIS SION OF RS.30 ITA NO. 2636/ MUM/ 2012 7 LAKHS MADE BY THE ASSESSEE CANNOT BE GIVEN CREDENCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 11 . THE NEXT ISSUE RELATES TO DISALLOWANCE OF CLAIM MADE U/S 40(B) OF THE ACT . AFTER HEARING THE PARTIES, WE ARE OF THE VIEW THAT THIS ISSUE SHO ULD BE EXAMINED AFRESH BY THE AO , BY DULY CONSIDERING TH E INSTRUMENT OF PARTNERSHIP , ENTRIES MADE IN THE BOOKS OF ACCOUNTS AND EXPLANATION S THAT MAY BE FURNISHED BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO. 1 2 . IN THE RESULT, THE APPEAL FILE BY THE ASSESSEE IS TREA T ED AS PARTLY ALLOWED OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DEC, 2015 . SD SD ( / SANDEEP GOSAIN) ( . . / B.R.BASKARAN) /JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI ; DATED . 15TH DEC,20 15 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR ) , /ITAT, MUMBAI