M/s A A V A R A A N, V. DCIT,

ITA 281/RAN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0423 (ITAT-RANCHI)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 08-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ORAON
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: CIRCUIT BENCH : RANCHI [BEFORE HONBLE S/SHRI N. S. SAINI, AM AND GEORGE M ATHAN, JM] ITA NO.281/RAN/2014 ASSESSMENT YEAR: 2007-08 M/S. AAVARAN, ROSHPA TOWER, MAIN ROAD, RANCHI 834 001 (JHARKHAND). PAN:AABFA8245J VS THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, RANCHI (APPELLANT) (RESPONDENT) APPELLANT BY AMRITA SINHA WITH SHRI M. K. CHOUDHARY, ADVOCATES RESPONDENT BY SHRI CHAUDHARY ORAON, DR DATE OF HEARING: 02-11-2015 DATE OF PRONOUNCEMENT: 02-11-2015 O R D E R PER GEORGE MATHAN, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT (A), RANCHI, JHARKHAND IN APPEAL NO.1O6 /RAN/OTH/09-10 DATED 30-05-2014, FOR THE ASSESSMENT YEAR 2007-08. 2. MS. AMRITA SINHA, ADVOCATE WITH SHRI M. K. CHOUD HARY, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI CHAU DHARY ORAON, LEARNED DR REPRESENTED ON BEHALF OF THE REVENUE. 3. IT WAS SUBMITTED BY THE LEARNED AR THAT IN RESPE CT OF GROUND NO.1 OF THE APPEAL THAT THERE WAS A SURVEY ON THE P REMISES OF THE ASSESSEE ON 11-01-2007. IT WAS A SUBMISSION THAT TH E ASSESSEE IS A ITA NO. 281/R/2014 (AY: 2007-08) 2 WHOLE-SELLER AS WELL AS RETAILER OF CLOTH, MATTRESS , PILLOW, CARPETS AND OTHER DECORATIVE ITEMS AND FURNITURE. IT WAS A SUBM ISSION THAT IN THE COURSE OF SURVEY, PHYSICAL INVENTORY OF THE STOCK W AS TAKEN AT MRP WHICH CAME TO RS.1,57,09,438/-. THE AO HAD REDUCED THE GROSS PROFIT AS DECLARED BY THE ASSESSEE AT 23.69% AND HAD ARRIV ED AT THE VALUE OF STOCK AS ON THE DATE OF SURVEY AT RS.1,19,87,872/-. IT WAS A SUBMISSION THAT THE TRADING ACCOUNT OF THE ASSESSEE AS ON 11-01-2007 WAS RE-CASTED BY THE SURVEY TEAM AND THE CLOSING ST OCK OF RS.1,20,86,800/- WAS DETERMINED. IT WAS A SUBMISSIO N THAT THE ASSESSEE DID NOT MAINTAIN ANY STOCK REGISTER. CONSE QUENTLY, THE AO DETERMINED THAT THERE WAS PRIMA-FACIE STOCK SHORTAGE AND HAD MADE AN ADDITION OF RS.1,29,640/-. IT WAS A SUBMISSION T HAT HOW THIS AMOUNT OF RS.1,20,86,800/- WAS DETERMINED WAS NOT C OMING OUT OF THE ORDER OF THE AO. IT WAS A SUBMISSION THAT IN AN Y CASE, THE VARIATION BEING LESS THAN 1%, NO ADDITION WAS CALLED FOR IN T HE HANDS OF THE ASSESSEE. IT WAS A SUBMISSION THAT ON APPEAL, THE L EARNED CIT (A) HAD DELETED THE ADDITION MADE BY THE AO BUT HAD CONFIRM ED THE G.P. ON THE SAID ALLEGED SUPPRESSION OF THE SALES RESULTING IN THE SHORTAGE OF STOCK. IT WAS A SUBMISSION THAT NO ADDITION WAS CAL LED FOR IN THE HANDS OF THE ASSESSEE. 4. IN REPLY, THE LEARNED DR SUBMITTED THAT THE ADDI TION AS MADE BY THE LEARNED CIT(A) WAS LIABLE TO BE CONFIRMED. ON A SPECIFIC QUERY TO THE LEARNED DR AS TO HOW THE AMOUNT OF RS.1,20,86,8 00/- WAS ARRIVED AT, THE LEARNED DR DID NOT HAVE ANYTHING TO SUBMIT. IT WAS SUBMITTED BY THE LEARNED DR THAT THIS WAS DONE BY RE-CASTING THE TRADING ACCOUNT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE MI NUTE TRADING ACCOUNT IS RE-CAST THE GROSS PROFIT AT 23.69% WOULD VARY IF ANY ITA NO. 281/R/2014 (AY: 2007-08) 3 ADDITION IS MADE. THIS IS NOT A CASE WHERE THERE IS EXCESS STOCK WHICH HAS BEEN FOUND DURING THE COURSE OF SURVEY. THE ASS ESSEE IS NOT MAINTAINING ANY STOCK REGISTER. HOW, THE TRADING AC COUNT HAS BEEN RE- CASTED HAS NOT BEEN EXPLAINED BY ANY OF THE LOWER A UTHORITIES NOR BY THE LEARNED DR. IT IS ALSO NOT PERMISSIBLE FOR RE-C ASTING OF THE TRADING ACCOUNT IN THE MIDDLE OF THE YEAR. THIS IS BECAUSE; THE RE-CASTING IN THE MIDDLE OF THE YEAR WOULD NOT GIVE ANY CLEAR PIC TURE OF THE ASSESSEES FINANCIAL POSITION. THE WHOLE ADDITION H AS RESULTED NOT BECAUSE OF VARIATION IN STOCK AS THIS WOULD HAVE EV EN RESULTED IF THE STOCK WAS TAKEN AT MRP. IT IS ONLY BY ADJUSTING THE MRP BY THE G.P. DECLARED FOR THE WHOLE YEAR THAT THE VARIATION HAS BEEN BROUGHT OUT. THE G. P. NEED NOT BE CONSTANT THROUGHOUT THE YEAR. FOR EXAMPLE, DURING THE FESTIVAL SEASON, THE TURNOVER MAY BE HIG HER BUT THE G. P. MAY GO LOWER ON ACCOUNT OF DISCOUNT. SIMILARLY, ON ACCOUNT OF CHANGE IN FASHION, SALE OF OLD STOCK, THERE MAY BE VARIATI ON IN THE G. P. THUS, THE PRIMARY MISTAKE THAT HAS BEEN MADE BY THE AO IS APPLICATION OF G. P. FOR THE RELEVANT WHOLE YEAR, WHEN VALUING THE CL OSING STOCK IN THE MIDDLE OF THE YEAR. IN ANY CASE, THE VARIATION BEIN G LESS THAN 1% WHEN COMPARED TO THE TOTAL STOCK AVAILABLE WITH THE ASSE SSEE, IT CAN FAIRLY BE SAID THAT NO ADDITION IS CALLED FOR ON ACCOUNT OF A LLEGED SUPPRESSION OF SALES OR THE G. P. THERETO. IN THE RESULT, GROUND N O.1 OF THE ASSESSEES APPEAL STANDS ALLOWED. 6. IN RESPECT OF GROUND NO.2 OF THE APPEAL, IT WAS SUBMITTED BY THE LEARNED AR THAT IN THE COURSE OF SURVEY, THE SHORTA GE OF CASH TO AN EXTENT OF RS.1,92,448/- WAS FOUND. IT WAS A SUBMISS ION THAT AS PER THE BOOKS, THE CLOSING CASH BALANCE WAS RS.2,32,698/-; WHEREAS IN THE COURSE OF SURVEY, CASH OF ONLY RS.40,250/- WAS FOUN D. IT WAS A SUBMISSION THAT THE MAIN PARTNER WHO WAS LOOKING AF TER THE AFFAIRS OF ITA NO. 281/R/2014 (AY: 2007-08) 4 THE FIRM HAD GONE TO KOLKATA AND HAD CONSEQUENTLY D RAWN RS.2,00,000/- OUT OF THE SAID BALANCE AS ON 10-01-2 007 AND HAD KEPT IT AT HIS HOUSE AND WHEN HE CAME BACK ON 13-01-2007 , THE CASH WAS BROUGHT BACK. IT WAS A SUBMISSION THAT THIS EXPLANA TION OF THE ASSESSEE WAS NOT ACCEPTED AND THE ADDITION WAS MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT (A). IT WAS A SUBMISSI ON THAT AS THERE WAS NO EXCESS CASH FOUND, NO ADDITION WAS CALLED FO R. 7. IN REPLY, THE LEARNED DR VEHEMENTLY SUPPORTED TH E ORDER OF THE LEARNED AO AND THE LEARNED CIT (A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMITT EDLY, AS PER THE CASH BOOK, THE CASH THAT WAS LIABLE TO BE FOUND AS ON 11-01-2007 WAS RS.2,32,698/-, BUT WAS FOUND ONLY RS.40,250/-. THUS, THERE WAS A SHORTAGE OF CASH. THIS IS A SHORTAGE OF ACCOUNTED C ASH. THERE IS NO DISPUTE THAT ENTRIES ARE THERE IN THE CASH BOOK. IT IS ONLY THE PHYSICAL AVAILABILITY OF CASH THAT HAS NOT BEEN THERE AND TH E SAME HAS ALSO BEEN EXPLAINED THAT IT WAS WITH THE PARTNER WHO WAS MANAGING THE AFFAIRS OF THE FIRM AND HE HAD GONE TO KOLKATA ON 1 0-01-2007. AS IT IS A SHORTAGE OF ACCOUNTED CASH WHICH HAS BEEN FOUND D URING THE COURSE OF SURVEY, WE ARE OF THE VIEW THAT NO ADDITION CAN BE MADE IN RESPECT OF THE SAME. CONSEQUENTLY, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT (A) IN RESPECT OF CASH SHORTAGE STANDS DELETED. 9. IN REGARD TO GROUND NOS. 3 TO 6 OF THE APPEAL, I T WAS SUBMITTED BY THE LEARNED AR THAT THE AO HAD MADE AN ADDITION OF RS.2,00,000/- BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT IN RESPECT OF CASH INTRODUCED BY THE PARTNER OF THE ASSESSEE FIRM ON 1 3-01-2007 ON HIS RETURN FROM KOLKATA. IT WAS A SUBMISSION THAT THIS WAS THE SAME CASH ITA NO. 281/R/2014 (AY: 2007-08) 5 WHICH WAS TAKEN BY THE PARTNER SHRI GANESH NARAYAN AGARWAL AND WAS KEPT AT HIS RESIDENCE WHEN HE HAS GONE TO KOLKATA. IT WAS A SUBMISSION THAT THE ADDITION WAS LIABLE TO BE DELET ED. 10. IN REPLY, THE LEARNED DR VEHEMENTLY SUPPORTED T HE ORDER OF THE AO AND THE LEARNED CIT (A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS. ADMITTEDLY , THE SHORTAGE OF CASH FOUND WAS ONLY RS.1,92,448/-. BUT, THE CASH INTRODUCED WAS RS.2,00,000/-. THUS, THERE WAS AN EXCESS CASH INTRO DUCTION OF RS.7,552/-. THIS HAS NOT BEEN EXPLAINED BY THE ASSE SSEE. IN THE CIRCUMSTANCES, THE ADDITION OF RS.2,00,000/-STANDS REDUCED TO RS.7,552/-. IN THE RESULT, GROUND NOS. 3 TO 6 OF TH E APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. 12. IN RESPECT OF GROUND NO.7, IT WAS SUBMITTED BY THE LEARNED AR THAT IT WAS AGAINST THE ACTION OF THE LEARNED CIT ( A) IN CONFIRMING A DISALLOWANCE OF RS.50,000/- OUT OF SHOP EXPENSES AN D CAR MAINTENANCE EXPENSES. IT WAS A SUBMISSION THAT THE ASSESSEE HAD DEBITED RS.1,07,571/- AND RS.54,777/- UNDER THE HEA D SHOP EXPENSES AND CAR MAINTENANCE EXPENSES RESPECTIVE LY. AS THE SAID EXPENSES WERE NOT SUPPORTED BY THIRD PARTY BILLS AN D INVOICES, THE AO HAD DISALLOWED ON AD-HOC BASIS RS.50,000/- OUT OF THE SAME. THE LEARNED CIT (A) ON APPEAL, CONFIRMED THE SAME. IT W AS A SUBMISSION THAT NO DISALLOWANCE WAS CALLED FOR AS NO DEFECTS I N THE BOOKS OF ACCOUNT HAVE BEEN POINTED OUT. 13. THE LEARNED DR IN REPLY, VEHEMENTLY SUPPORTED T HE ORDER OF THE AO AND THE LEARNED CIT (A). ITA NO. 281/R/2014 (AY: 2007-08) 6 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS NO DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE HAVE BE EN POINTED OUT, NOR THERE WAS ANY ALLEGATION THAT THE EXPENSES WERE INFLATED IN COMPARISON TO THE EARLIER YEARS OR IN COMPARISON TO THE TURNOVER OF THE ASSESSEE, WE ARE OF THE VIEW THAT NO AD-HOC DISALLOWANCE IS CALLED FOR. AS A CONSEQUENCE, THE DISALLOWANCE AS MADE BY THE A O AND CONFIRMED BY THE LEARNED CIT (A) STANDS DELETED. IN THE RESUL T, GROUND NO.7 OF THE ASSESSEES APPEAL STANDS ALLOWED. 15. IN REGARD TO GROUND NO.8, IT WAS SUBMITTED BY T HE LEARNED AR THAT IT WAS AGAINST LEVY OF INTEREST U/S 234 OF THE ACT AND THE SAME WAS LEVIABLE ONLY ON RETURNED INCOME IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL JHARKHAND HIGH COURT IN THE CASE OF AJAY PRAKASH VERMA TAX APPEAL NO.38 OF 2010 DATED 25-07-2012. 16. IN REPLY, THE LEARNED DR SUBMITTED THAT INTERES T WAS LEVIABLE ON THE ASSESSEES ASSESSED INCOME AND NOT ON THE RETUR NED INCOME. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOTICED THAT AS THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TH E HONBLE JURISDICTIONAL JHARKHAND HIGH COURT IN THE CASE OF AJAY PRAKASH VERMA REFERRED TO SUPRA AND IT IS NOTICED THAT LEVY OF IN TEREST U/S 234 OF THE ACT IS CONSEQUENTIAL, THE AO IS DIRECTED TO LEVY IN TEREST ON THE ASSESSEE ON RETURNED INCOME AS HAS BEEN HELD BY THE HONBLE JURISDICTIONAL JHARKHAND HIGH COURT IN THE CASE OF AJAY PRAKASH VERMA REFERRED TO SUPRA. IN THE RESULT, GROUND NO.8 OF TH E ASSESSEES APPEAL STANDS ALLOWED. ITA NO. 281/R/2014 (AY: 2007-08) 7 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT AT THE CLOSE OF HEARING ON 02-11-2015. SD/- SD/- ( N .S. SAINI ) ACCOUNTANT MEMBER (GEORGE MATHAN ) JUDICIAL MEMBER DATE : 02-11-2015 L LL LK DEKA/SR.PS K DEKA/SR.PS K DEKA/SR.PS K DEKA/SR.PS COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) - 5. THE DR, ITAT, RANCHI 6. GUARD FILE BY ORDER DATE INITIAL ORIGINAL DICTATION PAD & DRAFTS ARE ENCLOSED IN THE F ILE 1. DRAFT DICTATED ON 02.11.15 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 02.11.15 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 02.11.15 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 02.11.15 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 02.11.15 SR.PS 6. DATE OF PRONOUNCEMENT 02.11.15 SR.PS 7. FILE SENT TO THE BENCH CLERK ` 02.11.15 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER