Praveen Goel Prop. Shri Ganesh Overseas, Delhi V. ITO, Rewari

ITA 3142/DEL/2014

• Counselvise Citation: 314220114 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 06-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Keywords: Rejection of books of accounts; Competent authority
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH SMC - 2 : NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 3142 /DEL/201 4 A.Y. : 20 10 - 11 PARVEEN GOEL, VS. ITO, WARD - 1, PROP. SHRI GANESH OVERSEAS REWARI F - 26/124, SECTOR - 7, ROHINI, DELHI 11 0 085 (PAN : ABCPG8057C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. KAPIL GOEL, ADV. DEPARTMENT BY : SH. ROBIN RAWAL, SR. DR DATE OF HEARING : 06.7.2015 DATE OF ORDER : 20 .07.2015 O R D E R PER H.S. SIDHU, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - ROHTAK DATED 7 . 4 .201 4 PERTAINING TO ASSESSMENT YEAR 20 10 - 11 . 2. T HE GROUNDS OF APPEAL READ AS UNDER: - I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN SUSTAINING THE ADDITION TO THE EXTENT OF RS. 156,260/ - ON ACCOUNT OF CLOSING STOCK VALUATION WHERE NO. OF ERRORS CREPT IN THE 2 IMPUGNED COMPUTATION MADE BY THE AO AS MANI FEST FROM PAGE 4 OF THE CIT(A) ORDER. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE REJECTION OF BOOKS OF ACCOUNTS OF APPELLANT ON BASIS OF PERVERSE FINDINGS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN SUSTAINING THE ADDITION TO THE EXTENT OF RS. 48,106/ - PERTAINING TO INTEREST DISALLOWANCE WHERE ASSSESSEE SUCCESSFULLY PROVED THAT OWN INTEREST FREE FUNDS ADEQUATELY COVERS INTEREST FREE A DVANCES TO RELATIVES. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN INITIATING PENALTY PROCEEDINGS ON OBTAINING FACT SITUATION. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTE R ANY OF THE GROUNDS STARTED HEREINABOVE, EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ELECTRONICALLY TRANSMITTED HIS RETURN OF INCOME ON 12.9.2010 DECLARING INCOME OF RS. 7,68,170/ - + AGRICULTURAL INCOME OF RS. 32,000/ - . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CUTTING, CALIBRATION AND POLISHING OF STONES. THE CASE WAS SELEC TED FOR SCRUTINY UNDER MANUAL SELECTION AND STATUTORY NOTICES AND QUESTIONNAIRE WERE ISSUED FROM TIME TO TIME. SH. AJAY AGGARWAL, ADVOCATE AND SH. PRAVEEN KUMAR GOEL, THE ASSESSEE 3 ATTENDED THE PROCEEDINGS. WRITTEN REPLIES WERE FILED BY THE ASSESSEE DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS , ACCOUNTS BOOKS WERE ALSO PRODUCED BY THE ASSESSEE BUT S TOCK REGISTER WAS NOT PRODUCED BY THE ASSESSEE. A FTER CONSIDERING ALL THE REPLIES , THE AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT, 1961 VIDE ORD ER DATED 6.12.2012 AND MADE THE VARIOUS ADDITIONS. 4. AGGRIEVED WITH THE AFORESAID ASSESSMENT ORDER DATED 6.12.2012, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 7.4.2014 HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AGAINS T THE AFORESAID ORDER PASSED BY THE LD. CIT(A), ASSESSEE APPEALED BEFORE THE TRIBUNAL. 6. LD. COUNSEL OF THE ASSESSEE REITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL AND FILED THE COPY OF THE WRITTEN SUBMISSION WHICH WAS EARLIER FILED B EFORE THE LD. CIT(A) AND STATED THAT THE SAME WERE NOT PROPERLY CONSIDERED BY THE LD. CIT(A), HENCE, REQUESTED THE BENCH TO CONSIDER IT AND QUASH THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITIONS MADE BY AO AND CONFIRMED BY THE LD. CIT(A). 7. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8. I HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WITH REGARD TO GROUND NO. 1 RELATING TO ADDITION OF RS. 1,56,260/ - ON ACCOUNT OF VALUATION OF CLOSING STOCK IS CONCERNED, I FIND THAT THE ASSESSEE HAS RELIED ON VARIOUS CASE LAWS TO SUPPORT HIS CLAIM THAT HIS SYSTEM OF VALUATION HAS BEEN ACCEPTED BY THE DEPARTMENT SINCE PAST 6 YEARS. HOWEVER, THE AO HAS 4 POINTED OUT THE TOTAL NUMBE R OF CATEGORIES OF STONE BEING PURCHASED AS 4 ONLY, FEW PARTIES FROM WHOM PURCHASES HAVE BEEN MADE AND TRANSACTIONS LESS THAN 100 AND SALES MADE TO LESS THAN 10 PARTIES (WITH SALE TRANSACTIONS BEING LESS THAN 40), THERE WAS NO REASON WHY A PHYSICAL INVENT ORY OF STOCK WAS NOT KEPT. MOREOVER, THE AO HAS POINTED OUT SPECIFIC DISCREPANCY IN BILL AMOUNT VIS - A - VIS THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNTS. MOREOVER, THE PROPORTION OF EXPENSES IN RELATION TO PURCHASES AND SALES IN THE YEAR UNDER CONSIDERATI ON AND THE PRECEDING YEAR ARE NOT LOGICALLY ACCEPTABLE. THE ASSESSEE HAS HAD NOTHING TO SAY IN RESPECT OF THESE DEFECTS IN AC ACCOUNTS. HENCE, LD. CIT(A) CONCLUDED THAT THE AO WAS CORRECT IN DETERMINING THE VALUATION BASED ON THE MATERIAL BEFORE HIM. THEREFORE, HE CONFIRMED THE ADDITION ON THIS ACCOUNT. I NOTE FROM THE ASSESSEE S WRITTEN SUBMISSION FILED BEFORE THE LD. CIT(A) AND COPY THEREOF FILED BEFORE ME, STATING THEREIN THAT THE ASSESSEE HAS BEEN DOING THIS BUSINESS SINCE 2002 AND ADOPTING THE SAME M ETHOD OF ACCOUNTING & VALUATION OF CLOSING STOCK CONSISTENTLY & REGULARLY, WHICH IS DULY ACCEPTED BY THE DEPART MENT NOT ONLY U/S 143(1) (A) BUT AS WELL AS UNDER THE SCRUTINY ASSESSMENT ALSO . I FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF UNITE D COMMERCIAL BANK VS. CIT (1999) 240 ITR 355 (SC) HAS HELD THAT: FOR VALUING THE CLOSING STOCK, IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE, WHICHEVER IS LOWER - A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY AND REGULAR LY CANNOT BE DISCARDED BY THE DEPARTMENT AUTHORITIES ON THE VIEW THAT HE SHOULD ADOPT A DIFFERENT METHOD OF KEEPING ACCOUNTS OR OF VALUATION - FOR THE PURPOSE OF INCOME TAX WHICHEVER METHOD IS ADOPTED BY THE 5 ASSESSEE A TRUE PICTURE OF THE PROFITS & GAINS, THE REAL INCOME IS TO BE DISCLOSED. 9. I FURTHER FIND THAT WHILE MAKING ADDITION OF RS. 1,56,260 / - ON ACCOUNT OF VALUATION OF CLOSING STOCK THE A .O. RELIED ON THE ABOVE REFERRED JUDGMENT OF THE HON'BLE SUPREME COURT. BUT IN MY VIEW HE HAS WRONGLY INTERPRETED THE FINDINGS OF THIS JUDGMENT. THIS DECISION OF HON'BLE APEX COURT SAYS THAT A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENT AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR OF VALUATION. 10. THE MOST I MPORTANTLY T HE D E CLA RE D G.P RATE FOR THE YEAR UNDER CONSIDERATION IS MUCH HIGHER AS COMPARED TO LAST YEAR. DURING THE PRESENT YEAR THE DECLARED GP RATE IS 31.71% AS COMPA RED TO LAST GP OF 20.26%, THEREFORE, NO ADDITION CAN BE MADE IN RESPECT OF VALUATION OF CLOSING STOCK. 11. I NOTE THAT THE HON BLE JURISDICTIONAL HIGH COURT OF PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. SANT RAM MANGAT RAM, (2005) 195 CT R (P&H) 345 HAS HELD AS UNDER: - IT IS AN ADMITTED POSITION THAT FROM THE INCEPTION OF ITS BUSINESS, THE ASSESSEE HAD CONTINUOUSLY ADOPTED THE SAME METHOD OF VALUATION OF THE CLOSING STOCK AND NO OBJECTION WAS RAISED BY THE DEPARTMENT IN ANY OF T HE PREVI OUS YEARS. RATHER, THE COMPETENT AUTHORITY ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE AND ACCORDINGLY, MADE ASSESSMENT. THIS BEING THE POSITION, THERE IS NO VALID GROUND TO ACC E PT T HE ARGUMENT THAT THE METHOD ADOPTED BY THE ASSESSEE FOR VALUATION OF THE OF THE STOCK WAS LEGALLY 6 IMPERMISSIBLE AND ON THAT ACCOUNT , THE ADDITIONS MADE B Y THE IAC SHOULD BE RESTORED. THE IAC COMMITTED A SERIOUS ERROR BY REJECTING THE ADOPTED BY THE ASSESSEE FOR VALUATION OF ITS STOCK AND MAKING ADDITION TO ITS INCOME. 12. THAT DESPITE HAVING MADE AN ADDITION OF RS.1,56,260 / - IN THE VALUE OF STOCK IN HAND, NO CORRESPONDING BENEFIT HAS BEEN GIVEN BY THE REVENUE TO THE ASSESSEE FOR THE AY. 2011 - 12. IN - FACT THIS ADDITION, IS JUST TO CREATE HARDSHIP FOR THE ASSESSEE, OTHERWISE, THERE IS NO LOSS TO THE REVENUE. THE VALUE WHICH HAS BEEN SHOWN BY THE ASSESSEE HAS BEEN CARRIED TO THE NEXT YEAR. THUS THERE IS NO LOSS OF TAX SO FAR AS THE REVENUE IS CONCERNED. 13 . CONSIDERING THE ABOVE FACTS & CIRCUMSTANCE, IT IS CLEAR THAT THE ASSESS EE HAS CORRECTLY VALUED THE CLOSING STOCK AND ADDITION SO MADE BY THE AO O N A/C OF VALUATION OF CLOSING STOCK IS ABSOLUTELY WRONG & ILLE G AL. HENCE NOT SUSTAINABLE. THEREFORE, I DELETE THE ADDITION OF RS. 1,56,260/ - AND DECIDE THE GROUND NO. 1 IN FAVOR OF THE ASSESSEE. 14. WITH REGARD TO ANOTHER EFFECTIVE GROUND NO. 3 IS CONCERNED, RELATING TO SUSTAINING THE ADDITION TO THE EXTENT OF RS. 48,106/ - PERTAINING TO INTEREST DISALLOWANCE WHERE ASSSESSEE SUCCESSFULLY PROVED THAT OWN INTEREST FREE FUNDS ADEQUATELY COVERS INTEREST FREE ADVANCES TO RELATIVES. I FIND THAT THE AO MADE THE ADDITION OF RS. 1,50,633/ - AND LD. CIT(A) HAS RESTRICTED T HE SAME AT RS. 48,106/ - . I FURTHER FIND THAT BEFORE THE LD. CIT(A), IT WAS THE WRITTEN SUBMISSIONS OF THE ASSESSEE THAT AO HAS DISALLOWED THE INTEREST ON PROPORTIONATE BASIS, WHICH IS ON THE VERY HIGH SIDE. HE HAS NOT CONSIDERED THE FACT THAT THERE A RE PAYMENTS AS WELL AS RECEIPTS TOO 7 FROM THESE PERSONS TO WHOM INTEREST FREE LOANS WERE GIVEN. HE HAS CALCULATED THE INTEREST FOR THE WHOLE YEAR, WHEREAS, AS PER LAW AND ACCOUNTING METHOD THE INTEREST IS TO BE CALCULATED ON THE DAY TO DAY BASIS. BUT THE AO HAS FAILED TO DO SO. ASSESSEE HAS CALCULATED THE INTEREST ON THESE GIVEN LOANS BY APPLYING RATE OF INTEREST @12% ON DAY TO DAY BASIS, DETAILS THEREOF ARE AS UNDER: - NAME OF THE PERSON RATE OF INTEREST INTEREST AMOUNT RAMA GOEL 12% RS . 27,548/ - SUNITA DEVI 12% RS. 20,558/ - RS. 48,106/ - 1 5 . I NOTE FROM THE LD. CIT(A) S ORDER THAT ASSESSEE HIMSELF HAS STATED THAT IN ANY CASE THE DISALLOWANCE OF INTEREST SHOULD NOT BE MORE THAN RS. 48,106/ - , AGAINST WHICH THE AO HAS D ISALLOWED THE INTEREST OF RS. 1,50,633/ - , WHICH IS ABSOLUTELY WRONG AND HIGHLY EXCESSIVE, HENCE, NOT SUSTAINABLE. I FURTHER NOTE THAT THE LD. CIT(A) WHILE GIVEN HIS FINDING HAS OBSERVED THAT IT IS A FACT THAT THESE AMOUNTS KEPT ON INCREASING OR DECREAS ING DURING THE YEAR. IN THE CASE OF RAMA GOEL IT WAS FROM AUGUST TO MARCH ONLY. HE, THEREFORE, OBSERVED THAT DISALLOWANCE SHOULD BE RESTRICTED TO RS. 48,106/ - ONLY BASED ON THE TRANSACTIONS THROUGH THE YEAR. I NOTE FROM THE ABOVE, THAT THE REQUEST OF TH E ASSESSEE WAS RIGHTLY BEEN ACCEPTED BY THE LD. CIT(A) DURING APPELLATE PROCEEDINGS AND ACCORDINGLY, THE ADDITION WAS RESTRICTED TO RS. 48,106/ - , WHICH IN MY CONSIDERED OPINION DO NOT NEED ANY INTERFERENCE ON MY PART, HENCE, I UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY THE GROUND NO. 3 IS DISMISSED AS SUCH. 8 1 6 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 /7/201 5 . SD/ - [ H.S. SIDHU ] JUDICIAL MEMBER DATE: 20 /7/201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES