Shri Arunkumar Bhageria, Surat V. The Income tax Officer,Ward-2(1), Surat

ITA 3474/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6788 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-10-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Keywords: Unexplained investment; Cost of acquisition
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL AND BHAVNESH SAINI, J M) ITA NO.3474/AHD/2008 A. Y.: 2005-06 SHRI ARUN KUMAR BHANGERIA, G-2367-68, MILLENNNIUM MARKET, RING ROAD, SURAT VS THE INCOME TAX OFFICER, WARD 2(1), SURAT PA NO. ACPPB 7940 H (APPELLANT) (RESPONDENT) APPELLANT BY WRITTEN SUBMISSION RESPONDENT BY SHRI R. K. DHANISTA, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II , SURAT DATED 24 TH SEPTEMBER, 2008 FOR ASSESSMENT YEAR 2005-06. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE AT THE T IME OF HEARING OF THE APPEAL. WE HAVE HEARD THE LEARNED DR AND PER USED THE FINDINGS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS FORWARDED WRITTEN SUBMISSION WHICH IS TAKEN INTO CONSIDERATION. 3. ON GROUND NO1, THE ASSESSEE CHALLENGED THE ADDIT ION ON ACCOUNT OF UNDER VALUATION OF STOCK OF RS.37,010/-. THE AO FOUND THAT THE ASSESSEE HAD VALUED THE CLOSING STOCK OF GREY A T RS.12.68 PER METER WHEREAS, AVERAGE PURCHASE COST WAS RS.12.79 P ER METER WHICH MEANS THAT THERE WAS A UNDER VALUATION OF STO CK BY RE.0.11 ITA NO.3474/AHD/2008 SHRI ARUN KUMAR BHANGERIA VS ITO W-2(1), SURAT 2 PER METER I.E. RS.11,187/-. SIMILARLY, THE AO WORKE D OUT THE UNDER VALUATION OF THE FINISHED PRODUCTS AT RS.25,823/-. THE ASSESSEE EXPLAINED THAT GREY HAD BEEN VALUED ON ACTUAL COST WHEREAS THE FINISHED GOODS HAD BEEN VALUED AT AVERAGE COST WHER EBY THE AVERAGE COST OF GREY AND OF PROCESSING UP TO THE CLOSING MO NTH OF THE YEAR HAS BEEN TAKEN AS THE BASIS FOR VALUATION. IN RESPECT O F FINISHED GOODS AVERAGE SALE OF GREY AND GROSS PROFIT CANNOT BE THE BASIS OF VALUATION. THE AO REJECTED THE SUBMISSION OF THE ASSESSEE ON T HE GROUND THAT NO EVIDENCE WAS FURNISHED IN SUPPORT OF SUCH CLAIM. NO COMPUTATION/CALCULATION WAS PROVIDED, THEREFORE, MA DE ADDITION OF RS.37,010/- (RS. 11,187/- + RS.25,823/-) ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. THE ADDITION WAS CHALLE NGED BEFORE THE LEARNED CIT(A) AND IT WAS CONTENDED THAT UNDER AS-I I OF THE ACCOUNTING STANDARD THE VALUATION OF THE STOCK HAS TO BE DONE AT COST PLUS ANY OTHER EXPENSES FOLLOWING THE FIFO OR LIFO METHOD. THE AO HAS FOLLOWED FIFO METHOD AND HAD VALUED THE STOCK A T COST VALUE. THE AO HAS ADOPTED THE AVERAGE PURCHASE COST FOR WH OLE YEAR WHEREAS UNDER LIFO METHOD THE ASSESSEE HAD TAKEN TH E ACTUAL COST OF THE STOCK IN THE END I.E. JANUARY TO MARCH. WITH REGARD TO FINISHED GOODS, THE ASSESSEE HAS STATED THAT THE METHOD ADOP TED BY THE AO WAS ABSOLUTELY INCORRECT AND WAS NOT ACCORDING TO T HE STANDARD PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA. THE ASSESSEE HAD ADOPTED THE AVERAGE GREY COST, SHORTAG E COST, PROCESS COST AND OTHER COST TO VALUE THE STOCK OF FINISHED GOODS AT RS.140.26 PER SAREE. THE LEARNED CIT(A) HOWEVER, DID NOT ACCE PT THE CONTENTION OF THE ASSESSEE BECAUSE THE ASSESSEE HAS BEEN UNABL E TO SUBSTANTIATE THE CLAIM REGARDING THE VALUATION OF T HE CLOSING STOCK ITA NO.3474/AHD/2008 SHRI ARUN KUMAR BHANGERIA VS ITO W-2(1), SURAT 3 BECAUSE NO EVIDENCE OR MATERIAL WAS FILED. WITH REG ARD TO THE VALUATION OF GREY THE ASSESSEE HAD CLAIMED THAT IT HAS FOLLOWED THE FIFO METHOD AND HAD TAKEN THE ACTUAL PURCHASE COST OF THE LAST 3 MONTHS, BUT NO EVIDENCE IS FILED IN SUPPORT OF THE SAME. IN THE ABSENCE OF ANY EVIDENCE ON RECORD, THE LEARNED CIT( A) DISMISSED THE APPEAL OF THE ASSESSEE ON THIS GROUND. 4. THE ASSESSEE IN THE WRITTEN SUBMISSION REITERATE D THE SAME SUBMISSION WHICH WAS RAISED BEFORE THE LEARNED CIT( A) AND IN THE ALTERNATIVE CONTENTION IT IS SUBMITTED THAT THE DIF FERENCE IS APPROXIMATELY OF 1% WHICH IS NORMAL. THEREFORE, ADD ITION MAY BE DELETED. IT IS FURTHER STATED IN THE ALTERNATE CONT ENTION THAT IN CASE THE ADDITION IS MAINTAINED, IT WOULD AFFECT THE OPENING STOCK OF THE NEXT YEAR; THEREFORE, RESULTANT BENEFIT MAY BE GIVEN IN THE NEXT ASSESSMENT YEAR 2006-07. ON THE OTHER HAND, THE LEA RNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. THE AO FOUND THAT THERE IS UNDER VALUATION OF STOCK. THE AO MIGHT HAV E GIVEN ANY REASON WHATSOEVER FOR VALUATION OF THE CLOSING STOC K, THEREFORE, IT IS THE DUTY OF THE ASSESSEE TO REBUT THE OBSERVATION O F THE AO THROUGH EVIDENCE AND MATERIAL ON RECORD. WHATEVER CONTENTIO N THE ASSESSEE RAISED BEFORE THE AO AND THE LEARNED CIT(A) WAS NOT SUPPORTED BY ANY EVIDENCE OR MATERIAL. THE SAME IS THE POSITION BEFORE US BECAUSE THE ASSESSEE DID NOT FURNISH ANY EVIDENCE OR MATERI AL ON RECORD. MERE WRITTEN SUBMISSION IS FORWARDED REITERATING TH E SAME ITA NO.3474/AHD/2008 SHRI ARUN KUMAR BHANGERIA VS ITO W-2(1), SURAT 4 SUBMISSION RAISED BEFORE THE AUTHORITIES BELOW. SIN CE THE ASSESSEE IS IN APPEAL CHALLENGING THE ADDITION MADE BY THE AUTH ORITIES BELOW, THE ONUS WAS UPON THE ASSESSEE TO PROVE THAT THE FINDIN GS OF THE AUTHORITIES BELOW ARE INCORRECT OR IS CONTRARY TO A NY EVIDENCE OR MATERIAL. HOWEVER, THE ASSESSEE CHOOSE TO REMAIN AB SENT AT THE TIME OF HEARING OF THE APPEAL. IN THE ABSENCE OF ANY MAT ERIAL OR EVIDENCE ON RECORD, WE HAVE NO ALTERNATE EXCEPT TO CONFIRM T HE ORDERS OF THE AUTHORITIES BELOW. THE ADDITION IS, THEREFORE, CONF IRMED. HOWEVER, ONCE ADDITION IS MADE ON ACCOUNT OF UNDER VALUATION OF STOCK, IT WOULD ADD TO THE CLOSING STOCK OF THE CURRENT YEAR AND SH ALL AFFECT THE OPENING STOCK OF THE NEXT YEAR 2006-07. THE AO IS, THEREFORE, DIRECTED TO GIVE CONSEQUENTIAL RELIEF TO THE ASSESS EE IN THE NEXT ASSESSMENT YEAR 2006-07. IN THE RESULT, GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6. ON GROUND NO.2, THE ASSESSEE CHALLENGED THE ADDI TION OF UNACCOUNTED STOCK OF RS.42,250/-. A SURVEY WAS COND UCTED IN THE PREMISES OF THE ASSESSEE IN WHICH IT WAS SEEN THAT TOTAL STOCK OF PROCESSED GOODS/SAREES AS PER THE BOOKS OF ACCOUNTS WAS 14811 SAREES, WHEREAS PHYSICAL VERIFICATION OF THE STOCK REVEALED 15136 SAREES. THERE WAS THUS EXCESS STOCK OF 325 SAREES. IN THE STATEMENT RECORDED IN THE COURSE OF SURVEY, SHRI RAVI CHAND G ADIA STATED THAT THE EXCESS STOCK HAD REMAINED TO BE RECORDED IN THE BOOKS OF ACCOUNTS. HE DECLARED THE VALUATION OF SUCH STOCK A T RS.42,250/- AS REPRESENTING UNACCOUNTED INVESTMENT AND ASSURED TO PAY TAX ON THE SAME. AT THE ASSESSMENT PROCEEDINGS EXPLANATION OF THE ASSESSEE WAS CALLED FOR AND THE ASSESSEE SUBMITTED THAT THER E WAS NO ITA NO.3474/AHD/2008 SHRI ARUN KUMAR BHANGERIA VS ITO W-2(1), SURAT 5 DIFFERENCE IN THE STOCK OF THE ASSESSEE AND ANY MIN OR DIFFERENCE WAS DUE TO PENDING ENTRIES OF SALES RETURN. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BECAUSE AT THE TIME OF S URVEY SUFFICIENT OPPORTUNITY WAS PROVIDED TO THE ASSESSEE TO TALLY T HE STOCK WHICH THE ASSESSEE COULD NOT AVAILED OF. AT NO POINT OF TIME THE ASSESSEE DISPUTED UNACCOUNTED STOCK OF 325 SAREES BELONGED O NLY TO THE ASSESSEE. VALUATION OF UNACCOUNTED SAREES WAS DONE AS PER THE STATEMENT OF SHRI RAVI CHAND GADIA. WHATEVER STATEM ENT WAS MADE WAS NOT SUPPORTED BY EVIDENCE AND CLAIM WAS FOUND T O BE FACTUALLY INCORRECT. ADDITION WAS ACCORDINGLY MADE. THE ASSES SEE REITERATED THE SAME SUBMISSIONS BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE GOODS RETURNED WERE NOT TAKEN I NTO ACCOUNT WHICH IS RECONCILED LATER ON AFTER THE SURVEY WAS COMPLET ED BY MAKING PROPER ENTRIES IN THE BOOKS. IT WAS, THEREFORE, SUB MITTED THAT THERE WAS NO DIFFERENCE. IT WAS FURTHER SUBMITTED THAT BO OKS OF ACCOUNTS HAVE NOT BEEN REJECTED AND THAT NO OPPORTUNITY WAS PROVIDED TO EXPLAIN THE PENDING ENTRIES AND SHRI RAVI CHAND GAD IA WAS NOT AWARE OF SUCH ENTRIES. THEREFORE, ON THE BASIS OF T HIRD PARTYS STATEMENT, ADDITION CANNOT BE MADE BECAUSE THE STAT EMENT OF THE ASSESSEE WAS NOT RECORDED. THE LEARNED CIT(A) DID N OT ACCEPT THE CONTENTION OF THE ASSESSEE ON THE SAME REASONS AS A DOPTED BY THE AO. THE LEARNED CIT(A) FURTHER NOTED THAT EXCESS ST OCK WAS FOUND DURING THE COURSE OF SURVEY WHICH REMAIN COMPLETELY OUTSIDE THE BOOKS OF ACCOUNTS. THE LEARNED CIT(A) ALSO NOTED TH AT SINCE KARTAS BROTHER WAS FOUND AVAILABLE IN THE PREMISES, THEREF ORE, HIS STATEMENT WAS RECORDED WHO WAS AWARE ABOUT THE DETAILS OF THE BUSINESS. THE ASSESSEE NEVER MADE ANY CORRECTION OR MODIFIED THE STATEMENT OF ITA NO.3474/AHD/2008 SHRI ARUN KUMAR BHANGERIA VS ITO W-2(1), SURAT 6 SHRI RAVI CHAND GADIA AT ANY TIME BEFORE THE AO. SH RI RAVI CHAND GADIA NEVER RETRACTED FROM HIS STATEMENT. WITH REGA RD TO THE SALES RETURN AND THE ENTRIES MADE AFTER SURVEY, THE LEARN ED CIT(A) NOTED THAT IT WAS CLEARLY AFTERTHOUGHT AND NO RELIABLE EV IDENCE WAS PRODUCED TO RECONCILE THE STOCK. THE LEARNED CIT(A) ALSO NOTED THAT FIGURES AND STOCK WERE PHYSICALLY VERIFIED IN THE P REMISES OF THE ASSESSEE WHICH WAS NOT DISPUTED AT ANY TIME. THE LE ARNED CIT(A) ACCORDINGLY DISMISSED THE APPEAL OF THE ASSESSEE. 7. THE ASSESSEE IN THE WRITTEN SUBMISSION REITERATE D THE SAME SUBMISSIONS AND SUBMITTED THAT THE AO HAS NOT POINT ED OUT ANY DEFECT IN THE STOCK DETAILS OR STOCK RETURN AND THA T ADDITION CANNOT BE MADE ON THE BASIS OF MERE ADMISSION OF THIRD PARTY AND EVEN DURING THE COURSE OF SURVEY ADDITION CANNOT BE MADE MERELY ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SURVEY AND RELIED UPON THE DECISION IN THE CASE OF CIT VS S. KHADER KHAN SON 3 00 ITR 157 MAD), JAIN TRADING CO. VS ITO 17 SOT 574 (MUM) AND PAUL MATHEWS SONS VS CIT 263 ITR 101 (KER). IT IS ALSO S TATED IN THE WRITTEN SUBMISSION THAT NO OPPORTUNITY WAS GIVEN FO R CROSS EXAMINATION OF SHRI RAVI CHAND GADIA, THEREFORE, SU CH STATEMENT CANNOT BE READ IN EVIDENCE. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE FINDINGS OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. IT IS NOT IN DISPUTE THAT DURING THE COURSE OF SURVEY EXCESS STOCK WAS FOUND IN THE BUSINESS PREMISES OF THE ASSESSEE. THE SURVEY PARTY FOUND EX CESS STOCK OF ITA NO.3474/AHD/2008 SHRI ARUN KUMAR BHANGERIA VS ITO W-2(1), SURAT 7 325 SAREES IN THE PREMISES OF THE ASSESSEE AND STAT EMENT OF SHRI RAVI CHAND GADIA WHO WAS PRESENT IN THE BUSINESS PR EMISES OF THE ASSESSEE WAS RECORDED IN WHICH HE ADMITTED EXCESS S TOCK AND ASSURED TO PAY TAX ON THE SAME. THE ASSESSEE NEVER TRIED TO RECONCILE THE EXCESS STOCK DURING THE COURSE OF SUR VEY AND EVEN AFTER COMPLETION OF THE SURVEY SHRI RAVI CHAND GADIA NEVE R RETRACTED FROM HIS STATEMENT. THE ASSESSEE ALSO DID NOT DISPUTE HI S STATEMENT BEFORE THE AO AT THE ASSESSMENT STAGE AND NEVER ASK ED FOR CROSS EXAMINATION OF SUCH PERSON IN THIS REGARD. THE ASSE SSEE ONLY CLAIMED THAT SOME ENTRIES OF SALES RETURN WERE TO B E RECORDED IN THE BOOKS OF ACCOUNTS AND IF THE SAME IS TAKEN INTO CON SIDERATION, THERE WOULD BE NO DIFFERENCE. HOWEVER, THE AO REJECTED TH E CONTENTION OF THE ASSESSEE BECAUSE AT THE TIME OF SURVEY NO SUCH ATTEMPT WAS MADE AND FURTHER IF THERE WAS ANY ACTUAL SALES RET URN NOT ACCOUNTED FOR BUT THE QUANTITATIVE DETAILS SUBMITTED DURING T HE COURSE OF ASSESSMENT PROCEEDINGS TOOK CARE OF THIS AND WAS CO NSIDERED AS AN AFTERTHOUGHT. THE AO HAS ALSO NOTED THAT THE ASSESS EE HAS FAILED TO PRODUCE ANY SUCH KIND OF SALES RETURN MEMOS IF PREP ARED IN THIS REGARD. SINCE NO EVIDENCE OF SALES RETURN WAS FILED BEFORE THE AUTHORITIES BELOW, THEREFORE, THE AUTHORITIES BELOW RIGHTLY MADE THE ADDITION CONSIDERING THE FACTS OF THE CASE NOTED AB OVE. IT IS, THEREFORE, A CASE WHERE ADDITION IS NOT MADE MERELY ON STATEME NT OF SHRI RAVI CHAND GADIA, BUT ADDITION WAS MADE ON THE BASIS OF INCRIMINATING MATERIAL AND EVIDENCE FOUND DURING THE COURSE OF SU RVEY AGAINST THE ASSESSEE I.E. THE EXCESS STOCK FOUND AS COMPARED TO THE STOCK SHOWN IN THE BOOKS OF ACCOUNTS. SINCE THE ADDITION HAS BEEN MADE BY THE AUTHORITIES BELOW, THEREFORE, IT WAS INCUMBE NT ON THE PART OF ITA NO.3474/AHD/2008 SHRI ARUN KUMAR BHANGERIA VS ITO W-2(1), SURAT 8 THE ASSESSEE TO PRODUCE EVIDENCE AND MATERIAL BEFOR E THE TRIBUNAL IN ORDER TO CONTRADICT THE FINDINGS OF THE AUTHORITIES BELOW, HOWEVER, THE ASSESSEE DID NOT ATTEMPT TO DO SO. THEREFORE, IN TH E ABSENCE OF ANY EVIDENCE ON RECORD BEFORE US, WE DO NOT FIND ANY JU STIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. IN THE RESULT, GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 9. ON GROUND NO.3, THE ASSESSEE CHALLENGED CHARGING OF INTEREST U/S 234B OF THE IT ACT WHICH IS MANDATORY AND CONSE QUENTIAL AS PER SETTLED LAW. THIS GROUND OF APPEAL IS ACCORDINGLY D ISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21-04-2011 SD/- SD/- (G. D. AGARWAL ) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 21-04-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD