I.T.O Wd - 7(3),kolkata., Kolkata V. M/s Shree Banke Behari Enterprises Private Limited., Kolkata

ITA 350/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4573 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 19-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UDAY KUMAR SARDAR J
• Assessee Lawyers: S M GUPTA
• Keywords: Rejection of books of accounts; Depreciation
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 350 / KOL / 2013 ASSESSMENT YEAR :2009-10 ITO WARD-7(3), P-7, CHOWRINGHEE SQUARE, R.NO. 17, 5 TH FLOOR, KOLKATA- 700 069 V/S . M/S SHREE BANKE BEHARI ENTERPRISES PVT. LTD. 37, SHAKESPEARE SARANI, KOLKATA-700 017 [ PAN NO.AADCS 6914 C ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI UDAY KUMAR SARDAR, JCIT-DR /BY RESPONDENT SHRI S.M.GUPTA, AR /DATE OF HEARING 04-07-2016 /DATE OF PRONOUNCEMENT 26-08-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-VIII, KOLKATA IN APPEAL NO.172 /CIT(A)-VIII/KOL/11-12 DATED 14.12.2012. ASSESSMENT WAS FRAMED BY ITO WARD -7(3), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 13.12.2011 FOR ASSESSMENT YEAR 2009 -10. GROUNDS RAISED BY REVENUE PER ITS APPEAL ARE AS UNDER:- 1. THAT ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A)-VIII, KOLKATA HAS ERRED IN NOT APPRECIATI NG THE FACT THAT THE ITA NO.350/KOL/2013 A.Y. 2009-10 ITO WD-7(3) KOL. VS. M/S SHREE BANKE BEH ARI ENTERPRISES PVT. LTD. PAGE 2 ASSESSING OFFICER HAS RIGHTLY COMPUTED THE VALUE OF CLOSING STOCK WHERE THE ASSESSEE DID NOT FURNISH THE QUALITATIVE ANALYS IS OF CLOSING STOCK AND AS SUCH IS COMING UNDER THE AMBIT OF SECTION 145 OF THE IT ACT, 1961 AND DELETED THE ADDITION OF RS.30,37,993/- UNDER TH E HEAD UNDISCLOSED SALES HOLDING THAT THE CALCULATION OF VALUATION OF CLOS ING STOCK IS NOT DONE PROPERLY BY THE ASSESSING OFFICER AS WELL AS ARBITRARILY HELD THAT THE ASSESSEE HAS SHOWN THE VALUE OF CLOSI NG STOCK AT A PRICE MORE THAN AVERAGE COST. 2. THAT ON THE FACT AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-VIII, KOLKATA HAS ERRED IN DELETING THE ADDI TION UNDER THE HEAD DEPRECIATION ON AN OWNERSHIP FLAT FOR RS.1,14,648/- AND DEPRECIATION ON AN OWNERSHIP SHOP FOR RS.1,51,255 /- IN NOT CONSIDERING THE DECISION OF THE HON'BLE SUPREME COU RT IN CIT VS AIPS THEATRE (1967) 65 ITR 377 (SC) IN ITS PROPER P ERSPECTIVE. 3. THE APPELLANT CRAVES LEAVE TO AD, ALTER OR ABROG ATE ANY GROUND OF APPEAL AT THE TIME OF HEARING. SHRI S.M. GUPTA, LD. AUTHORIZED REPRESENTATIVE APPE ARED ON BEHALF OF ASSESSEE AND SHRI UDAY KUMAR SARDAR, LD. DEPARTMENT AL REPRESENTATIVE APPEARED ON BEHALF REVENUE. 2. FIRST ISSUE RAISED BY THE REVENUE IS THAT LD. CI T(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF UNDISCLOSED S ALES AMOUNTING TO RS. 30,07,993/-. 3. THE AO DURING ASSESSMENT PROCEEDINGS OBSERVED TH E ASSESSEE HAS NOT FILLED COLUMN 28A OF TAX AUDIT REPORT WITH REGA RD TO THE CLOSING STOCK. LATER, ON DEMAND OF THE AO, THE ASSESSEE HAS PRODUCED DETA ILS OF STOCK WITH QUANTITY AS WELL AS AMOUNT WHICH IS AS UNDER:- THE FOLLOWING IS THE DETAILS OF THE STOCK FOR THE ACCOUNTING YEAR 2008-09 OF THE COMPANY 1. OPENING STOCK 2982 PCS RS.24,30,650/- 2. PURCHASES 21482 PCS RS.3,72,95,387/- 3. SALES 18880 PCS RS.3,27,51,391.91/- 4. CLOSING STOCK 5584 PCS RS.1,10,95,279/- ITA NO.350/KOL/2013 A.Y. 2009-10 ITO WD-7(3) KOL. VS. M/S SHREE BANKE BEH ARI ENTERPRISES PVT. LTD. PAGE 3 IT WAS OBSERVED BY THE AO THAT THE QUALITATIVE ANA LYSIS OF THE STOCK HAS NOT FURNISHED, THEREFORE THE COST OF EACH ITEM OF THE S TOCK CANNOT BE DETERMINED. ACCORDINGLY THE AO APPLIED THE AVERAGE PRICING METH OD AND WORKED OUT COST OF THE GOODS SOLD ON THE BASIS OF PER SAREE WHICH C OMES TO RS. 1516.45 (2,86,30,758/- 18880 =1516.45). THE COST OF GOODS S OLD WAS WORKED OUT AT RS. 2,86,30,758.00 ( 24,30,650+3,72,95,387-1,10,95, 279.00). THE AO FURTHER APPLIED THIS AVERAGE RATE OF PER SAREE TO DETERMINE THE VALUE OF THE CLOSING STOCK IN TERMS OF QUANTITY BY DIVIDING THE VALUE OF CLOSING STOCK WITH THE AVERAGE RATE WHICH COMES OUT 7319 PIECES OF SAREES (1,10,95,729/1516.45= 7319). AS PER THE AO THE CLOSING QUANTITY OF THE SA REE SHOULD HAVE BEEN 7319 BUT THE ASSESSEE HAS SHOWN THE SAME AT 5584 PIECES OF SAREE AS CLOSING STOCK. SO THE DIFFERENCE OF 1734 IS SHORTAGE OF STO CK WHICH THE ASSESSEE HAS SOLD OUTSIDE THE BOOKS. THE VALUE OF UNDISCLOSED SA LE OF 1734 PIECES OF SAREES COMES TO RS.30,07,993/-. THE AO ACCORDINGLY HAS ADDED IT TO THE INCOME OF THE ASSESSEE AS UNDISCLOSED SALES. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CI T(A) WHO DELETED THE ADDITION MADE BY THE AO BY OBSERVING THAT THE METHO D OF VALUATION ADOPTED BY THE ASSESSEE IS CONSISTENT. IT CANNOT BE REJECTE D MERELY BECAUSE IT WILL HAMPER THE REVENUE. AO HAS NOT FOUND ANY ACTUAL DEF ECT IN THE VALUATION OF CLOSING STOCK. AO HAS NOT FOUND ANY DEFECT IN THE B OOKS OF ACCOUNTS. EVEN IF THE AVERAGE COST METHOD IS APPLIED THEN ALSO THE AO CALCULATION IS NOT DONE PROPERLY AND CLOSING STOCK, 5584 PIECES OF SAREES @ 1624 PER PIECE = 90,68,416/- ON THE AVERAGE PRICE OF THE OPENING STO CK AND PURCHASES DURING THE YEAR( 24,30,650 + 3,72,95,387= 3,97,26,037.00/ 24464). WHILE ASSESSEE HAS SHOWN THE CLOSING STOCK VALUING 1,10,95,279/-. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. ITA NO.350/KOL/2013 A.Y. 2009-10 ITO WD-7(3) KOL. VS. M/S SHREE BANKE BEH ARI ENTERPRISES PVT. LTD. PAGE 4 5. BEFORE US BOTH THE PARTIES RELIED ON THE ORDER O F AUTHORITIES BELOW AS FAVOURABLE TO THEM. LD. AR SUBMITTED PAPER BOOK WHI CH IS RUNNING PAGES FROM 1 TO 81. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION WE FIND THAT THE AO RAISED THE ISSUE FOR THE UNDISCLOSED SALE DUE TO NON-AVAIL ABILITY OF INFORMATION WITH REGARD TO THE QUANTITATIVE DETAILS OF THE OPENING S TOCK, PURCHASES AND SALES, CLOSING STOCK ALONG WITH THEIR RESPECTIVE VALUES IN THE TAX AUDIT REPORT. DURING THE PROCEEDINGS THE DETAILS WERE FURNISHED BY THE A SSESSEE BUT THE AO REJECTED THE SAME AND WORKED OUT THE UNDISCLOSED SA LE AS DISCUSSED ABOVE. AT THE OUTSET, WE FIND THAT AO HAS MADE THE ADDITIO N ON SURMISE AND CONJECTURE WITHOUT POINTING OUT ANY DEFECT IN THE A UDITED FINANCIAL STATEMENT. THE AO HAS FAILED TO BRING ANY DEFECT IN THE SUBMIS SION OF THE ASSESSEE. IN THE CASE OF DEVIATION OF THE ACCOUNTING STANDARD TH E AO SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS BUT HE CHOSE NOT TO DO SO. IN VIEW OF ABOVE WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. GROUND RAISED BY REVENUE IS DISMISSED. 7. NEXT ISSUE RAISED BY REVENUE IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DEPRECIATION CHARGED ON BUILDINGS. 8. IT WAS OBSERVED BY THE AO THAT COLUMN NO. 14 AND ANNEXURE A ARE MISSING FROM THE TAX AUDIT REPORT WITH REGARD TO TH E DEPRECIATION. ON DEMAND, ASSESSEE HAS PROVIDED THE ANNEXURE SHOWING THE DETAILS OF DEPRECIATION CLAIMED BY IT ON TWO PROPERTIES I.E. OWNERSHIP FLAT @5% AND OWNERSHIP SHOP @ 10%. HERE AO OBSERVED THAT DEPRECIATION HAS BEE N CLAIMED ON LAND AS WELL WHICH IS NOT ALLOWED. ASSES SEE SUBMITTED THAT PRICE PAID WAS FOR SPECIFIC AREA OF BUILT UP SPACE. NOTHI NG WAS PAID SPECIFICALLY FOR LAND AND THUS DEPRECIATION IS ALLOWED ON ENTIRE VAL UE. HOWEVER, THE AO RELYING ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF CIT VS. AIPS ITA NO.350/KOL/2013 A.Y. 2009-10 ITO WD-7(3) KOL. VS. M/S SHREE BANKE BEH ARI ENTERPRISES PVT. LTD. PAGE 5 THEATRE 65 ITR 377 AND ITAT BENCH DELHI IN THE CASE OF DCIT VS CAPITAL CAR PRIVATE LIMITED REPORTED 114 ITD 286 (DELHI) HAS AS SUMED THE ONE THIRD VALUE OF PROPERTY AS LAND AND THUS DISALLOWED THE PROPORT IONATE DEPRECIATION ON BOTH THE PROPERTY AMOUNTING TO RS. 2,65,903/- (114648.00 PLUS 1,51,255). 9. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A) WHO HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING THAT AO HA S ASSUMED ONE THIRD OF THE COST AS LAND COST BUT THERE IS NO ANY MATERIAL TO SUPPORT HIS FINDINGS. WHEN PRICE OF LAND AND BUILDING IS NOT IDENTIFIABLE THEN AND PAYMENT IS A COMPOSITE PAYMENT ENTIRE PAYMENT WILL BE ALLOWED FOR DEPRECIA TION. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 10. BEFORE US LD. DR RELIED ON THE ORDER OF AO WHER EAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT AS SESSEE CLAIMED TO HAVE MADE THE INVESTMENT IN THE AFORESAID PROPERTIES BY PAYING COMPOSITE AMOUNT. HOWEVER, THIS FACT HAS NOT BEEN BROUGHT ON RECORD B Y LD. AR WHETHER IT WAS COMPOSITE PAYMENT FOR THE LAND & BUILDING. IN THE I NSTANT CASE THE AO HAS RELIED IN THE ORDER OF CIT VS. AIPS THEATRE 65 ITR 377 AND DCIT VS CAPITAL CAR PRIVATE LIMITED REPORTED, SUPRA FOR DISALLOWING THE DEPRECIATION. HOWEVER IN OUR VIEW THE FACTS WERE DIFFERENT IN THAT CASE B ECAUSE THE VALUE FOR THE BUILDING AND LAND WAS SEPARATELY AVAILABLE BUT THIS IS NO SO IN THE PRESENT CASE. THE DETAILS OF THE HONBLE SUPREME COURT DECI SION STAND AS UNDER : THIS QUESTION AROSE OUT OF THE FOLLOWING FACTS : TH E RESPONDENT, M/S ALPS THEATRE, HEREINAFTER REFERRED TO AS THE ASSES SEE', CARRIES ON BUSINESS AS EXHIBITOR OF FILMS. THE ITO INITIATED P ROCEEDINGS UNDER S. 34(1)(B) OF THE INDIAN IT ACT, 1922, ON THE GROUND THAT IN THE ORIGINAL ASSESSMENT DEPRECIATION WAS ALLOWED ON THE ENTIRE C OST OF RS. 85,091 ITA NO.350/KOL/2013 A.Y. 2009-10 ITO WD-7(3) KOL. VS. M/S SHREE BANKE BEH ARI ENTERPRISES PVT. LTD. PAGE 6 SHOWN AS COST OF THE BUILDING WHICH INCLUDED RS. 12 ,000 AS COST OF LAND. THE ITO, BY HIS ORDER DT. 22ND FEB., 1959, RECOMPUT ED THE DEPRECIATION, EXCLUDING COST OF LAND. THE ASSESSEE APPEALED TO TH E AAC. THE AAC UPHELD THE ORDER OF THE ITO. THE ASSESSEE THEN APPE ALED TO THE TRIBUNAL WHICH ACCEPTED THE APPEAL. IN ACCEPTING TH E APPEAL IT OBSERVED AS FOLLOWS : 'YOU CANNOT CONCEIVE OF A BUILDING WITHOUT THE LAND BENEATH IT. IT IS NOT POSSIBLE TO CONCEIVE OF A BUILDING WITHOUT A BOTTOM . WHAT S. 10(2)(VI) OF THE ACT SAYS IS THAT DEPRECIATION WILL BE ALLOWED O N THE BUILDING. THE WORD 'BUILDING' ITSELF CONNOTES THE LAND UPON WHICH SOMETHING HAS BEEN CONSTRUCTED. IT WAS, THEREFORE, WRONG ON THE PART O F THE AUTHORITIES BELOW TO EXCLUDE THE VALVE OF THE LAND UPON WHICH SOME CO NSTRUCTION WAS MADE. THE TRUE MEANING OF THE WORD BUILDING' MEANS THE LAND UPON WHICH SOME CONSTRUCTION HAS BEEN MADE. THE TWO MUST NECESSARILY GO TOGETHER.' FROM THE ABOVE DETAILS IT IS CLEAR THAT THE FACTS A RE DIFFERENT WITH THE INSTANT CASE. SIMILAR FACTS WERE THERE IN THE CASE OF DCIT VS CAPITAL CAR PRIVATE LIMITED REPORTED. HOWEVER WE FIND THAT ON SIMILAR F ACTS WHERE THE RATES OF THE BUILDING ARE COMPOSITE WITH THE LAND THEN THE HON,B LE TRIBUNAL OF BANGALORE HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF CIT VS. RAJESH EXPORTS LTD. (2006) 9 SOT 28. THE RELEVANT EXTRACT IS REPRODUCED BELOW:- WHERE THE ASSESSEE PURCHASE A BUILDING AND THE PUR CHASE PRICE (AS PER SALE DEED) IS A COMPOSITE ONE (SALE DEED DOES N OT INDICATE THE PRICES OF LAND AND BUILDING SEPARATELY), THEN NO DI STINCTION AT LEAST IN THE CONSIDERATION PAID TO THE VENDOR CAN BE MADE AND TH E ENTIRE AMOUNT IS QUALIFIED FOR DEPRECIATION. HOWEVER, IF THERE IS A CLEAR CUT IDENTITY IN RESPECT OF PRICE PAID TO THE LAND AND BUILDING (I.E. SALE DEED INDICATES PRICE OF LAND AND BUILDING SEPARATELY), THEN DEPREC IATION IS AVAILABLE ONLY ON THE BUILDING. IN THE INSTANT CASE, THE LD. AR HAS NOT BROUGHT PRO DUCED THE DETAILS OF THE PAYMENT OF THE COMPOSITE PAYMENT. BUT HE REQUESTED TO RESTORE THE ISSUE TO THE AO FOR VERIFICATION AND THE LD. DR RAISED NO OB JECTION IF THE SAME IS RESTORED TO THE AO. THEREFORE, IN THE INTEREST OF J USTICE AND FAIR PLAY WE RESTORE THIS MATTER TO THE FILE OF AO WITH THE DIRECTION TH AT IN CASE THE ASSESSEE HAS MADE THE COMPOSITE PAYMENT FOR THE PURPOSE OF AFORE SAID PROPERTIES, THEN THE ITA NO.350/KOL/2013 A.Y. 2009-10 ITO WD-7(3) KOL. VS. M/S SHREE BANKE BEH ARI ENTERPRISES PVT. LTD. PAGE 7 DEPRECIATION AS PER THE ORDER OF LD. CIT(A) SHOULD BE ALLOWED. HENCE, THIS GROUND OF REVENUES APPEAL IS ALLOWED FOR STATISTIC AL PURPOSE. 12. THIRD ISSUE IN THIS APPEAL OF REVENUE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 13. IN THE RESULT, REVENUES APPEAL STANDS PARTLY ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT 26/ 08/2016 SD/- SD/- ( !') ( !') (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP $!% &- 26 / 08 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO WARD-7(3), P-7, CHOWRINGHEE SQUARE, R.NO.17, 5 TH FL, KOL-69 2. /RESPONDENT-M/S SHREE BANKE BEHARI ENTERPRISES PVT. LTD., 37, SHAKESPEARE SARANI, KOLKATA -700 017 3. %%/0 1 1 2 / CONCERNED CIT KOLKATA 4. 1 1 2- / CIT (A) KOLKATA 5. 567 /0, 1 /0 , / DR, ITAT, KOLKATA 6. 7:; <= / GUARD FILE. BY ORDER/ 1! , / % 1 /0 ,