M/s. Hemant Plastic Industries, New Delhi V. ACIT, New Delhi

ITA 3560/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53450 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-11-2011
• Assessment Year: 1990-1991
• Appeal Filed On: 23-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: VED JAIN MS RANO JAIN; VENKETESH CHOUR ASIA CAS
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT & SHRI C.L. SETHI, JUDICIAL MEMBER ITA NO.3560/DEL/2010 ASSESSMENT YEAR: 1990-1991 HEMANT PLASTIC INDUSTRIES, VS. ACIT, BN-2, SHALIMAR BAGH, CIRCLE 27(1), NEW DELHI. NEW DELHI. AAAFH1412K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VED JAIN, MS. RANO JAIN & S H. VENKETESH CHOURASIA, CAS RESPONDENT BY : SH. SALIL MISHRA, SR. DR ORDER PER C.L. SETHI, J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 14.05.2010 PASSED BY THE LD. CIT(A) IN THE MATTER O F AN ASSESSMENT MADE BY THE AO U/S 254/250/143(3) OF THE INCOME TAX ACT, 1961 FOR THE A.Y. 1990-91. 2. THE FIRST ISSUE RAISED IN THIS APPEAL BY THE ASS ESSEE IS AGAINST LD. CIT(A)S ORDER IN UPHOLDING THE ADDITIO N OF RS. 3,20,880/- ON ACCOUNT OF APPLYING GROSS PROFIT RATE AT 5% ON ITA NO. 3560/D/10 2 THE SALES IN THE MONTH OF MARCH, 1990 BY PREPARING A PROFIT AND LOSS ACCOUNT AND BY TAKING FIGURES ARBITRARILY. 3. THE ASSESSEE DEALS IN IMPORTED PLASTIC POWDERS, PVC RESIN, ETC.. THE BUSINESS PREMISES OF THE ASSESSEE WERE SURVEYED ON 13.03.1990. THE ASSESSEE SURRENDERED R S. 5 LAKHS (RS. 2.10 ON ACCOUNT OF EXCESS CASH FOUND AND RS. 2.90 FOR EXCESS STOCK) DURING THE SURVEY OPERATIONS. DU RING THE RELEVANT YEAR, THE ASSESSEE HAD TAKEN BANK LOANS/AD VANCES AGAINST PLEDGE OF DOCUMENTS OF IMPORTED GOODS IN TR ANSIT, PLEDGE OF STOCK AND HYPOTHECATION OF STOCK. THE RE CORDS MAINTAINED IN RESPECT OF PLEDGE OF DOCUMENTS SHOWED THAT THE ASSESSEE HAD PLACED DOCUMENTS SHOWING GOODS IN TRAN SIT WORTH RS. 44,04,028/- AS ON 19.02.1990 AND THE NEXT ENTRY IN THIS BANK ACCOUNT WAS ON 02.05.1990 I.E. AFTER THE CLOSE OF THE FINANCIAL YEAR. THIS SHOWED THAT THE GOODS PLEDGED THROUGH DOCUMENTS WERE RS. 44,04,028/- AS AGAINST RS. 36,81 ,314/- SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AS O N 31.03.1990. THE DIFFERENCE THEREOF, RS. 7,22,634/- , WAS ASSESSED AS INCOME AS THE SAME WAS NOT EXPLAINED PR OPERLY BY THE ASSESSEE. SIMILARLY, THE EXAMINATION OF DOC UMENTS SUBMITTED TO BANK IN RESPECT OF STOCK UNDER HYPOTHE CATION ITA NO. 3560/D/10 3 ACCOUNT SHOWED STOCK OF RS. 49,85,414/- AS AGAINST STOCK OF RS. 45,84,130/- SHOWN IN THE BOOKS OF ACCOUNTS. TH E DIFFERENCE, AFTER DEDUCTING GROSS PROFIT RATE OF 5% , WORKED OUT TO RS. 3,20,880/- WAS ASSESSED AS THE INCOME AS THE SAME WAS NOT EXPLAINED PROPERLY BY THE ASSESSEE. THE ST OCK PLEDGED ON 02.03.1990 WAS RS. 38,16,663/-. OUT OF THIS PLEDGED STOCK, THE GOODS WORTH RS. 29,14,068/- WERE RELEASED ON OR BEFORE 31.03.1990. THEREFORE, THE ACTUAL PLE DGED STOCK OF RS. 9,02,595/- WAS NOT INCLUDED IN THE VALUE OF CLOSING STOCK SHOWN IN THE BOOKS OF ACCOUNT. THE AO, THEREFORE, ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THUS, IN THE O RIGINAL ASSESSMENT U/S 143(3) DT. 30.03.1993, THE AO MADE T HE FOLLOWING ADDITIONS ON ACCOUNT OF PURCHASES OF GOOD S OUTSIDE THE BOOKS OF ACCOUNTS: I) PLEDGE OF DOCUMENTS (GOODS IN TRANSIT) RS. 7,22 ,634/- II) ACTUAL PLEDGE OF GOODS RS. 9,02,595/- III) DIFFERENCE IN STOCK UNDER HYPOTHECATIONS RS. 3 ,20,880 /- TOTAL RS.19,46,109 /- 3.1 ON APPEAL (AGAINST THE ORIGINAL ASSESSMENT ORDE R), THE SAID ADDITIONS WERE RESTRICTED TO RS. 17,46,109/- B Y THE CIT(A). AGGRIEVED, THE ASSESSEE PREFERRED APPEAL B EFORE THE HONBLE ITAT, WHO RESTORED THE MATTER TO THE FILE O F THE AO FOR RE-EXAMINATION AND VERIFICATION. ITA NO. 3560/D/10 4 3.2 THE SET ASIDE ASSESSMENT WAS COMPLETED VIDE ORD ER DATED 31.03.2003. THIS SET ASIDE ASSESSMENT ORDER DID NOT CONTAIN ABOVE MENTIONED ADDITIONS EXCEPT RS. 9,02,5 95/-. ON APPEAL, AGAIN, THE HONBLE ITAT RESTORED THE MAT TER TO THE FILE OF THE AO FOR RE-EXAMINATION AND VERIFICATION. 3.3 THE AO, VIDE THE IMPUGNED ORDER, MADE THE FOLLO WING ADDITIONS ON ACCOUNT OF STOCK OUTSIDE THE BOOKS: I) PLEDGE OF DOCUMENTS (GOODS IN TRANSIT) RS. 7,22 ,634/- II) ACTUAL PLEDGE OF GOODS RS. 3,04,473/- III) DIFFERENCE IN STOCK UNDER HYPOTHECATION RS. 3 ,20,880 /- TOTAL RS.13,47,987 /- 4. AGGRIEVED WITH THE AOS ORDER, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS CONFIRMED THE AOS ACTION IN MAKING THE ADDITION OF RS. 3,04,473/- AND RS. 3,20,880/- ON ACCOUNT OF DIFFERENCE IN ACTUAL PLEDG E OF GOODS AND DIFFERENCE IN STOCK UNDER HYPOTHECATION. 5. REGARDING THE ADDITION OF RS. 3,20,880/- IT HAS BEEN STATED BY THE ASSESSING OFFICER THAT ON EXAMINATION OF STOCK UNDER HYPOTHECATION AS ON 01.02.1990, IT WAS FOUND THAT THE OPENING STOCK WAS WORTH OF RS. 56,83,064/-. AFTER ADJUSTING THE PURCHASES AND SALES MADE DURING THE MONTH OF FE BRUARY ITA NO. 3560/D/10 5 AND GIVING A DEDUCTION OF 5% ON ACCOUNT OF GROSS PR OFIT ON SALES, THE ASSESSING OFFICER DETERMINED THE VALUE O F STOCK AT THE END OF YEAR AT RS. 49,85,414/- AS AGAINST THE V ALUE OF STOCK OF RS. 45,84,130/- DECLARED BY THE ASSESSEE T O THE BANK. THUS, THE DIFFERENCE OF RS. 3,20,880/- WAS A DDED TO THE INCOME OF THE ASSESSEE. 6. ON AN APPEAL, LD. CIT(A) CONFIRMED THE AOS ACTI ON. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 8. IN THIS CASE, THE ASSESSING OFFICER HAS WORKED O UT THE DIFFERENCE OF RS. 3,20,880/- BY ASSUMING THAT THE G OODS SOLD DURING THE MONTH OF FEBRUARY, 1990 WERE SOLD AT A G ROSS PROFIT MARGIN OF 5%. HE HAS NOT EXAMINED THE ITEMWISE PUR CHASES AND SALES MADE DURING THE MONTH OF FEBRUARY,1990 SO AS TO WORKED OUT THE ACTUAL STOCK TO BE VALUED AT COST OF MARKET PRICE WHICHEVER IS LOWER. IT IS NOT UNIFORM THAT A LL THE GOODS SOLD DURING THE MONTH OF FEBRUARY, 1990 WOULD HAVE A MARGIN OF PROFIT OF 5% THE ASSESSEE HAS EXPLAINED THE CERT AIN GOODS WERE EVEN SOLD AT A LOSS DURING THE MONTH OF FEBRUA RY, 1990. THE PROFIT RATE OF 5% WAS OVER-ALL RATE OF PROFIT O F WHOLE OF THE ITA NO. 3560/D/10 6 YEAR, WHICH IS NOT CONFINED UNIFORMALY TO EVERY SAL ES MADE IN EACH MONTH. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE A SSESSEE WITH REFERENCE TO THE PURCHASES AND SALES RECORDED IN THE MONTH OF FEBRUARY, 1990. THE DIFFERENCE OF RS. 3,2 0,880/- HAS BEEN DETERMINED BY THE AO PURELY ON THE BASIS O F HIS OWN CALCULATION INSTEAD OF EXAMINING AND VERIFYING THE ACTUAL PURCHASES AND SALES MADE DURING THE MONTH OF FEBRUA RY, 1990, AND THE ACTUAL PROFIT EARNED BY THE ASSESSEE DURING THAT MONTH. THE CIT(A) HAS ALSO CONFIRMED THE ADDITION ON THE BASIS OF CALCULATION MADE BY THE AO WITHOUT VERIFYI NG THE AMOUNT OF ACTUAL PURCHASES AND SALES MADE DURING TH E MONTH OF FEBRUARY, 1990. WE, THEREFORE, FIND NO BASIS TO MAKE THIS ADDITION OF RS. 3,20,880/- ON ACCOUNT OF DIFFERENCE IN THE VALUE OF STOCK UNDER HYPOTHECATION. 9. WITH REGARD TO THE ADDITION OF RS. 3,04,473/- ON ACCOUNT OF DIFFERENCE IN STOCK AS ON 31.03.1990 PLEDGE WITH THE BANK,IT HAS BEEN STATED BY THE AO THAT STOCK OF 315 KGS OF DPB AND STOCK OF LDPE LOCAL SHOWN IN THE CLOSING STOCK AS O N 31.03.1990 WERE NOT AVAILABLE WITH THE ASSESSEE AT THE TIME GOODS WERE PLEDGED AS ON 02.03.1990 AND THUS, THE S AID ITA NO. 3560/D/10 7 STOCK WORTH RS. 3,04,473/- WAS NOT RELATED TO THE P LEDGE OF GOODS ACCOUNT. THE ASSESSING OFFICER, THEREFORE, T REATING THE CLOSING STOCK OF RS. 3,04,473/- ON ACCOUNT OF DPB A ND LDPE GOODS AS UNEXPLAINED AND ADDED THE SAME TO THE TOTA L INCOME OF THE ASSESSEE UNDER THE HEAD UNEXPLAINED INVESTM ENT IN PURCHASE OF GOODS. 10. ON AN APPEAL, THE LD. CIT(A) CONFIRMED THE AOS ACTION BY OBSERVING THAT THE ASSESSEE HAS FAILED TO ESTABL ISH BEYOND DOUBT THAT THE STOCK OF RS. 3,04,473/- WAS ACTUALLY A PART OF THE PLEDGE STOCK AS ON 02.03.1990 WITH THE HELP OF DOCUMENTARY EVIDENCES/PURCHASE INVOICES. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 12. THE COPY OF REGISTER OF STOCK MAINTAINED BY THE DENA BANK IN RESPECT OF THE GOODS PLEDGED WITH THE BANK HAS BEEN EXAMINED BY US. THE GOODS PLEDGED AS ON 02.03.1990 WERE WORTH RS. 38,16,663/- AS SO FOUND BY THE AO ALSO. ON GOING THROUGH THE STOCK RECORD AND THE DETAILS OF EACH IT EM OF STOCK PLEDGED AS ON 02.03.1990, IT IS CLEAR TO US THAT EA CH OF THE ITEMS WHICH WERE PLEDGED ON 02.03.1990 HAVE BEEN DU LY ITA NO. 3560/D/10 8 ACCOUNTED FOR IN SALES MADE THEREAFTER ON WITHDRAWA LS OF THE STOCK FROM BANK FROM TIME TO TIME. IN THIS REG ARD, THE RELEVANT SALE INVOICES UNDER WHICH EACH OF THE ITEM S, WHICH WERE PLEDGED ON 02.03.1990, HAVE BEEN SOLD HAVE ALS O BEEN PRODUCED BEFORE US. THE SALES OF ITEMS HAVE BEEN R ECORDED IN THE BOOKS AND TAKEN INTO ACCOUNT WHILE DETERMINI NG INCOME OF THE ASSESSEE. IT IS ALSO NOT THE CASE WHERE THE STOCKS SHOWN AS ON 31.03.1990 WERE PROCURED OUTSIDE THE BO OKS OF THE ASSESSEE. THE ASSESSEE HAS VALUED THE STOCK AS ON 31.03.1990 ON THE BASIS OF RATE OF COST OF GOODS SH OWN IN THE INVOICES DATED 30.03.1990 AND 31.03.1990 BY APPLYIN G FIFO METHOD. WE, THEREFORE, FIND NO REASON TO SUSTAIN T HE ADDITION OF RS. 304473/- ON ACCOUNT OF ALLEGED DISCREPANCY I N STOCK, WHICH IS ACCORDINGLY DELETED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THIS DECISION IS PRONOUNCED ON 26 TH DECEMBER, 2011. SD/- SD/- (G.D. AGRAWAL) (C.L. S ETHI) VICE PRESIDENT JUDICIA L MEMBER DATED: 26.12.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT ITA NO. 3560/D/10 9 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR ITA NO. 3560/D/10 10