DCIT, New Delhi V. M/s. Chopra Solitairs Pvt. Ltd., New Delhi

ITA 3628/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6596 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 29-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI RAMCHANDRAN
• Assessee Lawyers: VINOD GARG
• Keywords: Valuation report
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH B DELHI ] BEFORE SHRI A. D. JAIN, JM & SHRI K. D. RAN JAN, AM I. T. APPEAL NO. 3474 (DEL) OF 2010. ASSESSMENT YEAR : 2003-04. CHOPRA SOLITAIRES PVT. LTD., ASSTT. COMMISSIONER OF INCOME-TAX, 2440/10, BEADON PURA, KAROL BAGH, VS. C I R C L E : 3 (1), N E W D E L H I 110 005. N E W D E L H I. PAN / GIR NO. AAB CC 8171 E. A N D I. T. APPEAL NO. 3628 (DEL) OF 2010. ASSESSMENT YEAR : 2003-04. ASSTT. COMMISSIONER OF INCOME-TAX, CH OPRA SOLITAIRES PVT. LTD., C I R C L E : 3 (1), VS. 2440/ 10, BEADON PURA, KAROL BAGH, N E W D E L H I. N E W D E L H I 110 005 . PAN / GIR NO. AAB CC 8171 E. ( APPELLANTS ) ( RESPONDENTS ) ASSESSEE BY : SHRI VINOD GARG, C. A.; DEPARTMENT BY : SHRI RAVI RAM CHANDRAN, SR. D.R.; O R D E R. PER K. D. RANJAN, AM : THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE FOR ASSESSMENT YEAR 2003-04 ARISE OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-VI, NEW DELHI. 2. THE COMMON ISSUE INVOLVED IN BOTH THE APPEALS RE LATES TO LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE I. T. ACT, 1961. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE SURVEY UNDER SECTION 133-A OF THE ACT WAS CONDUCTED ON 30/01/200 3. DURING THE COURSE OF SURVEY, EXCESS 2 I. T. APPEAL NO. 3474 (DEL) OF 2010 A N D I. T. APPEAL NO. 3628 (DEL) OF 2010 STOCK OF RS.1,22,07,064/- WAS DETERMINED. THE ASSE SSEE COMPANY SURRENDERED RS. ONE CRORE TOWARDS EXCESS STOCK. IN RETURN OF INCOME FILED UN DER SECTION 139(1) OF THE ACT FOR ASSESSMENT YEAR 2003-04 ON 2-12-2003 THE ASSESSEE DECLARED INC OME OF RS.1,02,40,410/- WHICH INCLUDED A SUM OF RS.90,00,000/- TOWARDS EXCESS OF JEWELLERY F OUND AT THE TIME OF SURVEY AND RS.10,00,000/- TOWARDS FURNITURE AND FIXTURES. THE ASSESSING OFFICER CONCLUDED ASSESSMENT UNDER SECTION 143(3) AT AN INCOME OF RS.1,34,47,474/- INC LUDING THE EXCESS OF STOCK OF RS.22,07,064/-. HOWEVER, ON APPEAL BEFORE THE LD. CIT (APPEALS) THE ADDITION ON ACCOUNT OF EXCESS STOCK WAS RESTRICTED TO RS. 1,00,00,000/- AS ADMITTED BY THE ASSESSEE DURING THE COURSE PROCEEDINGS U/S U/S 133A AND RS.10,00,000/- ON ACCOUNT OF FURNITURE AN D FIXTURES. ON FURTHER APPEAL, THE ITAT UPHELD THE ORDER OF THE LD. CIT (APPEALS). 3. DURING THE COURSE OF PENALTY PROCEEDINGS IT WAS SUBMITTED THAT THE ASSESSEE HAD NOT CONCEALED ANY PARTICULARS OF INCOME NOR HAD FURNISH ED INACCURATE PARTICULARS OF SUCH INCOME. RS.90,00,000/- WAS SURRENDERED BY THE ASSESSEE IN T HE RETURN OF INCOME ON ACCOUNT OF EXCESS STOCK, WHICH WAS VALUED AT COST AND, THEREFORE, NO PENALTY IN RESPECT OF THIS AMOUNT WAS LEVIABLE. HOWEVER, IN ORDER TO KEEP ITS PROMISE, RS.10,00,000 /- WAS SURRENDERED IN THE RETURN OF INCOME TOWARDS FURNITURE AND FIXTURES. THUS, THE SURRENDE R OF RUPEE ONE CRORE, AS MUTUALLY AGREED, HAS BEEN MAINTAINED IN THE RETURN OF INCOME. THE AO, H OWEVER, REJECTED THE CONTENTION OF THE ASSESSEE AND IMPOSED PENALTY ON AMOUNT OF RUPEE ONE CRORE TREATING THE SAME AS CONCEALED INCOME, WHICH WAS SURRENDERED, DURING THE COURSE OF SURVEY. 4. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED TH AT THE PENALTY UNDER SECTION 271(1)(C) WAS NOT IMPOSABLE AS THE ASSESSEE HAS NOT CONCEALED ANY INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE LD. AR OF THE ASSE SSEE SUBMITTED THAT AN ADDITION OF RS.10,00,000/- HAS BEEN CONFIRMED BY THE LD. CIT (A ) DUE TO THE FACT THAT THE ASSESSEE HAS SURRENDERED AN AMOUNT OF RS. ONE CRORE ON ACCOUNT O F STOCK IN TRADE AND DECLARED RS.90 LAKHS AGAINST STOCKS AND RS.10 LAKHS AGAINST FURNITURE AN D FIXTURES. IT WAS ALSO SUBMITTED THAT THE STOCK WAS VALUED AS ON THE DATE OF SURVEY AT MARKET PRICE AND IF THE GP IS REDUCED FROM THE VALUE 3 I. T. APPEAL NO. 3474 (DEL) OF 2010 A N D I. T. APPEAL NO. 3628 (DEL) OF 2010 ARRIVED AT BY THE VALUER, THE DIFFERENCE IN THE STO CK WILL BE LESS THAN RS.90 LAKHS. IT WAS, THEREFORE, SUBMITTED THAT THERE WAS NO CONCEALMENT OF INCOME AT ALL. FURTHER IF THE STOCK WAS INCREASED BY RS.10 LAKHS AS ON 31 ST MARCH, 2003, THE SAME WOULD HAVE BECOME THE OPENIN G STOCK FOR NEXT FINANCIAL YEAR AND THE ASSESSING OFFICER W AS BOUND TO GIVE CREDIT FOR THE SAME IN THE FOLLOWING YEARS STOCK AND, THEREFORE, THERE WOULD NOT BE ANY LOSS OF PROFIT TO THE COMPANY. THE LD. CIT (A) AFTER CONSIDERING THE FACTS OF THE CASE NOTED THAT AT THE TIME OF SURVEY ACTUAL DIFFERENCE IN STOCK WAS FOUND AT RS.1,22,07,064/-. THE ASSESSEE ADMITTED AND SURRENDERED RS. ONE CRORE ON ACCOUNT OF DIFFERENCE IN STOCK. HE RE FERRED TO THE DECISION OF THE ITAT, WHEREIN IT HAS BEEN OBSERVED THAT NO DEDUCTION OF PROFIT CAN B E ALLOWED TO THE ASSESSEE IN THE ABSENCE OF ANY MATERIAL ON RECORD FOR THE COST AT A LOWER PRIC E. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT (A) NO MATERIAL WAS BROUGHT ON R ECORD FOR THE COST AT A LOWER PRICE. ONCE THE ASSESSEE HAD FINALLY ACCEPTED AND SURRENDERED THE I NCOME ON ACCOUNT OF STOCK DIFFERENCE AT RS. ONE CRORE, ON THE BASIS OF ACTUAL VERIFICATION OF T HE STOCK, THE SAME CANNOT BE ALLOWED TO RS.90 LAKHS WITHOUT ANY MATERIAL ON RECORD. THEREFORE, T HE AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT. THE LD. CIT (A) F URTHER HELD THAT THE ASSESSEE HAD FILED VOLUNTARY RETURN OF INCOME WITHIN THE DUE DATE UNDER SECTION 139(1) OF THE ACT, WHICH WAS ACCEPTED WITH THE ADDITION OF RS.10 LAKHS. THEREFORE, PENALTY UN DER SECTION 271(1)(C) OF THE ACT WAS NOT IMPOSABLE IN RESPECT OF RS. ONE CRORE, BUT WAS IMPO SABLE ON AMOUNT OF RS.10 LAKHS. ACCORDINGLY, THE LD. CIT (A) UPHELD THE PENALTY ON AN ADDITION OF RS.10 LAKHS. 5. THE ASSESSEE IS AGGRIEVED BY SUSTENANCE OF PENAL TY ON RS.10 LAKHS WHEREAS THE REVENUE IS AGGRIEVED ON THE GROUND THAT LD. CIT(A) HAS HELD THAT PENALTY WAS NOT IMPOSABLE ON INCOME OF RUPEE. ONE CRORE, SURRENDERED DURING THE COURSE OF SURVEY OPERATIONS. 6. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT AS ON THE DATE OF SURVEY, THE TOTAL STOCK OF RS.3,40,91,033/- WAS FOUND AS AGAINST THE STOCK AS PER BOOKS OF ACCOUNTS AS ON THE DATE OF SURVEY WAS RS.2,18,83,969/-. THUS, THE DIFFEREN CE IN STOCK ON PHYSICAL VERIFICATION AND AS PER BOOKS OF ACCOUNT WAS RS.1,22,07,764/-. THE VALUATI ON OF STOCK AT THE TIME OF SURVEY WAS MADE AT 4 I. T. APPEAL NO. 3474 (DEL) OF 2010 A N D I. T. APPEAL NO. 3628 (DEL) OF 2010 THE SALE PRICE. IF FROM THE EXCESS STOCK FOUND AT R S.1,22,07,764/- G. P. RATE OF 10% WAS APPLIED AND THE EXCESS OF STOCK WOULD HAVE COME AT RS.87,97 ,961/-. AS AGAINST THE EXCESS STOCK OF RS.87,97,961/-, THE ASSESSEE SURRENDERED RS.90 LAKH S. HOWEVER, IN ORDER TO KEEP ITS PROMISE, ANOTHER SURRENDERED OF RS.10 LAKHS WAS MADE ON ACCO UNT OF FURNITURE AND FIXTURES AND THUS TOTAL SURRENDER OF RS.1,00,00,0000/- WAS OFFERED IN THE RETURN OF INCOME. SINCE, THERE WAS NO LOSS OF REVENUE, PENALTY UNDER SECTION 271(1)(C) OF THE ACT WAS NOT IMPOSABLE. HE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V RAMPUR ENGINEERING CO LTD AND OTHERS 309 ITR 143 (DEL). ON THE OTHER HAND, THE L D. SR. DR SUBMITTED THAT HAD NO SURVEY WAS CONDUCTED ON THE ASSESSEE THE SURRENDER OF RUPEE ON E CRORE WOULD NOT HAVE BEEN OFFERED BY THE ASSESSEE. THEREFORE, THE ASSESSEE HAD FURNISHED INA CCURATE PARTICULARS OF INCOME AND HENCE PENALTY U/S 271(1)(C) IN RESPECT OF THE AMOUNT OF R S 1,00,00,000/- WAS IMPOSABLE. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE SURVEY UNDER SECTION 133-A OF THE ACT WAS COND UCTED ON 30 TH JANUARY, 2003. THE RETURN OF INCOME FOR ASSESSMENT YEAR 2003-04 RELEVANT TO SURV EY PROCEEDINGS UNDER SECTION 133-A WAS DUE ON 31 ST OCTOBER, 2004. UNDER SECTION 271(1)(C) OF THE ACT PENALTY IS IMPOSABLE IN THE CASES WHERE THE ASSESSEE HAS CONCEALED INCOME OR HAS FURN ISHED INACCURATE PARTICULARS OF SUCH INCOME IN THE RETURN OF INCOME FILED BY HIM. THE RETURN FO R THE AY 2003-04 WAS NOT DUE AS ON THE DATE OF SURVEY. THE DIFFERENCE IN THE CLOSING STOCK CLAIME D BY THE ASSESSEE AT RS.87,97,961/- WHICH IS INCORPORATED IN THE BOOKS OF ACCOUNT AS UNDER : STOCK AS PER VALUATION REPORT RS.3,40,91,033/- LESS: 10% ON ACCOUNT OF G.P. AS THE VALUATION WAS ON SALE PRICE RS. 34,09,103/- RS.3,06,81,930/- LESS : STOCK AS PER BOOKS OF ACCOUNTS RS.2,18,83 ,969/- DIFFERENCE IN STOCK RS. 87,97,961/- THE ASSESSEE HAD ADMITTED RS.90 LAKHS ON ACCOUNT OF STOCK AND RS.10 LAKHS ON ACCOUNT OF FURNITURE. HOWEVER, IN QUANTUM ADDITION, THE INCO ME ON ACCOUNT OF EXCESS STOCK HAS BEEN 5 I. T. APPEAL NO. 3474 (DEL) OF 2010 A N D I. T. APPEAL NO. 3628 (DEL) OF 2010 ASSESSED AT RS. ONE CRORE AND RS.10 LAKHS ON ACCOUN T OF FURNITURE AND FIXTURE, ADMITTED BY THE ASSESSEE. THEREFORE, PENALTY IN RESPECT OF RS.90 L AKHS, WHICH HAS BEEN ADMITTED IN THE RETURN OF INCOME ON ACCOUNT OF EXCESS STOCK, CANNOT BE IMPOSE D. TO THIS EXTENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) DELETING THE PENALTY ON THE AMOUNT TO THE EXTENT OF RS 90,00,000/- WHICH WAS ADMITTED BY THE ASSESSEE IN I TS RETURN OF INCOME. 7. HOWEVER, THE LD. CIT A) HAS CONFIRMED THE PENALT Y IN RESPECT OF RS.10 LAKHS. ACCORDING TO THE ASSESSEE, THE STOCK WAS VALUED AT THE MARKET PRICE AND, THEREFORE, DEDUCTION AT THE RATE OF 10 PER CENT ON GROSS PROFIT IS TO BE ALLOWED. IT IS IMPORTANT TO REFER TO THE FINDINGS OF LD. CIT(A) IN HIS ORDER FOR QUANTUM APPEAL. HE HAS HELD AS UND ER: IN THE REGARDS TO ADDITION OF RS.1,22,07,064/- ON THE BASIS OF VALUATION OF EXCESS STOCK DURING THE COURSE OF SURVEY OPERATION, THE ONLY POINT OF DISPUTE IS WHETHER THE VALUATION OF THE STOCK ON THE DATE OF S URVEY OPERATION WAS MADE ON SALE PRICE OR ON THE COST PRICE OF THE STOCK ON THA T DAY. ACCORDING TO THE AO THE SAME HAS BEEN DONE ON COST PRICE PLUS MAKING CHARGE S BY THE VALUER. AO HAS BASED HIS ARGUMENT ON THE BASIS OF THE VALUATION FORMS OF THE VALUER. HOWEVER, THE APPELLANT HAS VEHEMENTLY CONTESTED THIS CONTENTION. THE APPELLANT STATED THAT THE ASSESSEE COMPANY HAD CLEARLY STATED DURING THE COUR SE OF SURVEY OPERATION THAT STOCK VALUATION MADE BY THE APPROVED VALUER REPRESE NT THE SALE PRICE AS ON THAT DAY AND NOT COST PRICE AND HENCE, SAME SHOULD BE RE DUCED BY G.P RATE OF 10% THE STOCK VALUATION WAS CORRECTLY TAKEN AS PER THE MARK ET VALUE OF STOCK. IT IS ONLY THE MARKET VALUE WHICH IS IN PRACTICE. THAT THE VALUATI ON OF ARTICLE CAN BE SAID TO BE THE PRICE AT WHICH IT CAN BE MADE AVAILABLE TO CUSTOMER . ACCORDING TO THE APPELLANT THE AO HAD DECIDED THE CASE ON PRESUMPTION AND PERSONAL OPINION AND RATHER ON THE FACTS PREVAILING AT THE TIME OF SURVEY. ON PERUSAL OF THE STATEMENT MADE AT THE TIME OF SURVEY IT IS APPARENT TL1AT THE ASSESSEE HAD CLE ARLY STATED ABOUT SALE PRICE AND ASKED FOR REDUCTION OF 10% FOR G.P. THE SURVEY TEA M HAS NOT CONTROVERTED THE CONTENTION OF THE ASSESSEE AT THE TIME OF SURVEY FR OM THE FACTS AND .CIRCUMSTANCES NARRATED ABOVE, I AM OF THE CONSIDERED OPINION THAT THE VALUE OF THE STOCK ON THE DATE OF SURVEY WAS DONE ON SALE PRICE AS CONTENDED BY THE ASSESSEE. THERE IS NO 6 I. T. APPEAL NO. 3474 (DEL) OF 2010 A N D I. T. APPEAL NO. 3628 (DEL) OF 2010 OTHER EVIDENCE OTHER THAN THE STATEMENT MADE DURING THE SURVEY OPERATION. HOWEVER, THE ASSESSEE ITSELF HAD VOLUNTARILY DISCLO SED RS.1 CRORE ON DIFFERENCE OF CLOSING STOCK, THEREFORE, THE SAME SHOULD BE TAKEN AS TOTAL DISCLOSURE ON STOCK. THE ASSESSEE CONTENTION THAT ONLY RS.90 LAKHS WAS DISCL OSED ON STOCK IS CONTRARY TO THE STATEMENT MADE AT THE TIME OF SURVEY. THEREFORE, TH E DISCLOSURE ON DIFFERENCE OF STOCK SHOULD BE TREATED AS RS.1 CRORE. THUS TOTAL A DDITION OF RS.1 CRORE + RS.10 LAKHS HAS BEEN SUSTAINED AND THE APPELLANT GET RELI EF ON THE BALANCE AMOUNT. THEREFORE THE APPEAL OF THE APPELLANT IN THIS GROUN D IS PARTLY ALLOWED. FROM THE ORDER OF CIT (A) IT IS CLEAR THAT HAS RECO RDED A FINDING OF FACT THAT THE VALUATION OF THE STOCK ON THE DATE OF SURVEY WAS DONE ON SALE PRICE AS CONTENDED BY THE ASSESSEE. THERE IS NO OTHER EVIDENCE OTHER THAN THE STATEMENT MADE DURING THE SURVEY OPERATION. HOWEVER, SINCE THE ASSESSEE ITSELF HAD VOLUNTARILY DISCLOSED RS.1 CROR E ON DIFFERENCE OF CLOSING STOCK, HE UPHELD THE ADDITION OF RUPEE ONE CRORE ON ACCOUNT OF DISCLOSUR E ON STOCK. FROM THE VALUATION REPORT OF DEPARTMENTAL VALUER ALSO WE FIND THAT HE HAD VALUED THE STOCK AT MARKET PRICE WHICH EVIDENT FROM THE VALUATION REPORT ITSELF. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HENCE STOCK AS PER BOOKS OF ACCOUNT WILL BE VALUED EITHER AT MARKET PRICE OR COST PRICE WHICHEVER IS LOWER. THEREFORE, THERE HAS TO BE SOME DIFFERENC E IN VALUATION MADE BY FOLLOWING TWO DIFFERENT RATES I.E. MARKET PRICE OR COST PRICE. WHEN THERE I S A CLEAR CUT FINDING OF LD. CIT(A) THAT THE STOCK WAS VALUED AT THE MARKET PRICE AT WHICH IT WAS SOLD TO CUSTOMERS THE EXPLANATION OFFERED BY THE ASSESSEE THAT CREDIT FOR GROSS PROFIT EARNED @ 10% SHOULD HAVE BEEN ALLOWED, IS BONAFIDE. HENCE EXPLANATION 1 TO SECTION 271(1)(C) IS NOT ATTRACTED IN THE CASE OF THE ASSESSEE. IT A DIFFERENT THING THAT THE ADDITION OF RS 10,00,000/- HAS BEEN SUSTAI NED UPTO ITAT BUT THE SAME CANNOT FORM THE BASIS OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. IT IS NOT CONCLUSIVE EVIDENCE LEADING TO AUTOMATIC LEVY OF THE PENALTY. THEREFORE, IN OUR C ONSIDERED OPINION PENALTY U/S 271(1)(C) IS NOT IMPOSABLE IN RESPECT OF ADDITION OF RS 10,00,000/-. WE ORDER ACCORDINGLY. 7 I. T. APPEAL NO. 3474 (DEL) OF 2010 A N D I. T. APPEAL NO. 3628 (DEL) OF 2010 12. SINCE WE HAVE DELETED THE PENALTY U/S 271(1)( C) ON ADDITION OF RS 10,00,000/- AND CONFIRMED THE ORDER OF CIT(A) ON DELETION OF PENALT Y ON AMOUNT OF RS 90,00,000/-, THE APPEAL FILED BY THE REVENUE HAS TO BE DISMISSED. WE ORDER ACCORDINGLY. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 10 TH DECEMBER, 2010. SD/- SD/-. [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10 TH DECEMBER, 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.