ITO Ward 24 (1), V. Deepika Gupta Prop. D_La Mode,

ITA 3692/DEL/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7005 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 21-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S REHMAN
• Keywords: Business income
• Section: 133A

Judgement Text

7 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE HON'BLE SENIOR VICE PRESIDENT, SHRI R.P. GARG AND HON'BLE J UDICIAL MEMBER, SHRI A.D. JAIN ITA NO. 3 692 /DEL./200 7 (ASSESSMENT YEAR : 200 3 - 0 4 ) ITO, WARD 24 (1), VS. SMT. DEEPIKA GUPTA, NEW DELHI. PROP. M/S. D - LA MODE, 20/2, KRISHNA NAGAR, SAFDARJUNG ENCLAVE, NEW DELHI. ( PAN : AEQPG1915C ) (APPELLANT) (RESPONDENT) ASSESS EE BY : SHRI G.S. GREWAL , CA REVENUE BY : SHRI S. REHMAN, DR O R D E R GARG, SENIOR VP : TH IS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT (APPEALS) FOR ASSESSMENT YEAR 200 3 - 0 4 . THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL : (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.1,94,480/ - MADE BY THE A.O. BY ESTIMATING GROSS PROFIT RATE OF 16% FOR THE POST SURVEY PERIOD. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THE FACT THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE IN SUPPORT OF SIGNIFICANT FALL IN G.P. RATE FROM 17.98% IN PRE - SURVEY PERIOD TO NEGATIVE G.P. IN POST SURVEY PERIOD. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS AS THE BURDEN WAS ON THE ASSESSEE TO GIVE REASONS FOR THE FALL IN THE G.P. IN THE POST SURVEY PERIOD. 2 ITA NO. 3692 /DEL./200 7 (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN APPRECIATING THE FACT THAT ESTIMATION OF GP AT 16% F OR THE POST SURVEY PERIOD WAS REASONABLE IN VIEW OF THE ASSESSEE SHOWING GP AT 17.98% IN THE PRE - SURVEY PERIOD. (V) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO TAX THE EXCESS STOCK OF RS.10,3 0,000/ - AS BUSINESS INCOME IN PLACE OF INCOME FROM OTHER SOURCES. (VI) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT INVESTMENT IN EXCESS STOCK FOUND DURING SURVEY WAS PART OF BUSINESS WITHOUT ANY SUP PORTING EVIDENCE BEING FILED BY THE ASSESSEE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND STITCHING OF CLOTHES AND READYMADE GARMENTS. THERE WAS A SURVEY ACTION UNDER SECTION 133A ON 14.12.2002 WHEREIN SHE OFFERED A SUM OF RS.10,30,000/ - A ND PAID TAX. SHE FILED THE RETURN FOR ASSESSMENT YEAR 2003 - 04 ON 3.8.2004 DECLARING THE INCOME OF RS.1,78,000/ - . THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH TRADING ACCOUNT FOR THE PRE - SURVEY PERIOD AND POST - SURVEY PERIOD AND FROM THE DETAIL S FILED BY THE ASSESSEE, THE ASSESSEE SHOWED THAT THE GP RATE HAD DECLINED SIGNIFICANTLY RATHER A NEGATIVE G.P. RATE WAS SHOWN DECLARING GROSS LOSS OF RS.64,562/ - FOR THE POST SURVEY PERIOD. THE ASSESSING OFFICER DID NOT ACCEPT SUCH TRADING RESULT AND OBS ERVED THAT IT WAS DONE MERELY WITH THE INTENTION OF SUPPRESSING THE ADDITIONAL INCOME DISCLOSED AT THE TIME OF SURVEY. SINCE THE ASSESSEE COULD NOT SUBSTANTIVE THE DRASTIC FALL IN G.P. RATE WITH ANY MATERIAL EVIDENCE, CONSIDERING THE FACT THAT THE G.P. CO ULD NOT BE CONSISTENCE FOR THE ENTIRE PERIOD, THE G.P. RATE AT 16% WAS ESTIMATED BY THE ASSESSING OFFICER FOR THE POST SURVEY PERIOD AND ON THE BASIS OF THE SAME, THE GROSS PROFIT WAS WORKED OUT TO RS.1,94,480/ - . 3 ITA NO. 3692 /DEL./200 7 3. THE CIT (APPEALS) DELETED THE ADDITIO N BY OBSERVING AT PAGES 3 & 4 OF HIS ORDER AS UNDER : NOW THE CONTENTION OF THE APPELLANT IS FOUND TO BE CORRECT. SO FAR AS THE TAXABILITY OF EXCESS STOCK FOUND AT THE TIME OF SURVEY IS CONCERNED, IT IS NOT IN DISPUTE. ADDITION OF RS.1,94,480/ - HAS BEEN MADE BY THE ASSESSING OFFICER ONLY FOR THE REASON THAT FOR POST SURVEY PERIOD THERE WAS NEGATIVE PROFIT (GROSS LOSS OF RS.64,562/ - ). NOW AS A RESULT OF SURVEY WHATEVER EXCESS STOCK WAS KEPT ASIDE AND NOT RECORDED IN THE BOOKS OF ACCOUNTS EARLIER WAS ALSO TAKEN INTO THE BOOKS OF ACCOUNTS AND TAX ON THE SAME WAS ALSO PAID, THEREFORE WHATEVER SHORT COMING IN MAINTENANCE OF BOOKS OF ACCOUNTS WAS THERE MADE WAS GOOD WHEN THE FINAL ACCOUNTS WERE PREPARED BASED ON WHICH THE RETURN WAS FILED. BOOKS OF ACCOUNTS W ERE SUBMITTED WITH VOUCHERS THEREFORE ALL THE PURCHASES AND SALES AND EXPENSES INCURRED FOR PRE - SURVEY PERIOD AS WELL AS POST SURVEY PERIOD WERE AVAILABLE BEFORE THE ASSESSING OFFICER FOR VERIFICATION. SINCE THE BOOKS OF ACCOUNTS WERE NOT REJECTED, THERE W AS NO REASON TO DISREGARD THE BOOK RESULTS EVEN IN RESPECT OF THE TRADE MADE IN THE POST SURVEY PERIOD. THE ASSESSING OFFICER'S OBSERVATION THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE DRASTIC FALL IN G.P.RATE WITH ANY MATERIAL EVIDENCE, DOES NOT APPEAR TO BE CORRECT BECAUSE ALL THE EVIDENCES IN THE FORM OF VOUCHERS WERE AVAILABLE WITH HIM. BEFORE COMING TO THE CONCLUSION THAT THE DECLARATION OF GROSS LOSS FOR THE EAST SURVEY PERIOD WAS WITH AN INTENTION OF SUPPRESSING THE ADDITIONAL INCOME DETECTED AT THE TIME OF SURVEY, IT WAS INCUMBENT UPON THE ASSESSING OFFICER TO BRING OUT ON RECORD THAT FOR THE POST SURVEY PERIOD THERE WAS SUPPRESSION OF SALES OR THE SALES REPORTED WERE FALSE OR BOGUS OR THERE WAS INFLATION IN EXPENSES. WITHOUT DOING SO MERELY BY GENE RAL OBSERVATIONS THE BOOK RESULTS EVEN FOR THE POST SURVEY PERIOD COULD NOT BE REJECTED. FURTHER THE ASSESSING OFFICER HAS NOT BROUGHT OUT AS TO HOW AND WHY THE G.P.RATE OF 16% COULD BE REASONABLE FOR THE POST SURVEY PERIOD. UNDER SUCH FACT AND CIRCUMSTANC ES OF THE CASE ADDITION MADE BY THE ASSESSING OFFICER WAS NOT IN ACCORDANCE WITH LAW AND THE SAME IS THEREFORE HEREBY DELETED. 2. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN QUESTION IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE IN THE CASE OF MRS. BINA GUPTA IN ITA NO.4426/DEL/2007 FOR THE ASSESSMENT YEAR 2003 - 04, WHEREIN 4 ITA NO. 3692 /DEL./200 7 ONE OF US (SENIOR VICE PRESIDENT) WAS A PARTY . IN SUPPORT, THE LEARNED COUNSEL ALSO FILED A COPY OF THE AFORESAID ORDER DATED 6 .3.2009. T HE LEARNED COUNSEL SUBMITTED THAT FACTS AND CIRCUMSTANCES OF THE CASE ARE SAME TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND, THEREFORE, THE ORDER OF THE CIT (APPEALS) SHOULD BE UPHELD. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 4. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL CONTENTIONS. THE ITAT IN THE AFORESAID CASE OF MRS.BINA GUPTA FOR ASSESSMENT YEAR 2002 - 03 (SUPRA) HAS DECIDED THE ISSUE VIDE PARA 4 AGAINST THE REVENUE AS UNDER : 4. WE HAVE HEARD THE PARTIES AND CONSIDERE D THE RIVAL SUBMISSIONS. THE SALES MADE BY THE ASSESSEE AND THE AMOUNTS SHOWN IN THE STOCK WERE SUPPORTED BY THE VOUCHERS AND NO MATERIAL TO DOUBT THESE FIGURES IS POINTED OUT BY THE ASSESSING OFFICER. THE ASSESSEE HAD TO MAKE SALES IN POST - SURVEY PERIOD AT A LOWER RATE BECAUSE OF THE CHEAPER QUALITY OF STOCK FOUND AT THE TIME OF SURVEY. IN ANY CASE, OVERALL GROSS PROFIT RATE DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AT 15.53% WAS MUCH HIGHER THAN THE RATES IN THE EARLIER YEAR, I.E. 11.23 % FOR ASSESSMENT YEAR 2002 - 03 AND 11.8% FOR ASSESSMENT YEAR 2001 - 02. IN THESE CIRCUMSTANCES, IN OUR OPINION, THERE WAS NO JUSTIFICATION FOR MAKING ANY ADDITION AND THE CIT (APPEALS) WAS JUSTIFIED IN DELETING THE SAME. ACCORDINGLY, THE ORDER OF THE CIT (A PPEALS) IS UPHELD ON THIS GROUND. FACTS AND CIRCUMSTANCES BEING SIMILAR, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (APPEALS) ON THIS GROUND WHICH IS ACCORDINGLY UPHELD. 5 . IN THE OTHER GROUND OF APPEAL, THE REVENUE HAS CHALLENGE D THAT THE CIT (APPEALS) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TAX THE EXCESS STOCK OF RS.10,30,000/ - AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER OBSERVED THAT THE EXCESS STOCK FOUND AT THE TIME OF SURVEY WAS ADMITTED BY THE ASSESSEE IN HER STATEMENT RECORDED AND IT WAS NOT SATISFACTORILY EXPLAINABLE. IT WAS FOR THIS REASON THAT THE ASSESSEE OFFERED THE SAME AS ADDITIONAL 5 ITA NO. 3692 /DEL./200 7 INCOME FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER THEREFORE HELD THAT UNEXPLA INED INVESTMENT TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. THE ASSESSEE CAME IN APPEAL BEFORE THE CIT (APPEALS) AND I T WAS SUBMITTED BY THE COUNSEL OF THE ASSESSEE THAT THE ASSESSEE HAD AGREED TO SURRENDER THE INVESTMENT IN EXCESS STOCK FOU ND AT THE TIME OF SURVEY TO BUY PEACE OF MIND AND TO AVOID ANY FURTHER LITIGATION AND ON THE ASSURANCE BY THE DEPARTMENT THAT AFTER PAYMENT OF INCOME TAX ON THE SURRENDERED AMOUNT NO FURTHER ADVERSE ACTION WOULD BE INITIATED AGAINST THE ASSESSEE . IT WAS AL SO CONTENDED THAT THE SURRENDER MADE WAS FOR EXCESS STOCK AND THEREFORE THE SAME WAS REFLECTED BY THE ASSESSEE IN THE P & L ACCOUNT AND EXPLANATORY NOTE WAS ALSO APPENDED WITH THE NOTES ON ACCOUNTS ATTACHED TO THE P & L ACCOUNT SUBMITTED ALONG WITH THE RET URN. IT WAS EXPLAINED THAT WHATEVER STOCK WAS FOUND AS EXCESS AT THE TIME OF SURVEY WAS GENERATED DURING THE COURSE OF BUSINESS OVER A PERIOD OF TIME AND COULD NOT BE TREATED AS ANY THING ELSE THAN PART OF BUSINESS. THE SALE OF SUCH STOCK IN THE POST SURVE Y PERIOD WAS DULY REFLECTED IN THE P & L ACCOUNT AND THE ASSESSING OFFICER WAS NOT IN A POSITION TO BRING ON RECORD ANY MATERIAL TO SUBSTANTIATE THAT THE INCOME INVESTED IN UNEXPLAINED STOCK WAS INCOME FROM OTHER SOURCES AND NOT FROM BUSINESS. 7. THE LEAR NED CIT (APPEALS) WHILE CONSIDERING THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE HAS DIRECTED TO TAX THE EXCESS STOCK AS BUSINESS INCOME BY OBSERVING AS UNDER AS UNDER : THE ASSESSING OFFICER HAS OBSERVED IN HIS ASSESSMENT ORDER THAT THE EXCESS STOCK WAS FOUND AS A RESULT OF SURVEY UNDER SECTION 133A. THIS STOCK WAS PART OF THE SAME BUSINESS ONLY AND INVESTMENT THEREIN WAS OUT OF UNDISCLOSED INCOME OF THE BUSINESS ITSELF. THE ASSESSEE DID NOT HAVE OTHER SOURCE OF INCOME AND THEREFORE INVESTMENT IN EXCESS STOCK WAS OUT OF THE INCOME GENERATED IN THE PAST FROM THE SAME BUSINESS ONLY AND IT COULD NOT HAVE BEEN TREATED AS INCOME FROM OTHER SOURCES. AS A RESULT OF SURVEY NO EVIDENCE WAS UNEARTHED WHICH COULD ESTABLISH THAT THE INVESTMENT IN STOCK WA S OUT OF INCOME FROM OTHER 6 ITA NO. 3692 /DEL./200 7 SOURCES. UNDER SUCH CIRCUMSTANCES THE INVESTMENT IN EXCESS STOCK WAS NOTHING BUT OUT OF BUSINESS INCOME ONLY WHICH WAS HITHERTO NOT DISCLOSED TO THE DEPARTMENT AND THEREFORE THE SOURCES. BECAUSE OF THIS REASON ONLY THIS AMOUNT WA S CREDITED BY THE APPELLANT HERSELF TO HER TRADING AND PROFIT AND LOSS ACCOUNT AND TAX WAS PAID ON THE SAME. WITHOUT BRINGING OUT ANY EVIDENCE CONTRARY TO THIS, THE INVESTMENT IN EXCESS STOCK COULD NOT HAVE BEEN TREATED AS INCOME FROM OTHER SOURCES. THE AS SESSING OFFICER IS, THEREFORE, DIRECTED TO TAX THE EXCESS STOCK OF RS.10,30,000/ - AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. 8. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL CONTENTIONS. THE ADDITION FOR EXCESS STOCK IS MADE BECAUSE T HE ASSESSEE DID NOT DISCLOSE THE SOURCES TO THE ACQUISITION THEREOF. THE ADDITION HAS TO BE ONLY UNDER THE HEAD OTHER SOURCES AND CANNOT BE MADE UNDER THE BUSINESS. IT WAS NOT BUSINESS INCOME BUT INVESTMENT IN STOCK FROM OUT OF UNDISCLOSED SOURCES AN D, THEREFORE, THE INCOME FROM OTHER SOURCE S . WE ACCORDINGLY REVERSE THE ORDER OF CIT (APPEALS) AND RESTORE THAT OF ASSESSING OFFICER ON THIS ISSUE. 9. IN THE RESULT, THE AP PEAL OF THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON THIS 9 TH DAY OF APRIL 200 9 . ( A.D. JAIN ) (R.P. GARG) JUDICIAL MEMBER SENIOR VICE PRESIDENT DATED THE 9 TH DAY OF APRIL 2009 / TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) - XXI II , NEW DELHI . 5.CIT(ITAT), NEW DEL HI. AR, ITAT NEW DELHI.