DCIT-4, Kanpur V. M/s Shiv Gramodyog Sansthan, Kanpur

ITA 393/LKW/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83278 (ITAT-LUCKNOW)
• Duration Of Justice: 3 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P K KAPOOR
• Section: 40A(3); 32; 132

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.393/LKW/2011 ASSESSMENT YEAR:2007 - 08 DY.C.I.T. - 4, KANPUR. VS. M/S SHIV GRAMODYOG SANSTHAN, 117/C - 8/100, SARVODAYA NAGAR, KANPUR. PAN:AAAAS3063J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AMIT NIGAM, D. R. RESPONDENT BY SHRI P. K. KAPOOR, C.A. DATE OF HEARING 22/07/2014 DATE OF PRONOUNCEMENT 0 9 /09/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - II, KANPUR DATED 23/03/2011 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LD. CIT(APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACT IN REDUCING THE GP RATE FROM 9% TO 5% IGNORING THE FACT THAT ASSESSEE HIMSELF SHOWN G R OSS PROFIT OF THIS YEAR 9.51%. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) - II , KANPUR HAS ERRED IN LAW AND ON FACTS IN COMING TO AN I LLOGICAL CONCLUSION THAT THE UNEXPLAINED EXCESS STOCK FOUND WOULD HAVE BEEN PURCHASED OUT OF THE SALE PROCEEDS OF STOCK FOUND SHORT DURING THE COURSE OF SURVEY OPERATION IS NOT BORNE OUT FROM THE FACTS OF THE CASE . 2 3. IN DOING SO, THE CIT(A) - II, KANPUR IG NORED THE EVIDENTIARY VALUE OF I MPOUNDED DOCUMENTS, WHICH CONCLUSIVELY ESTABLISHED THE UNEXPLAINED VARIATION OF STOCK. DOCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY CONSTITUTES AN EVIDENCE WITHIN THE MEANING OF SECTION 132(4) OF THE INCOME TAX ACT, 1961 BASED ON THAT AO HAS RIGHTLY MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE CIT(A) - II , KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.23,20,996 / - ON ACCOUNT OF CONSIGNMENT SALES IGNORING THE FACT THAT THE ASSESSEE HAS H IMSELF ADMITTED THE FACT THAT THE DATA OF CONSIGNMENT SALES ON PEN DRIVE WAS ACTUALLY THE SALES AND THE SAME WERE SUBMITTED WITH THE RETURN OF THE SALES TAX BEFORE THE SALES TAX AUTHORITY AND AS SUCH ADDITION BASED ON THIS HAS RIGHTLY BEEN MADE BY THE ASSE SSING OFFICER. 5. THE LD. CIT(A), KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION UNDER THE HEAD HONORARIUM IGNORING THE FACT THAT THE ACTIVITIES OF THE SOCIETY BEING NON - PROFITABLE IN NATURE AND HONORARIUM PAID TO THE PRESIDENT. THE ASSESSE E COULD NOT JUSTIFY THE SAME. 6. THAT THE ORDER OF THE LD. CIT(A) - II, KANPUR BEING ERRONEOUS IN LAW AND ON THE FACTS DESERVES TO BE VACATED AND THE ORDER OF THE ASSESSING OFFICER TO BE RESTORED . 3. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE M.P. HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS S. KHADER KHAN SON [2008] 300 ITR 157 (MAD) . HE ALSO PLACED RELIANCE ON A SUBSEQUENT JUDGMENT OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS S. KHADER KHAN SON [2013] 352 ITR 480 (SC) . 3 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ISSUE INVOLVED AS PER GROUND NO. 1 OF THE APPEAL IS THAT THE CIT(A) IS NOT CORRECT IN DIRECTING THE ASSESSING OFFICER TO ADOPT GROSS PROFIT @5% WHEREAS THE ASSESSEE HIMSELF HAS SHOWN GROSS PROFIT @9.51%. IN T HIS REGARD, WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 5.10.1 OF HIS ORDER WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 5.10.1 IN BOTH THESE CASES, A MARGIN WOULD HAVE BEEN EARNED BY THE ASSESSEE. THE A.O HAS PRESUMED THAT THESE GOODS HAVE BEEN CONVERTED INTO FINISHED PRODUCTS AND THEN SOLD EARNING A G.P OF 9%. I AM NOT AGREEABLE TO THE SAID OBSERVATIONS OF THE A.O. (THAT THE SAID GOODS WERE USED TO MANUFACTURE THE FINAL PRODUCTS) SINCE IN MAKING FINAL PRODUCTS, ONE REQUIRES MANY OTHER ITEMS THEN THESE SHORT ITEMS AND ALSO THE FACT THAT THERE IS NO EVIDENCE REGARDING THESE SHORT STOCKS HAVING BEEN USED TO MANUFACTURE THE FINANCIAL GOODS AND SELLING THEM OUTSIDE THE BOOKS. UNDER THESE FACTS, I ADOPT A GP RATE OF 5% BEING NORMA L, TRADING PROFIT ON SALE OF SUCH GOODS OUTSIDE THE BOOKS. THE A.O IS DIRECTED TO REWORK THIS ADDITIONAL G.P BY ADOPTING G.P RATE OF 5% INSTEAD OF 9% (ADOPTED BY THE A.O) ON SHORT STOCK AMOUNTING TO RS.14,05,735/ - . 4.1 FROM THE ABOVE PARA FROM THE ORDER OF CIT(A), IT IS SEEN THAT HE HAS DECIDED THE ISSUE ON THE BASIS THAT THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT THESE SHORT STOCKS WERE USED TO MANUFACTURE THE FIN ISHED PRODUCT. HE ALSO OBSERVED THAT FOR MAKING T HE FINISHED GOODS, ONE REQUIRES MANY OTHER ITEMS OTHER THAN THESE SHORT ITEMS . SINCE THERE IS NO BASIS INDICATED BY THE ASSESSING OFFICER FOR HOLDING THAT THESE RAW MATERIALS FOUND SHORT WERE ACTUALLY USED FOR MANUFACTURING FINISHED GOODS, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A). WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. 5. THE SECOND ISSUE REGARDING SOURCE OF EXCESS STOCK FOUND IN SURVEY WAS DECIDED BY CIT(A) AS PER PARA 5.11 OF HIS ORDER, WHICH IS ALSO REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 4 5.11 AS REGARDS EXCESS STOCKS FOUND DURING THE COURSE OF SURVEY AMOUNTING TO RS.14,10,996/ - . THE ALTERNATE PLEA REGARDING TELESCOPING OF THE STOCK IS CONCERNED, THE ASSESSES HAS CONTENDED THAT THESE STOCK WOULD HAVE BEEN PURCHASED OUT OF THE SALE PROCEEDS OF THE STOCKS FOUND SHORT. THE PLEA OF THE ASSESSEE IS ACCEPTABLE AS REGARDS THE AVAILABILITY OF FUNDS FOR THE PURCHASE OF SUCH STOCKS BUT THE FACT THAT THESE EXCESS STOCKS HAVE BEEN PURCHASED IN CASH, THE PROVISIONS OF S ECTION 40A(3) SHALL BE APPLICABLE IN SUCH A CASE AND IN TERMS OF SECTION 40A(3) THERE SHALL BE A DISALLOWANCE OF 20% OF SUCH EXPENDITURE ON PURCHASES AMOUNTING TO RS.14,10,996/ - . THE AO IS, THEREFORE, DIRECTED TO DISALLOW 20% OF THE AMOUNT OF PURCHASES IN RESPECT OF STOCK FOUND IN EXCESS AND RECOMPUTE THE INCOME AS REGARDS THIS ISSUE ACCORDINGLY. 6. WE FIND THAT CIT(A) HAS APPROVED THE ASSESSMENT ORDER TO THE EXTENT OF ADOPTING 5% GROSS PROFIT IN RESPECT OF SHORTAGE OF RAW MATERIAL FOUND TO THE EXTENT OF RS.14,05,735/ - ON THE BASIS THAT SUCH RAW MATERIAL WERE SOLD BY THE ASSESSEE OUTSIDE BOOKS. THE S OURCE OF EXCESS STOCK FOUND HAS BEEN CONSIDERED BY THE CIT(A) AS PURCHASE OF GOODS OUT OF BOOKS OUT OF CASH AVAILABLE ON SALE OF RAW MATERIAL S OLD OUTSIDE BOOKS. HE HAS ALSO HELD THAT SINCE SUCH PURCHASE WAS IN CASH, 20% OF SUCH EXCESS STOCK SHOULD BE DISALLOWED U/S 40A(3) OF THE ACT. CONSIDERING ALL THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF C IT(A) BECAUSE WHEN THE RAW MATERIAL STOCK WAS SOLD OUTSIDE THE BOOKS, THE SAME CASH HAS TO BE AVAILABLE WITH THE ASSESSEE FOR EFFECTING PURCHASE OF OTHER ITEMS WHICH WERE FOUND EXCESS AND THEREFORE, NO SEPARATE ADDITION CAN BE MADE FOR SUCH EXCESS STOCK FO UND. HENCE, GROUND NO. 2 IS ALSO REJECTED. 7. IN THE LIGHT OF OUR DECISION IN THE GROUND NO. 1 & 2 ON THE BASIS OF FACTS OF EXCESS AND SHORT STOCK FOUND IN SURVEY, NO INDEPENDENT ADJUDICATION IS CALLED FOR REGARDING GROUND NO. 3 PARTICULARLY IN VIEW OF T HE FACT THAT SECTION 1 32 (4) IS APPLICABLE IN RESPECT OF MATERIAL FOUND IN S EARCH 5 PROCEEDINGS AND NOT IN COURSE OF SURVEY PROCEEDINGS. GROUND NO. 3 IS ALSO REJECTED. 8. THE ISSUE INVOLVED IN GROUND NO. 4 HAS BEEN DECIDED BY CIT(A) AS PER PARA 6.4 ON PAGE 15 AND 16 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 6.4 THE FACTS OF T HE CASE AS WELL AS THE SUBMISSION MADE BY THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS OBSERVED THAT THE ADDITION WAS MADE BY COMPARING THE FIGURES WITH REGARD TO CONSIGNMENT SALES AS, SHOWN IN THE PEN DRIVE (IMPOUNDED) WITH THE CONSIGNMENT SALES AS SHOWN IN THE MONTHLY DETAILS FILED BY THE ASSESSEE. THE SALE TAX RETURN FILED BY THE APPELLANT BEFORE THE SALE TAX AUTHORITIES WAS ALSO PRODUCED B EFORE THE A.O . IN SUPPORT OF THE CONTENTION THAT THE FIGURES WERE CORRECT. AS PER THE METHOD FOLLOWED BY THE APPELLANT, WHERE SALES ARE MADE THROUGH CONSIGNMENT AGENTS, GOODS ARE SENT TO THE AGENTS AS 'GOODS SENT ON CONSIGNMENT' AND ARE BOOKED UNDER THE SA ID HEAD. SUBSEQUENTLY WHEN CONSIGNMENT AGENT SELLS ANY PART OF THE GOODS RECEIVED ON CONSIGNMENT, HE SENDS DETAILS OF SALES MADE AND EXPENSES INCURRED - TO BE ADJUSTED AGAINST THE GOODS WHICH WERE SENT TO HIM FOR SALE. ON RECEIPT OF SALES DETAILS, THE SALES ARE REVERTED FROM 'GOODS SENT ON CONSIGNMENT' TO 'CONSIGNMENT SALES ACCOUNT'' AND THE BALANCE GOODS CONTINUE TO REMAIN UNDER THE OWNERSHIP OF THE APPELLANT AND ARE TAKEN AS STOCK IN HAND UNDER THE HEAD 'GOODS SENT ON CONSIGNMENT'. IN SUPPORT OF ITS CONTEN TION, THE COUNSEL FOR THE ASSESSES ALSO FILED QUANTITATIVE DETAILS FOR GOODS SENT ON CONSIGNMENT, CONSIGNMENT SALES MADE (ON THE BASIS OF SALE PATTI) AND GOODS IN HAND BEING STOCK SENT ON CONSIGNMENT. IT HAS BEEN DEMONSTRATED T H AT THE ENTIRE QUANTITY UNDER THE HEAD GOODS SENT ON CONSIGNMENT MATCHED FULLY WITH QUANTITY COVERED BY THE CONSIGNMENT SALES AND GOODS AVAILABLE ON CONSIGNMENT AT THE END OF THE YEAR THE A.O PROBABLY GOT CONFUSED WITH THE FIGURES GIVEN ON 'GOODS SENT ON CONSIGNMENT' AND 'CONSIGNMENT SALE'. AS HAS BEEN DEMONSTRATED BY THE LD. A.R THAT THESE ARE 2 DIFFERENT QUANTITIES, BUT ARE FULLY RECONCILED. IN VIEW OF THE ABOVE FINDING, I DIRECT THE ASSESSING OFFICER TO DELETE THIS ADDITION . 6 8.1 FROM THE ABOVE PARA FROM THE ORDER OF CIT(A), WE FIND THAT THIS ADDITION WAS DELETED BY CIT(A) ON THE BASIS THAT THE GOODS SENT ON CONSIGNMENT IS DIFFERENT THAN ACTUAL CONSIGNMENT SALE . IT IS THE CLAIM OF THE ASSESSEE THAT THE FIGURES APPEARING IN THE PEN DRIVE IS REGARDING GOODS SENT ON CONSIGNMENT WHEREAS IN THE BOOKS OF ACCOUNT , ONLY CONSIGNMENT SALES IS ACCOUNTED FOR AND THE GOODS LYING WITH THE CONSIGNEE AS UNSOLD IS CONSIDERED AS CONSIGNMENT STOCK. AS PER THE BALANCE SHEET OF THE ASSESSEE COMPANY, WE FIND THAT IN THE BALANCE SHEET , THE INVENTORY INCLUDES CONSIGNMENT STOCK OF RS.483.58 LAC S . A CLEAR FINDING IS GIVEN BY CIT(A) THAT GOODS SENT ON CONSIGNMENT AND CONSIGNMENT SALE ARE TWO DIFFERENT ITEMS AND ARE RECONCILED. THIS FINDING COULD NOT BE CONTROVERTED BY LEARNE D D .R. OF THE REVENUE AND HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). THIS GROUND IS ALSO REJECTED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 9 /09/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR