ACIt, Sonepat V. Sh Ajay Oil Industries, Sonepat

ITA 4217/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65712 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 03-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PIRTHI LAL
• Keywords: Business income; Income from undisclosed sources
• Section: 133A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.4217/DEL/2012 ASSESSMENT YEAR : 2005-06 ACIT, SONEPAT CIRCLE, SONEPAT. VS. AJAY OIL INDUSTRIES, E-40, INDL. AREA, SONEPAT. PAN : AABFA6541K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GURJEET SINGH, AR REVENUE BY : SHRI PIRTHI LAL, SR. DR ORDER PER A.D. JAIN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE DEPARTMENT FOR ASSESSMENT YEAR 2005-06 AGAINST THE ORDER DATED 21.05.2012 PASSED BY T HE LD. CIT (A), ROHTAK, DELETING THE ADDITION OF ` 27,01,671/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS STOCK FOUND AT THE TIME O F SURVEY U/S 133A OF THE IT ACT. 2. THE BRIEF FACTS OF THE CASE AS PER THE RELEVANT ORDERS ARE THAT THE ASSESSEE FIRM, DURING THE YEAR, WAS ENGAGED IN THE BUSIN ESS OF MANUFACTURING AND TRADING OF EVA SHEETS USED IN INSTAL LATION AND PACKAGING, ETC. LOW DENSITY POLY ETHYLENE (LDPE) WAS THE MAIN RAW MATERIAL USED BY THE ASSESSEES FIRM. ON 13.09.2004, A SU RVEY WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE. EXCESS STOCK OF ` 27,01,671/- AND EXCESS CASH OF ` 5,13,432/- WAS FOUND. STATEMENT OF SHRI BHAGWAN DASS GUPTA, PARTNER OF THE ASSESSEE FIRM WA S RECORDED ITA NO.4217/DEL/2012 2 AT THE TIME OF SURVEY. SHRI GUPTA SUBMITTED THAT THE EXCESS STOCK AND CASH WOULD BE OFFERED FOR TAXATION. IN THE RETURN O F INCOME FILED, THE ASSESSEE ADMITTED THE EXCESS CASH FOUND IN THE COMPUTATION OF INCOME. THE EXCESS STOCK WAS TAKEN TO THE TRADING ACCO UNT. THE ASSESSEE RETURNED GROSS TOTAL INCOME OF ` 32,77,389/-. DEDUCTION WAS CLAIMED U/S 80IB OF THE IT ACT. 3. THE ASSESSING OFFICER OBSERVED THAT THE INCOME RETURNED BY THE ASSESSEE DID NOT INCLUDE THE EXCESS STOCK FOUND DURING THE SURVEY, AMOUNTING TO ` 27,01,671/-. THE ASSESSING OFFICER, AS SUCH, MADE ADDITION OF THIS MOUNT OF ` 27,01,671/-. THE APPEAL OF THE ASSESSEE WAS DISMISSED BY THE LD. CIT (A) VIDE ORDER DATED 04.11 .2008. ON FURTHER APPEAL BY THE ASSESSEE, THE MATTER WAS SET ASIDE BY THE TRIBUNAL, TO THE FILE OF THE ASSESSING OFFICER FOR RE-A DJUDICATION, VIDE ORDER DATED 30.06.2010. IN THE SECOND ROUND, THE ASSESSI NG OFFICER AGAIN MADE THE SAME ADDITION OF ` 27,01,671/-. WHILE DOING SO, IT WAS OBSERVED, INTER ALIA, THAT THE ASSESSEE HAD BEEN ASKED T O FURNISH THE DETAILS AND SOURCE OF EXCESS STOCK SURRENDERED DURING THE SURVEY OPERATION; THAT VIDE LETTER DATED 28.10.2011, THE A SSESSEE HAD STATED THAT THE SOURCE OF EXCESS STOCK FOUND WAS INCOME OF THE ASSESSEE FIRM, WHICH REMAINED IN THE STOCK FOUND AT THE TIME OF SURV EY; THAT HOWEVER, AS PER THE COMPUTATION OF INCOME, THE ASSESSEE HAD SHOWN INCOME FROM BUSINESS, AMOUNTING TO ` 27,63,957/-; THAT THIS INCLUDED REGULAR INCOME OF THE ASSESSEE; THAT THE ASSESSEE HAD SHOWN REGULAR INCOME FROM BUSINESS OF ONLY ` 62,286/-, I.E., ` 27,63,957/- MINUS ` 27,01,671/-, ON SALE OF ` 1,61,89,554/-, WHICH WAS NOT RELIABLE AND SHOWED THA T THE ASSESSEE HAD NOT DECLARED ITS INCOME TRULY AND CORRECTLY IN THE RETURN OF INCOME FILED; THAT WHILE FILING THE RETURN, THE ASSESSEE HAD NOT HONOURED THE COMMITMENT MADE IN THE STATEMENT OF SHR I BHAGWAN DASS GUPTA, PARTNER OF THE ASSESSEE FIRM, RECORDED AT THE TIME OF SURVEY AND HAD RETRACTED FROM THE INCOME SURRENDERED ON ACCOUNT OF ITA NO.4217/DEL/2012 3 THE EXCESS STOCK FOUND; THAT THE ASSESSEE HAD MERELY ADDE D THE EXCESS STOCK IN THE POST SURVEY PERIOD TRADING ACCOUNT F OR SALE AS OPENING STOCK AND HAD FURTHER EARNED PROFIT THEREON ; THAT AS SUCH, THE ASSESSEE HAD DECLARED ONLY THE PROFIT EARNED ON THE SALE OF UNACCOUNTED STOCK, WITHOUT DECLARING THE UNACCOUNTE D STOCK FOUND AT THE TIME OF SURVEY; THAT IN ITS REPLY DATED 18.04.201 2, THE ASSESSEE HAD STATED THAT THE ENTIRE STOCK OF ` 27,01,671/- HAD BEEN SOLD WITHIN THE YEAR AND NO COST HAD BEEN DEBITED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE; AND THAT THE GP AND NP OF THE ASSESSEE FOR THE YE AR UNDER CONSIDERATION DID NOT COMPARE WITH THE GP AND NP DEC LARED FOR ASSESSMENT YEAR 2004-05, I.E., THE IMMEDIATELY PRECEDIN G ASSESSMENT YEAR, THE GP FOR THAT YEAR BEING 21.43% AND THE NP FOR THAT YEAR BEING 4.96%. 4. IT WAS IN THIS MANNER, THAT THE ASSESSING OFFICER HELD TH AT THE ASSESSEE HAD DECLARED ONLY PROFIT EARNED ON THE SALE OF UNACCOUNTED STOCK, BUT HAD NOT DECLARED THE UNACCOUNTED STOCK ITSE LF. ON THIS BASIS, THE ASSESSING OFFICER MADE ADDITION OF ` 27,01,671/-. 5. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT (A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 6. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 7. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS CO NTENDED THAT THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION C ORRECTLY MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS STOCK FOUND AT THE TIME OF SURVEY; THAT THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAD MERELY ADDED THE EXCESS UNACCOUNTED STOCK SURRENDER ED DURING THE SURVEY, IN THE POST SURVEY PERIOD TRADING ACCOUNT; THAT THE LD. CIT (A) HAS FAILED TO CONSIDER THAT IN THIS MANNER, THE ASSE SSEE HAS ITA NO.4217/DEL/2012 4 DECLARED ONLY PROFIT EARNED ON THE SALE OF UNACCOUNT ED STOCK, BUT HAS NOT DECLARED THE UNACCOUNTED INCOME INVESTED IN THE UNACCOUNTED STOCK FOUND AT THE TIME OF SURVEY; THAT THE LD. CIT ( A) HAS ALSO FAILED TO TAKE INTO ACCOUNT THE FACT, AS BROUGHT OUT CLEARLY B Y THE ASSESSING OFFICER, THAT THE GP FOR THE YEAR UNDER CONSIDERATIO N DOES NOT AT ALL COMPARE WITH THE GP SHOWN BY THE ASSESSEE FOR THE IMMEDI ATELY PRECEDING ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 2004-05, I .E., A GP OF 21.43%,HAVING SHOWN A GP RATE OF 10.24% FOR THE Y EAR UNDER CONSIDERATION, POINTING TO THE FACT THAT THE POSSIBILI TY OF THE ASSESSEE HAVING INFLATED ITS EXPENSES CANNOT BE RULED OUT ALTOG ETHER. 8. THE LD. COUNSEL OF THE ASSESSEE, ON THE OTHER HAND, H AS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 9. IT HAS BEEN CONTENDED, AS BEFORE THE LD. CIT (A), THAT THE STOCK, AS PER THE ASSESSEES BOOKS OF ACCOUNT ON THE DATE OF SURVE Y, I.E., ON 13.09.2004, WAS OF ` 24,14,348/-, WHEREAS THE PHYSICAL STOCK FOUND WAS OF ` 51,16,019/-, LEADING TO EXCESS STOCK OF ` 27,01,671/-; THAT IN THE MANUFACTURING AND TRADING ACCOUNT PREPARED FOR THE PRE SURVEY PERIOD, THE CLOSING STOCK HAD BEEN TAKEN AT ` 51,16,019/- WHICH WAS INCLUSIVE OF THE EXCESS STOCK FOUND DURING THE SURVEY AN D A GP OF ` 38,95,812/- WAS DECLARED ; THAT IN THE MANUFACTURING AND TRADING ACCOUNT FOR THE POST SURVEY PERIOD, THE OPENING STOCK WAS TAKEN AT THE VERY SAME FIGURE OF ` 51,16,019/-, DECLARING A GP OF ` 8,59,962/-; THAT IN THE MANUFACTURING AND TRADING ACCOUNT FOR THE WH OLE CONSOLIDATED PERIOD, THE GROSS PROFIT DECLARED WAS OF ` 47,55,774/-; THAT THIS WAS INCLUSIVE OF THE EXCESS STOCK FOUND IN THE SURVEY AND TH E PROFIT DERIVED ON THE SALE DURING THE SUBSEQUENT PERIOD; THAT FOR TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 2004-05, T HE ASSESSEE HAD DECLARED GP @ 21.43% ON SALES OF ` 1.67 CRORES AND AN NP OF ` 8,31,288/- WAS DECLARED; THAT WHEREAS FOR THE YEAR U NDER ITA NO.4217/DEL/2012 5 CONSIDERATION, THE NP DECLARED WAS OF ` 27,63,956/-; THAT THIS WAS INCLUSIVE OF THE EXCESS STOCK OF ` 27,01,671/-; THAT THE ENTIRE STOCK OF ` 27,01,671/- STOOD SOLD BY THE ASSESSEE BY THE END OF THE YEAR; THAT THE DETAILS OF THE TOTAL SALES INCLUDING THE SALES IN THE PO ST SURVEY PERIOD WERE DULY FILED BEFORE THE ASSESSING OFFICER; THAT THE DETAILS OF THE ENTIRE PURCHASES FOR THE WHOLE PERIOD WERE ALSO FILED; THAT THE PURCHASES DID NOT INCLUDE THE EXCESS STOCK SURRENDERED DURING THE SURVEY; THAT AS SUCH, THE ASSESSEE HAD NOT DEBITED ANY COST OF THE SURRENDERED STOCK OF ` 27,01,671/- AND ONLY THE SALE OF THE SURRENDERED STOCK OF ` 27,01,671/- STOOD RECORDED; THAT HENCE, THE ENTIRE SURRENDERED STOCK SALE BECAME THE NET PROFIT OF THE A SSESSEE; THAT IT WAS THIS NET PROFIT WHICH WAS OFFERED TO TAX BY THE ASSE SSEE; AND THAT THE LD. CIT (A) HAS DULY TAKEN INTO CONSIDERATION THE SE FACTS WHILE CORRECTLY DELETING THE ADDITION WRONGLY MADE. 10. HAVING CONSIDERED THE RIVAL CONTENTIONS OF THE P ARTIES IN THE LIGHT OF THE MATERIAL PLACED ON RECORD, WE DO NOT FIND AN Y ERROR WHATSOEVER IN THE ORDER OF THE LD. CIT (A). IT IS SEEN THAT WHI LE DELETING THE ADDITION WRONGLY MADE, THE LD. CIT (A) HAS CONSIDERE D THE ATTENDANT FACTS IN THEIR ENTIRETY, IN THE RIGHT PERSPECTIVE. UNDISPUTEDLY, THE STOCK OF THE ASSESSEE AS PER THE BOOKS ON THE DATE OF SUR VEY, I.E., ON 13.09.2004, CAME TO ` 24,14,348/-, TAKING THE GP RATE OF THE PREVIOUS YEAR I.E., THE GP RATE OF 21.43%. THE PHYSICAL STOCK FOUND DURING THE SURVEY WAS OF ` 51,16,019/-. IT WAS THIS WHICH LEAD TO THE EXCESS STOCK OF ` 27,01,671/-. THE ASSESSEE HAD SHOWN CLOSING STOCK AS PER THE BOOKS AND THE SURRENDERED STOCK, TOTALING TO ` 51,16,019/-, IN THE MANUFACTURING AND TRADING ACCOUNT PREPARED FOR THE PRE SURVEY PERIOD. THE DECLARED GROSS PROFIT FOR THIS PERIOD WAS OF ` 38,95,812/-. IT WAS THIS WHICH WAS TAKEN AS THE OPENING STOCK FOR THE POST SU RVEY PERIOD IN THE MANUFACTURING AND TRADING ACCOUNT PREPARED FOR THE POST SURVEY PERIOD. FOR THE POST SURVEY PERIOD, PURCHASES OF ` 23,84,705/- AND ITA NO.4217/DEL/2012 6 SALES OF ` 83,96,283/- WERE SHOWN. THE GROSS PROFIT OF ` 8,59,962/- WAS DECLARED, WHEREAS CLOSING STOCK AS ON 31.03.2005 WAS DEC LARED AT ` 9,23,276/-. ON TOTAL SALES OF ` 1,39,68,572/-, THE GROSS PROFIT FOR THE ENTIRE PERIOD WAS OF ` 47,55,774/-. THIS CAME TO A GP RATE OF 34.04%. THE GP RATE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YE AR, I.E., ASSESSMENT YEAR 2004-05, WAS OF 21.43%. THUS, THE GP RAT E FOR THE YEAR UNDER CONSIDERATION WAS MUCH ABOVE THAT DECLARED BY THE ASSESSEE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, AS RIGHTLY OBSERVED BY THE LD. CIT (A). NOW, HAD THE EXCESS STOCK NOT BEEN OFFERED TO TAX, THIS SITUATION WAS UNENVISAGABLE. MOR EOVER, FOR THE YEAR UNDER CONSIDERATION, NET PROFIT OF ` 27,63,957/- WAS OFFERED ON SALES OF ` 1.39 CRORES, AS AGAINST THAT OF ` 8,31,288/-, ON SALES OF ` 1.67 CRORES OFFERED FOR THE IMMEDIATELY PRECEDING YEAR. THE COST OF THE STOCK WAS NOWHERE DEBITED BY THE ASSESSEE IN ITS TRADING A CCOUNT. IT HAS GONE UNCHALLENGED THAT THE SALE OF THE EXCESS STOCK WAS FROM THE INCOME GENERATED FROM THE BUSINESS OPERATIONS OF THE ASSE SSEE. 11. IN THE ABOVE FACTS, FINDING NO ERROR IN THE ORDER OF THE LD. CIT (A), WE HEREBY CONFIRM THE SAME, REJECTING THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT BY WAY OF THE GROUND OF AP PEAL TAKEN. 12. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED . THE ORDER PRONOUNCED IN THE OPEN COURT ON 19.10.20 12. SD/- SD/- [T.S. KAPOOR] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 19.10.2012. DK ITA NO.4217/DEL/2012 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. 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