S Surya Prakash Rao, Ganjam V. ITO, Berhampur

ITA 426/CTK/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0745 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2010
• Court: TRIBUNAL
• Department Lawyers: A K MOHAPATRA
• Assessee Lawyers: G NAIKRAJAT KAR ARS

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 426/CTK/2010 / ASSESSMENT YEAR 2007 - 08 SRI SURYA PRAKASHS RAO, PROP. M/S.SURYA PRAKASH RAO, ILLUVARI STREET, BERHAMPUR, GANJAM PAN: AHWPS 5125 R - - - VERSUS - INCOME - TAX O FFICER, WARD 3, BERHAMPUR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI G.NAIK/RAJAT KAR, ARS / FOR THE RESPONDENT: / SHRI A.K.MOHAPATRA, DR / ORDER . . . , , SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER . THE ASSESSEE IS IN APPEAL AGAINST ORDER DT.28.9.2010 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2007 - 08. 2. GROUND NOS. 1 AND 5 ARE GENERAL IN NATURE, THEREFORE, NEEDS NO SPECIFIC ADJUDICATION. 3. AT THE TIME OF HEARING, THE LEARNED AR OF THE ASSESSEE DID NOT PRESS GROUND NO.4 AND THEREFORE, THE SAID GROUND IS DISMISSED AS NOT PRESSED. 4. GROUNDNO.2 IS AGAINST ADDITION OF 24,81,854 MADE ON THE BASIS OF ALLEGED EXCESS OF STOCK FOUND ON THE DATE OF SURVEY. I.T.A.NO. 426/CTK/2010 2 5. THE RELEVANT FACTS ARE THAT IN COURSE OF SURVEY OPERATION U/S.133A(1) CONDUCTED ON 23.2.2007 IN THE BUSINESS PREMISES OF THE ASSESSEE, EXCESS STOCK OF 63,76,502 WAS FOUND. THE ASSESSING OFFICER COMPUTED THE EXCESS S TOCK FOUND AS ON THE DATE OF SURVEY AT 65,74,988. THE ASSESSEE EXPLAINED THE DIFFERENCE IN STOCK TO THE DEFECTS IN VALUATION OF STOCK MADE ON THE BASIS OF PRICE TAG OF MRP ATTACHED TO EACH ITEM AND CONTENDED THAT THE SALE PRICE ON EACH ITEM IS AROUND 30 T O 33 PERCENT MORE THAN THE COST PRICE. AFTER VERIFICATION OF BILLS, THE ASSESSING OFFICER ALLOWED DISCOUNT AT 25% ON TOTAL VALUE OF STOCK - ION - TRADE OF 1,07,87,909 AND DETERMINED THE EXCESS STOCK AT 49,31,241 AND ADDED THE SAME TO THE TOTAL INCOME. IN APP EAL, THE ASSESSEE CONTENDED THAT EVEN AFTER CONSIDERING THE AVERAGE DISCOUNT AT 25% AND THE GP @ AT 17.5%, THE EXCESS STOCK ON THE DATE OF SURVEY SHOULD BE 24,62,098 BUT NOT 49,31,241. IT WAS FURTHER CONTENDED THAT THE DISCOUNT AT 25% ALLOWED BY THE ASS ESSING OFFICER IS LOW WHEN THE ASSESSEE GIVES DISCOUNT AT 50 TO 80%. THE LEARNED ASSESSING OFFICER CONSIDERED THE DISCOUNT RANGING FROM 10% TO 30% IN MOST OF THE ITEM EXCEPT 35% TO 50% RARELY GIVEN. THER EFORE, HE ALLOWED DISCOUNT AT 30 % AND CONSIDERED 17.5 % GROSS PROFIT AND DETERMINED THE EXCESS S TOCK FOUND DURING THE SURVEY AT 24,81,854 AND HELD THE SAME AS UNDISCLOSED INVESTMENT FROM UNDISCLOSED SOURCES. 6. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT IN VIEW OF THE FINDINGS OF THE LEARNED CIT(A) AT PAGE 4 OF HIS ORDER , THE ASSESSEE ALLOWS HIGHER DISCOUNT RATE OF 35%, 40% AND 50%, THE LEARNED CIT(A) SHOULD HAVE ALLOWED 50% DISCOUNT IN PLACE OF 30% BESIDES ALLOWING DEDUCTION OF USUAL GP RATE OF 17.5% WHILE DETERMINING THE PRICE OF THE EXCESS STOCK FOUND DURING THE SURVEY. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE IMP UGNED ORDER OF THE LEARNED CIT(A). I.T.A.NO. 426/CTK/2010 3 7. HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT IT IS CASE OF VALUATION OF EXCESS STOCK FOUND DURING THE SURVEY. THE EXCESS STOCK WAS VALUED AT MRP PRICE DUR ING THE SURVEY, WHICH IS UNDISPUTEDLY, INCLUDES THE RATE OF PROFIT AND ALSO THE DISCOUNT TO BE ALLOWED BY THE ASSESSEE AT THE TIME OF SALE. THE LEARNED CIT(A) OBSERVED IN HIS ORDER THAT THE ASSESSEE GIVES DISCOUNT @50% AND RARELY AT 80% ON DAMAGED OR OUTD ATED STOCKS. THE VALUE OF SUCH DAMAGED STOCKS AT MRP INCLUDED IN THE TOTAL STOCK ON THE DATE OF SURVEY DOES NOT EXCEED 1,00,000. THEREFORE, IN OUR VIEW, THE CLAIM OF 50% DISCOUNT ON ALL THE EXCESS STOCK FOUND DURING THE SURVEY CANNOT BE ACCEPTED. THE LEARNED CIT(A) HAS ALSO FURTHER OBSERVED THAT THE ASSESSEE GIVES DISCOUNT NORMALLY @10%,20% AND 33% ON DIFFERENT ITEMS AND GIVES DISCOUNT @35% TO 40% IN FEW ITEMS ALSO. T HEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE PARTICULARLY THE DISCOUNT GIVEN BY THE ASSESSEE AND THE GROSS PROFIT @17.5% EMBEDDED IN THE MRP OF THE EXCESS STOCK FOUND DURING THE SURVEY, WE REA SONABLY ESTIMATE THE EXCESS STOCK AT 26,000 AND MODIFY THE ORDER OF THE LEARNED CIT(A) ACCORDINGLY AND DIRECT THE ASSESSING OFFICER TO MAKE ADDITION OF 26,000 ON THIS COUNT AS INVESTMENT FROM UNDISCLOSED SOURCES. 8. GROUND NO.3 READS AS UNDER : FOR THAT THE ADDITION OFRS.6,80,000 AS SUST AINED BY THE LD. CIT(A) BY ADOPTING 17% PROFIT ON AN ESTIMATED SALE SUPPRESSION OF 40 LAKHS BASED ON DEPOSITS OF 35,08,443 IN THE BANK ACCOUNTS NOT IN THE NAME OF THE APPELLANT IS HIGH, EXCESSIVE AND ARBITRARY ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE . 9. THE RELEVANT FACTS ARE THAT THE ASSESSING OFFICER HELD THE DEPOSITS OF 17,76,748 AND 29,423 IN BANK ACCOUNT OF S.SOMESWAR RAO (ASSESSEES BROTHER) IN ING VYSYA BANK,BERHAMPUR (A/C.NO.56584) AND ICICI I.T.A.NO. 426/CTK/2010 4 BANK,BERHAMPUR (A/C.NO.5895) AND 17,02,2 72 IN BANK ACCOUNT OF SMT. S.ANITA (ASSESSEES WIFE) IN ING VYSYA BANK,BERHAMPUR (A/C.NO.82514), TOTALING TO 35,08,443 TO BE RELATED TO THE BUSINESS OF THE ASSESSEE. HE DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE ABOVE DEPOSITS RELATE TO INDEPE NDENT BUSINESS OF THE RESPECTIVE PERSONS IN ABSENCE OF ANY CORROBORATIVE EVIDENCE. HE, THEREFORE, ESTIMATED THE PROBABLE SALES ON ACCOUNT OF THESE TRANSACTIONS AT 40 LAKHS AND CONSIDERING GROSS PROFIT @17% ON SUCH ESTIMATED SALES, DETERMINED THE INCOME AT 6,80,000 AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 10. IN APPEAL, THE LEARNED CIT(A) AFTER THOROUGH DELIBERATION, HELD THE DEPOSITS IN THE ABOVE BANK ACCOUNTS TO BE RELATING TO THE UNDISCLOSED SALES OF THE ASSESSEE. HE, THEREFORE, CONFIRM ED THE ADDITION OF THE INCOME DETERMINED BY ADOPTING 17% PROFIT ON UNACCOUNTED SALES OF 40,47,232. 11. BEFORE US, THE LEARNED AR OF THE ASSESSEE CONTENDED THAT THE PROFIT RATE OF 17% AS ADOPTED BY THE AUTHORITIES BELOW FOR DETERMINING THE INCOME ON THE U NDISCLOSED SALES OF THE ASSESSEE BASED ON THE BANK ACCOUNTS OF ASSESSEES BROTHER AND WIFE, IS HIGH AND EXCESSIVE AND ARBITRARY. HE SUBMITTED THAT PROFIT @5% U/S.44AF MAY BE APPLIED INSTEAD OF 17%. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. 12. HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. THE DISPUTE RAISED IN THIS GROUND IS THE ADOPTION OF RATE OF PROFIT. WE FIND THAT THE AUTHORITIES BELOW HAVE NOT GIVEN ANY REASON FOR ADOPTING 17% PROFIT ON SUCH UNDISCLOSED SALES. FURTHER, WE I.T.A.NO. 426/CTK/2010 5 CANNOT ACCEPT THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE THAT THE RATE OF PROFIT SHOULD BE ADOPTED AT 5% U/S.44AF. HOWEVER, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND NATURE OF BUSINESS, WE REASONABLY ESTIMATE THE PROFIT AT 10% AND DIRECT THE ASSESSING OFFICER TO DETERMINE THE INCOME FROM THE ABOVE UNDISCLOSED SALES. THE IMPUGNED ORDER OF THE LEARNED CIT(A) THEREFORE, STANDS MODIFIED TO THIS EXTENT. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 14 TH MARCH, 2011 S D / - S D/ - ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER. ( ) DATE: 14 TH MARCH, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : S RI SURYA PRAKASHS RAO, PROP. M/S.SURYA PRAKASH RAO, ILLUVARI STREET, BERHAMPUR, GANJAM 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 3, BERHAMPUR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BE NCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY.