ACIT, New Delhi V. M/s. Bahri Sons, New Delhi

ITA 4269/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53477 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Section: 133A; 145

Judgement Text

ITA NO. 4269/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4269/DEL/2010 A.Y. : 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 31(1), ROOM NO. 217, CR BUILDING, NEW DELHI VS. M/S BHARI SONS, OPPOSITE MAIN GATE, ARCADE ABC, KHAN MARKET, NEW DELHI (PAN/GIR NO. : AAAFB0213C) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. HIREN MEHTA, CA DEPARTMENT BY : SH. SALIL MISHRA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 18.6.2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- (A). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETI NG THE ADDITION OF ` 50,88,639/- ON ACCOUNT OF CLOSING STO CK ADDITION BASED ON ACTUAL PHYSICAL INVENTORY DURING THE SURVE Y PROCEEDINGS. (B). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS WRONG TO CO NCLUDE ITA NO. 4269/DEL/2010 2 THAT THE ASSESSEE HAS BEEN FOLLOWING A CONSISTENT S YSTEM OF ACCOUNTING WHEREAS IN HIS REMAND REPORT, THE ASSESSI NG OFFICER HAS GIVEN A CLEAR FINDING THAT THE SUBMISSIONS MADE BY THE ASSESSEE DO NOT IN ANY MANNER SHOW STOCK OF THE EARL IER YEAR HAS BEEN VALUED AS PER THE BASIS CLAIMED BY THE ASSESSEE . (C). THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR A MEND ANY / ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F HEARING OF APPEAL. 3. THE ASSESSEE FIRM IS ENGAGED IN THE ACTIVITY OF TRADING IN VARIOUS VARIETIES OF BOOKS AND MAGAZINES SINCE LAST 55 YE ARS UNDER A PARTNERSHIP FIRM. DURING THE ASSESSMENT YEAR UNDER C ONSIDERATION, THE FIRM WAS ENGAGED IN RETAIL SALES OF BOOKS, MAGAZINES, PERIODICALS, STATIONERY ITEMS ETC. FROM ITS SHOP LOCATED AT KHAN MARKET, NEW DELHI. DURING THE CURRENT YEAR, A SURVEY OPERATION UNDER SE CTION 133A OF THE INCOME TAX ACT WAS UNDERTAKEN AT THE BUSINESS PREMIS ES OF THE ASSESSEE FIRM ON 19.12.2006. STATEMENT OF SHRI ANUJ B AHRI, PARTNER OF M/S BAHRI SONS WAS RECORDED. AS PER THE STATEMENT , SURRENDER OF ` 74 LACS WAS MADE, OUT OF WHICH, ` 65 LACS PERTAINED TO ALLEGED UNDISCLOSED STOCK AND ` 9 LACS PERTAINED TO EXCESS CASH FOUND. HOWEVER, IN THE RETURN OF INCOME FILED BY THE ASSESSEE SUCH UNDISCL OSED STOCK WAS NOT SHOWN. IN THE COURSE OF ASSESSMENT PROCEEDINGS F OR A.Y. 2007-08, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLA IN THAT AS TO WHY UNDISCLOSED INVESTMENT IN STOCK IS NOT REFLECTED IN THE TRADING ACCOUNT AS WELL AS IN THE RETURN OF INCOME. IN RESPONSE TO THE ABOVE QUERY, A REPLY VIDE LETTER DATED 4.12.2009 WAS FILED, INTER ALIA, EXPLAINING THAT THE SURRENDER MADE AT THE TIME OF SURVEY OPERATION WAS IN RESPECT OF THOSE ITEMS OF STOCK WHICH WERE NOT PHYSICALLY INCL UDED IN THE STOCK ITA NO. 4269/DEL/2010 3 TALLY. THE VALUATION OF SUCH ITEMS WAS INCORRECTLY COMPUTED BY VALUING THE STOCK ON THE BASIS OF MRP LESS 15% TRADE DISCOUNT LESS 22.5% GROSS PROFIT MARGIN ON AN ESTIMATED BASIS. AS OPPOSED TO THE SAME WHILE DRAWING THE AUDITED BALANCE SHEET AS ON 31.3.2007, THE CLOSING VALUE OF STOCK WAS COMPUTED BY ADOPTING A CONSISTENT METHOD OF STOCK VALUATION BEING FOLLOWED FOR LAST MANY YEARS WHERE I N RESPECT OF THOSE ITEMS OF STOCK WHICH ARE MORE THAN 2 YEARS OLD THE V ALUE IS TAKEN AT NIL, FOR ITEMS OF STOCK WHICH ARE LESS THAN 2 YEARS OLD BUT MORE THAN ONE YEAR OLD, THE VALUATION WAS DONE AT 50% MRP LESS 15% TRADE DISCOUNT LESS 22.5% PROFIT MARGIN AND FOR THOSE ITE MS OF STOCK WHICH ARE LESS THAN ONE YEAR OLD, THE VALUATION WAS DONE BY REDUCING 15% DISCOUNT AND 22.5% PROFIT MARGIN. THEREAFTER, THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE DATED 4.12.2009 REQUIRIN G THE ASSESSEE TO SHOW CAUSE AS TO WHY THE VALUE OF ENTIRE CLOSING ST OCK AS ON 31.3.2007 MAY NOT BE ADOPTED BY TAKING MRP VALUE LES S 15% TRADE DISCOUNT AND 22.5% GROSS PROFIT MARGIN. A REPLY DAT ED 11.12.2009 WAS FILED IN RESPONSE TO THE SHOW CAUSE NOTICE. IT WAS EMPHASIZED IN THE SAID REPLY THAT THE ASSESSEE HAS BEEN CONSISTENTL Y FOLLOWING A METHOD OF STOCK VALUATION WHICH SHOULD NOT BE ARBITRARILY REJECTED. IN THE ALTERNATIVE AND WITHOUT PREJUDICE IT WAS CONTENDED T HAT IF THE METHOD OF STOCK VALUATION FOR CLOSING STOCK WAS BEING SOUG HT TO BE CHANGED, THEN ON THE SAME FOOTING OPENING STOCK SHOULD ALSO BE VALUED BY APPLYING THE SAME YARDSTICK. THE ASSESSING OFFICER DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE FIRM AND REWORKED TH E VALUE OF CLOSING STOCK AS ON 31.3.2007 RESULTING INTO AN ADDITION O F ` 50,88,639/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) ELABORATELY CONSIDERED THE ISSUE. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE GERMANE IS SUE FOR DECIDING ITA NO. 4269/DEL/2010 4 THE APPEAL IS WHAT SHOULD BE THE METHOD OF VALUATIO N OF STOCK, IN ORDER TO DETERMINE WHETHER THERE WAS ANY EXCESS QUANTITY O F UNEXPLAINED STOCK WITH THE ASSESSEE FIRM AS ON THE DATE OF SURVE Y ON 19.12.2006. ON ONE HAND, THE ASSESSEE CLAIMS THAT HE HAS BEEN C ONSISTENTLY FOLLOWING A SYSTEM OF VALUATION OF CLOSING STOCK, B Y WHICH BOOKS THAT ARE OLDER THAN 2 YEARS ARE VALUED AT NIL VALUE, WH ILE BOOKS THAT ARE 1 YEAR OLD ARE VALUED AT 50% OF THE VALUE. ON THE OT HER HAND, THE ASSESSING OFFICER DOES NOT FIND MERIT IN THIS EXPL ANATION, AS IN HIS VIEW THE PARTNER OF THE FIRM HAD CONCEDED AT THE TIME OF SURVEY THAT THERE WAS EXCESS UNEXPLAINED STOCK OF ` 65.88 LACS AS ON THE DATE OF SURVEY AND THAT AT THAT TIME HE HAD NOT FURNISHED THIS EXPL ANATION ABOUT THE AGE WISE METHOD OF VALUATION OF STOCK. THEREAFTER, LD. COMMISSIONER OF INCOME TAX (APPEALS) GAVE A FINDING THAT FROM THE PERUSAL OF THE DETAIL OF STOCK VALUATION FOR THE FINANCIAL YEAR EN DED 31.3.2002, 31.3.2003, 31.3.2004, 31.3.2005 ALONGWITH COPIES OF RESPECTIVE AUDITED BALANCE SHEETS, HE FOUND THAT THE ASSESSEE HAS FOLLOWED THE SAME METHOD OF STOCK VALUATION FOR LAST MANY YEARS . LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED TO THI S EXTENT THE CONTENTION OF THE ASSESSEE IS FOUND TO BE CORRECT. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT IN TH E ASSESSMENT YEAR 2004-05, THE ASSESSING OFFICER HAD VERIFIED AND AC KNOWLEDGED THE METHOD OF VALUATION OF STOCK BEING FOLLOWED BY THE ASSESSEE AND NO ADVERSE COMMENTS WERE OFFERED THEREON. LD. COMMISSION ER OF INCOME TAX (APPEALS) FURTHER FOUND THAT THE ASSESSEE HAS E LABORATELY EXPLAINED THAT THE CONSISTENTLY ADOPTED METHOD OF VALUATION PRESENTS A TRUE AND CORRECT PICTURE OF ITS PROFIT AND TAXAB LE INCOME SINCE THE STOCK ITEMS, WHICH ARE NOT HAVING REALIZABLE VALUE AND WHICH HAVE BECOME OBSOLETE ARE NOT INCLUDED IN THE VALUE OF ST OCK, IN VIEW OF THE ITA NO. 4269/DEL/2010 5 FACT THAT THERE EXISTS HARDLY ANY REALIZABLE VALUE OF UNSOLD OLD BOOKS. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSE RVED THAT MOREOVER HE FOUND THAT SO LONG AS THIS METHOD IS BEI NG CONSISTENTLY FOLLOWED BY THE ASSESSEE THE ASSESSING OFFICER, OUG HT NOT TO HAVE ANY GRIEVANCE AGAINST THE METHOD OF VALUATION ON TWO F OLDS FIRSTLY, THE CLOSING STOCK OF A PARTICULAR YEAR WILL AUTOMATICAL LY BECOME OPENING STOCK OF THE SUBSEQUENT YEAR; SECONDLY, IF AT ALL A NY SALE TAKES PLACE OUT OF STOCK ITEMS WHICH ARE MORE THAN 2 YEARS OLD OR BETWEEN 1 TO 2 YEARS, THE SAME GETS DULY ACCOUNTED FOR IN THE BOOK S OF ACCOUNTS AND INCREASES THE TAXABLE INCOME OF THE ASSESSEE TO THA T EXTENT. 4.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT THE STATEMENT OF THE ASSESSEE WHICH IS BEING USED A S THE SOLE EVIDENCE FOR ESTABLISHING THE FACT OF EXISTENCE OF EXCESS TO CK WAS RECORDED ON OATH AT THE TIME OF SURVEY U/S 133A ON 19.12.2006. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE PROVISION OF S ECTION 133A DO NOT EMPOWER THE OFFICER TO RECORD THE STATEMENT ON OATH . IN THIS REGARD, LD. COMMISSIONER OF INCOME TAX (APPEALS) REFERRED TO T HE HONBLE HIGH COURT OF KERALA DECISION IN THE CASE OF PAUL MAT HEWS AND SONS VS. C.I.T. 263 IRE 101. 4.2 LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO FO UND THAT THE ASSESSING OFFICER HAS IN EFFECT REJECTED THE TRADIN G RESULTS OF THE ASSESSEE, WITHOUT HOWEVER REJECTING THE BOOKS OF ACC OUNTS AND WITHOUT GIVING ANY ADVERSE FINDING ON THE CORRECTNESS AND C OMPLETENESS OR WITHOUT HOLDING THAT METHOD OF ACCOUNTING AS PROVIDE D IN SECTION 145 OR AS PER THE ACCOUNTING STANDARDS IS NOT BEING FOL LOWED BY THE ITA NO. 4269/DEL/2010 6 ASSESSEE REGULARLY. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER FOUND THAT ON THE OTHER HAND ASSESSEE HAS ARGUED TH AT THE METHOD OF VALUATION OF CLOSING STOCK BEING FOLLOWED HAS BEEN REGULARLY AND CONSISTENTLY FOLLOWED. THUS, LD. COMMISSIONER OF IN COME TAX (APPEALS) FOUND THAT IN THE ABSENCE OF THE COGENT ADVERSE FIN DING, TRADING RESULTS OF THE ASSESSEE CANNOT BE DISTURBED WITHOUT REJECTI NG THE BOOKS OF ACCOUNTS IN THE CIRCUMSTANCES MENTIONED IN SECTION 1 45(3). FURTHER LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THA T IN SUCH A CASE, WHERE THE ASSESSING OFFICER DECIDES TO DEVIA TE FROM THE TRADING RESULTS, HE IS REQUIRED TO FOLLOW THE METHOD FOR TH E BEST JUDGEMENT ASSESSMENT U/S 144, IN TERMS OF THE PROVISIONS OF S ECTION 145(3). LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVE D THAT THAT HE AGREED THAT IF THE VALUATION OF CLOSING STOCK IS D ISTRIBUTED BY UPWARDLY RECOMPUTING THE SAME, THEN ON THE SAME YARDSTICK THE VALUE OF OPENING STOCK AS ON 1.4.2006 ALSO NEEDS TO BE INCRE ASED BY FOLLOWING THE SAME METHOD OF VALUATION. ACCORDINGLY, LD. CO MMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE ASSESSEES APPEAL. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT AS SESSEE HAS BEEN ITA NO. 4269/DEL/2010 7 FOLLOWING THE SAME METHOD OF STOCK FOR THE LAST MANY YEARS CONSISTENTLY. ACCORDINGLY, TO THIS METHOD OF VALU ATION, THE BOOKS ARE TWO YEARS OLD, THE VALUE IS TAKEN AT NIL. IN RESP ECT OF THOSE ITEMS OF STOCK WHICH ARE LESS THAN 2 YEARS OLD BUT MORE TH AN 1 YEAR OLD, THE VALUATION IS DONE AT 50% OF MRP LESS 15% TRADE DISCOU NT LESS 22.5% PROFIT MARGIN. FOR THOSE ITEMS OF STOCK WHICH ARE LE SS THAN 1 YEAR, THE VALUATION IS DONE BY REDUCING 15% DISCOUNT AND 22.5 % PROFIT MARGIN FROM THE MRP. LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS FURTHER FOUND THAT ON THE BASIS OF THE STOCK DETAIL OF FINA NCIAL YEAR ENDED 31.3.2002, 31.3.2003, 31.3.2004, 31.3.2005, THAT TH E ASSESSEE HAS FOLLOWED THE SAME METHOD OF STOCK VALUATION FOR L AST MANY YEARS. THE DIVERGENCE IN THE VALUATION ON THE DATE OF S URVEY AROSE BECAUSE THE SURRENDER OF THE UNACCOUNTED STOCK WAS MADE AT MRP AFTER REDUCING 15% DISCOUNT AND 22.5% GROSS PROFIT MARGIN IN RESPECT OF ALL THE STOCK ITEMS IRRESPECTIVE OF THEIR AGE. AS AGA INST THIS ISSUE OF STOCK WHICH REMAINED UNSOLD AS ON 31.3.2007 WERE VA LUED BY ADOPTING CONSISTENT METHOD OF STOCK VALUATION. WE FURTHER F IND MERIT IN THE LD. COMMISSIONER OF INCOME TAX (APPEALS)S OBSERVATION T HAT THE STATEMENT OBTAINED AT THE TIME OF SURVEY U/S 133A IS THE SOLE BASIS FOR ADDITION IN THIS REGARD. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY OBSERVED THAT THE PROVISIONS OF SECTION 133 A DO NOT EMPOWER ITA NO. 4269/DEL/2010 8 THE ASSESSING OFFICER TO RECORD THE STATEMENT ON OA TH. WE FURTHER AGREE WITH THE FINDING OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS) THAT THE ASSESSING OFFICER HAS IN EFFECT REJECTED THE TRADING RESULTS OF THE ASSESSEE, WITHOUT HOWEVER REJECTING T HE BOOKS OF ACCOUNTS AND WITHOUT GIVING ANY ADVERSE FINDING ON THE CORRECTNESS AND COMPLETENESS ON THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. IN THE BACKGROUND OF THE AFORESAID DISCU SSIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSION ER OF INCOME TAX (APPEALS). ACCORDINGLY, WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/12/2011. SD/- SD/- [ [ [ [ R.P. TOLANI R.P. TOLANI R.P. TOLANI R.P. TOLANI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 16/12/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES