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ITA 430/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80917 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 469/CHD/2013 ASSESSMENT YEAR: 2006-07 SHRI AJAY KNITWEARS & V THE ACIT, FABRICS PVT. LTD., CIRCLE III, RAHON ROAD, LUDHIANA. LUDHIANA. PAN: AACCA0883C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARI OM AROR A RESPONDENT BY : SHRI J.S. NAGAR DATE OF HEARING : 29.09.2014 DATE OF PRONOUNCEMENT : 30.09.2014 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS)-II LUDHIANA DATED 27.02.2013 FOR ASSES SMENT YEAR 2006-07. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSI DERED THE MATERIAL ON RECORD. 3. THE ASSESSEE IN ALL THE GROUNDS OF APPEAL RAISED TWO GROUNDS MAINLY. IN FIRST POINT, THE ASSESSEE CHALL ENGED ADDITION OF RS. 10,18,939/- ON ACCOUNT OF DIFFERENCE IN ACCO UNT OF ASSESSEE AND THE ACCOUNTS SUBMITTED BY M/S PUNEET C REATIONS. IT IS NOTED IN THE IMPUGNED ORDER THAT ASSESSEE HAD MADE SALES TO M/S PUNEET CREATIONS, MUMBAI. THE ASSESSING OFF ICER CALLED 2 FOR INFORMATION UNDER SECTION 133(6) FROM M/S PUNEE T CREATIONS AND INFORMED THAT THERE WAS A DIFFERENCE IN THE CLO SING BALANCE AS SHOWN BY M/S PUNEET CREATIONS AND AS SHOWN BY TH E ASSESSEE. THE ASSESSEE SUBMITTED RECONCILIATION ST ATEMENT AS PER WHICH SALES RETURN AMOUNTED TO RS. 10,18,939/- WHICH WAS ENTERED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT, WA S NOT SHOWN BY M/S PUNEET CREATIONS. THE DETAILS OF THE SAME A RE NOTED IN THE ASSESSMENT ORDER, HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT IF NET SALES WERE RETURNED BY M/S PUNEET CREATIONS, THEY SHOULD HAVE BEEN ENTERED IN THE BOOKS OF ACCOU NT OF M/S PUNEET CREATIONS. THE ASSESSING OFFICER ALSO OBSERV ED THAT THESE SALES RETURNS ARE CLAIMED BY THE ASSESSEE TO BE IN YEAR 2005, WHEREAS EVEN IN 2008 WHEN INFORMATION WAS CALLED FO R UNDER SECTION 133(6), THERE IS NO MENTION OF ANY SUCH RET URN BY M/S PUNEET CREATIONS. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS BOOKED BOGUS SALES RETURN WORTH RS. 10 ,18,939/-. THEREAFTER, THE ASSESSEE CLAIMED THE AMOUNTS OF RS. 3,54,342/- AND RS. 2,99,333/- WERE ACTUALLY SALES RETURN BY TH E AFORESAID COMPANY. THE ASSESSEE CLAIMED THAT THEY HAD SOLD G OODS TO M/S PUNEET CREATIONS, MUMBAI BUT THE LATER REQUIRED THE M TO BE DELIVERED TO M/S VALLABH YARNS PVT. LTD. THE ASSES SING OFFICER DID NOT FOUND EXPLANATION TO BE SATISFACTORY AND WA S OF THE VIEW THAT PARTIES WOULD HAVE INFORMED IN THIS REGARD. T HE ASSESSING OFFICER ACCORDINGLY HELD THAT BY MAKING OWN CREDIT OR DEBIT NOTES, THE ASSESSEE CANNOT SHOW THE REDUCTION IN TH E SALES UNLESS THE CONFIRMATION OF THE REJECTION HAS COME F ROM THE CONCERNED PARTY. ADDITION WAS ACCORDINGLY MADE. 3 4. THE LD. LD. CIT(APPEALS) CONFIRMED THE ADDITION. HIS FINDINGS IN PARA 4.2 ARE REPRODUCED AS UNDER : 4.2 THE AR OF THE APPELLANT VIDE HIS WRITTEN SUBM ISSIONS DATED 25.02.2013 REITERATED THE SUBMISSIONS MADE DU RING THE COURSE OF ASSESSMENT PROCEEDINGS. I HAVE CAREFU LLY CONSIDERED THE APPELLANT'S SUBMISSIONS AND PERUSED THE ASSESSMENT ORDER. THE AO, IN A DETAILED ORDER, HAS CONSIDERED ALL THE ISSUES RAISED BY THE APPELLANT A ND HAS SHOWN THAT THE CLAIM OF SALES RETURN AMOUNTING TO R S. 10,18,939/- WAS NOT SUSTAINABLE. EVEN DURING THE CO URSE OF APPELLANT PROCEEDINGS THE APPELLANT HAS NOT BEEN AB LE TO PROVIDE ANY EVIDENCE WITH REGARD TO THE CLAIM OF SA LES RETURN FROM M/S PUNEET CREATIONS. THE FACT REMAINS THAT TH E CLAIM OF SALES RETURN HAS BEEN MADE MERELY ON THE BASIS O F SELF CREATED CREDIT NOTE BY THE APPELLANT WITHOUT ANY CO NFIRMATION FROM M/S PUNEET CREATIONS WITH REGARD TO THE SALES RETURN. THE FACT ALSO REMAINS THAT THESE SALES RETURNS PERT AINED TO THE YEAR 2005 AND EVEN TILL DATE M/S PUNEET CREATIO NS HAS FAILED TO CONFIRM THAT IT HAD RETURNED THE SALES AM OUNTING TO RS. 10,18,939/-. THE CLAIM OF THE APPELLANT THAT PA RT OF SALES RETURN WAS MADE BY M/S VALLABH YARNS PVT. LTD. IS A LSO A SELF SERVING STATEMENT WITHOUT ANY THIRD PART CONFI RMATION. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE THE DISAL LOWANCE OF RS. 10,18,939/- MADE BY THE ASSESSING OFFICER IS CONFIRMED. THIS GROUND OF APPEAL IS ACCORDINGLY DI SMISSED. 5. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGES 95 TO 10 6 OF THE PAPER BOOK ALONGWITH DEBIT AND CREDIT NOTE FILED AT PAGE 107 TO 116 OF THE PAPER BOOK AND DEBIT NOTE ISSUED BY M/S PUNEET CREATIONS, COPIES OF WHICH ARE FILED AT PAGE 117 AND 119 OF TH E PAPER BOOK AND SUBMITTED THAT THE ADDITION IS WHOLLY UNJUSTIFI ED BECAUSE WHATEVER PAPERS WERE SUPPLIED BY THE ASSESSING OFFI CER, FIND MENTION OF THE SALES RETURN. 6. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT ASS ESSEE HAS FAILED TO SUBSTANTIATE THE SUBMISSIONS THROUGH ANY INDEPENDENT EVIDENCE, THEREFORE, ADDITION IS JUSTIFIED. IN THE PREMISE OF THIS FACT, IT IS CLEAR THAT ASSESSEE CLAIMED SALES RETUR N, HOWEVER FOR THE SAME, ASSESSEE DID NOT PRODUCE ANY CONFIRMATION FROM M/S 4 PUNEET CREATIONS TO EXPLAIN THE ISSUE. WHATEVER DE BIT OR CREDIT NOTES WERE FURNISHED, WERE NOT SUBJECTED TO ANY COR ROBORATED EVIDENCES. THE SUBMISSION OF THE ASSESSEE BEFORE L D. CIT(APPEALS) IS PLACED AT PAGE 1 OF THE PAPER BOOK IN WHICH THE ASSESSEE ITSELF HAS CLAIMED THAT DUE TO NON ENTERIN G CERTAIN CREDIT NOTES BY THE CONCERNED PARTY, THERE WAS A DI FFERENCE. NOW THE ASSESSEE HAS CLAIMED BEFORE US THAT THERE WERE PROPER ENTRIES WHICH HAVE BEEN IGNORED BY THE ASSESSING OF FICER AND THE LD. CIT(APPEALS). SUCH A CONTENTION OF THE ASSESSE E IS COMPLETELY IN CONTRADICTION OF THE SUBMISSIONS MADE BEFORE LD. CIT(APPEALS) SINCE ASSESSEE HAS FAILED TO PROVE GEN UINE SALES RETURN FROM M/S PUNEET CREATIONS AND NO CONFIRMATIO N OF THE CONCERNED PARTIES HAVE BEEN FILED, WOULD ESTABLISH THAT ASSESSEE FAILED TO PROVE THE DIFFERENCES IN THE ACCOUNT OF T HE ASSESSEE WITH THE AFORESAID PARTY. IN THESE CIRCUMSTANCES A ND IN THE ABSENCE OF ANY EVIDENCE ON RECORD, WE DO NOT FIND A NY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE A UTHORITIES BELOW. WE CONFIRM THE ADDITION AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 7. ON POINT NO. 2, ASSESSEE CHALLENGED THE ADDITION OF RS. 4,19,633/- ON ACCOUNT OF DIFFERENCE IN VALUATION OF CLOSING STOCK. THE ASSESSING OFFICER ASKED THE ASSESSEE TO GIVE DE TAILS OF OPENING AND CLOSING STOCK AND TO SHOW HOW THE VALUA TION OF STOCK HAD BEEN MADE. DESPITE OPPORTUNITIES, ASSESS EE FAILED TO GIVE THESE DETAILS, THEREFORE ASSESSING OFFICER OBS ERVED THAT THESE WOULD INDICATE THAT CLOSING STOCK DETAILS WER E NOT MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER A LSO REFERRED TO TAX AUDIT REPORT OF THE ASSESSEE WHEREIN COLUMN NO. 28(B), IT 5 HAD BEEN STATED BY THE AUDITORS THAT THE ASSESSEE W AS NOT MAINTAINING ANY DAY-TO-DAY PRODUCTION RECORDS AND S O THE QUANTITATIVE DETAILS CANNOT BE PROVIDED. FINALLY, THE ASSESSEE PROVIDED THE CLOSING STOCK OF FIVE ITEMS. THESE DET AILS HAVE BEEN ELABORATED ON PAGE 7 IN PARA 5.2 OF THE ASSESSMENT ORDER. AS PER THESE DETAILS, THE TOTAL QUANTITY OF CLOSING STOCK OF THE YARN WAS SHOWN AS 92231.87 KG AND THE SAME WAS VALUED AT RS. 89,70,495/-, THUS SHOWING AN AVERAGE RATE OF RS. 97 .26 PER KG. THE ASSESSING OFFICER NOTED THAT TOTAL PURCHASES OF YARN DURING THE LAST THREE MONTHS I.E. JANUARY TO MARCH, 2006 W AS 106623 KG FOR AN AMOUNT OF RS. 1,09,20,317/-, THUS SHOWING AVERAGE RATE OF 102.42 PER KG. THE ASSESSING OFFICER ALSO NOTED THAT THE STOCK TURNOVER RATIO OF THE ASSESSEE WAS 4.5 MONTHS AND THE AVERAGE RATE OF THE PURCHASE OF YARN DURING THE LAS T FIVE MONTHS OF THE YEAR WAS RS. 101.81 PER KG. THE ASSESSING OF FICER WAS OF THE VIEW THAT THE VALUATION OF THE CLOSING STOCK WA S NOT CORRECTLY SHOWN. THE ASSESSEE WAS FOLLOWING FIFO METHOD OF V ALUATION OF CLOSING STOCK OF THE YARN AND BASED ON IT, THE VALU ATION SHOWN BY THE ASSESSEE WAS CORRECT, AS PER STATEMENT OF TH E ASSESSEE. THE ASSESSING OFFICER AFTER CONSIDERING SUBMISSION OF THE ASSESSEE HELD THAT VALUATION OF THE CLOSING STOCK O F YARN SHOWN BY THE ASSESSEE WAS NOT CORRECT. THE ASSESSING OFF ICER HELD THAT THE CLOSING STOCK IS TO BE VALUED AT THE AVERAGE RA TE OF PURCHASES. THE ASSESSING OFFICER ALSO OBSERVED THA T AVERAGE RATE OF PURCHASES DURING THE LAST FIVE MONTHS WHICH WAS WORKED OUT TO RS. 101.81 PER KG, WAS MORE BENEFICIAL TO TH E ASSESSEE THAN THE AVERAGE RATE OF RS. 102.42 PER KG FOR THE LAST THREE MONTHS. THE ASSESSING OFFICER, ACCORDINGLY FOLLOWE D THE CLOSING 6 STOCK @ RS. 101.81 PER KG YARN WHICH RESULTED IN AD DITION OF RS. 4,19,633/-. 8. THE ASSESSEE REITERATED BEFORE LD. LD. CIT(APPEA LS) THAT VALUATION WAS BASED ON FIFO METHOD. HOWEVER, LD. C IT(APPEALS) DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND DISMI SSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 5.3 O F THE IMPUGNED ORDER ARE REPRODUCED AS UNDER : 5.2 1 HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBMISSIONS AND THE FACTS BROUGHT OUT BY THE AO IN THE ASSESSMENT ORDER. THE AO HAS COMPUTED THE AVERAGE R ATE OF PURCHASES FOR THE LAST THREE MONTHS AT RS. 102.42 P ER KG AND THE AVERAGE RATE OF PURCHASES OF YARN FOR THE L AST FIVE MONTHS AT THE RATE OF 101.81 PER KG. THE APPELLANT HAS CONTENDED THAT IT WAS FOLLOWING FIFO METHOD FOR THE VALUATION OF CLOSING STOCK. IF THE APPELLANT'S CONT ENTION IS HELD TO BE CORRECT THAN THE VALUATION OF CLOSING ST OCK OF YARN HAS TO BE MADE ON THE BASIS OF PURCHASES MADE DURIN G THE LAST THREE MONTHS WHICH WORKS OUT TO AN AVERAGE RAT E OF RS. 102.42 PER KG. THIS IN FACT WOULD LEAD TO ENHANCEME NT OF ADDITION IN THE APPELLANT'S CASE. IN THESE CIRCUMST ANCES THE AO WAS FAIR AND REASONABLE IN TAKING THE AVERAGE RA TE OF PURCHASES FOR THE LAST FIVE MONTHS ON THE BASIS OF STOCK TURNOVER RATIO WHICH WORKED OUT TO RS. 101.81 PER K G. THE APPELLANT HAS NOT SHOWN ANY EVIDENCE AND HAS FAILED TO GIVE ANY EXPLANATION OR BASIS WITH REGARD TO THE VA LUATION OF YARN AT THE RATE OF RS. 97.26 PER KG. KEEPING IN VIEW THESE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDIT ION MADE BY THE AO IS CONFIRMED. THIS GROUND OF APPEAL IS AC CORDINGLY DISMISSED. 9. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. IT IS W ELL SETTLED LAW THAT THE VALUATION OF THE CLOSING STOCK IS TO BE MA DE AS PER PAST OR MARKET VALUE, WHICHEVER IS LESS. THE ASSESSING OFFICER, INSTEAD OF FOLLOWING THE ABOVE PRINCIPLE, HAS TAKEN CERTAIN FIGURES FROM THE TAX AUDIT REPORT AND NOTED THE DET AILS FOR THE LAST THREE MONTHS I.E. JANUARY TO MARCH, 2006 WHILE CONSIDERING THIS ISSUE OF VALUATION OF THE CLOSING STOCK. NO R EASONS HAVE BEEN GIVEN WHY THE DETAILS OF THE WHOLE OF THE YEAR HAVE NOT BEEN 7 CONSIDERED BY THE ASSESSING OFFICER. THE ASSESSEE CLAIMED THE VALUATION OF THE CLOSING STOCK AS PER FIFO METHOD. THEREFORE, THE ASSESSING OFFICER SHOULD HAVE EXAMINED THIS SUB MISSION OF THE ASSESSEE IN THE LIGHT OF THE COMPLETE DATA PROV IDED FOR THE WHOLE YEAR. THE AVERAGE RATE OF PURCHASE SHOULD NO T HAVE BEEN TAKEN WITHOUT CONSIDERING THE HISTORY OF THE ASSESS EE. IN THE ABSENCE OF COMPLETE DETAILS OF THE WHOLE OF THE YEA R, THE ADDITION WOULD NOT BE JUSTIFIED AS PROPOSED BY THE ASSESSING OFFICER. FURTHER, THE LAST YEARS CLOSING STOCK WOULD HAVE B EEN THE OPENING STOCK IN THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THAT METHOD SHOULD ALSO BE CONSIDERED BY THE ASSESS ING OFFICER AND IN CASE ANY ADDITION IS MADE TO THE CLOSING STO CK OF THE YEAR, THE OPENING STOCK OF NEXT YEAR SHOULD HAVE BE EN ENHANCED. HOWEVER, IN THE ABSENCE OF ANY SUCH CONSIDERATION, IT APPEARS THAT THE ASSESSING OFFICER WITHOUT ANY JUSTIFICATIO N MADE ADDITION ON ACCOUNT OF UNDER VALUATION OF THE CLOSI NG STOCK. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE ORDE RS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. IN THE RESULT, THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2014. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH SEPTEMBER,2014. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH