Ratanraj Sarees Pvt.Ltd., Nadiad V. The Dy.CIT.,Kheda Circle, Nadiad

ITA 444/AHD/2009

• Counselvise Citation: 44420514 RSA 2009
• Duration Of Justice: 3 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 11-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR
• Assessee Lawyers: K I THAKKAR
• Keywords: Tax effect
• Section: 133A

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , !' !' !' !', , , , #$ #$ #$ #$ %& %& %& %& , , , , &' ( & &' ( & &' ( & &' ( & ' ' ' ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND TEJ RAM MEENA, ACCOUNTANT MEMBER) ITA NO.444/AHD/2009 [ASSTT.YEAR : 2004-2005] RATNARAJ SAREES PVT. LTD. BHAVSARWAD, NADIAD. PAN: AABCR 1050 R /VS. DCIT, KHEDA CIRCLE NADIAD. ITA NO.670/AHD/2009 [ASSTT.YEAR : 2004-2005] ACIT, CC-2 BARODA. /VS. RATNARAJ SAREES PVT. LTD. BHAVSARWAD, NADIAD. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) .% / 0 &/ ASSESSEE BY : SHRI K.I. THAKKAR ( / 0 &/ REVENUE BY : SHRI T. SHANKAR 2 / %3'/ DATE OF HEARING : 23 RD JULY, 2012 456 / %3'/ DATE OF PRONOUNCEMENT : 24-07-2012 &7 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE FOR THE ASSTT.YEAR 200 4-2005 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, BARODA DATED 18.12.2008. THESE ARE BEING DISPOSED OF WITH THIS CONSOLIDATED ORDER. ITA NO.444 AND 670/AHD/2009 -2 ITA NO.444/AHD/2009 (ASSESSEES APPEAL): 2. THE GROUND NO.1 OF THE ASSESSEES APPEAL READS AS UNDER: 1. THE LD.CIT(A) ERRED IN REJECTING CLAIM OF 50% D ISCOUNT IN RESPECT OF VALUATION OF STOCK ON THE SECOND FLOOR O F THE BUILDING OF THE APPELLANT. THE APPELLANT SUBMITS THAT THE S TOCK WAS OBSOLETE AND GOT OUT OF FASHION AND AS SUCH IT WAS PUT UP FOR SALE AT 50% DISCOUNT. BUT WHILE ARRIVING THE TOTAL STOCK VALUE 100% AMOUNT HAS BEEN CONSIDERED. THE APPELLANT SUB MITS THAT THEREFORE DEDUCTION SHOULD BE ALLOWED FROM THE VALU E OF STOCK TAKEN BY THE AO AT RS.66,61,760/-. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT SOME OF THE GOODS OF THE ASSESSEE HAD BECOME OBSOLETE AND OUT O F FASHION, AND THEREFORE, THESE WERE PUT UP FOR SALE AT 50% DISC OUNT. HE SUBMITTED THAT THE DEPARTMENT HAS VALUED THE STOCK BY TAKING ITS VALUE AT 100% AND HAS NOT ALLOWED ANY DEDUCTION ON ACCOUNT OF OUT OF FASHION STOCK FOR WHICH THE ASSESSEE HAS PUT UP FOR SALE AT 50% DISCOUNT AT THE SECOND FLOOR OF ITS BUSINESS PREMISES. HE REFERRED TO RELEVANT PORTIONS OF THE ASSESSMENT ORDER AND THE APPELLATE ORDER PAS SED BY THE CIT(A) AND POINTED OUT THAT DISCOUNT AT 50% OFFERED BY THE ASSESSEE DURING THE SALE COULD NOT BE CONTROVERTED ON BEHALF OF T HE REVENUE. HE REFERRED TO THE STATEMENT OF SHRI BAHRATBHAI B. SHA H, PARTNER OF THE ASSESSEE, RECORDED ON 14-10-2003 WHEREIN HE HAS STA TED ON OATH THAT THE FIRM WAS HOLDING THE DEAD STOCK OF SARIS, AND T HEREFORE THEY WERE GIVEN DISCOUNT UPTO 50% AND MADE ADVERTISEMENT IN B ILL, NEWSPAPER, TV CHANNELS AND PRESENTLY HAVE PUT UP FOR SALE AT SECOND FLOOR OF ITS PREMISES AT 50% DISCOUNT AND BANNER TO THIS EFFECT WAS ALSO DISPLAYED THEREIN. HE REFERRED TO THE AUDIT REPORT OF THE AU DITORS IN FORM NO.3CD WHEREIN THE METHOD OF VALUATION OF CLOSING S TOCK HAS BEEN SHOWN BY THE AUDITOR AS LOWER OF COST OR MARKET VA LUE. THE LEARNED ITA NO.444 AND 670/AHD/2009 -3 DR HAS OPPOSED THE SUBMISSION OF THE LEARNED COUNSE L OF THE ASSESSEE. HE REFERRED TO PARA-2 OF THE CIT(A)S ORDER WHEREIN THE CIT(A) HAS OBSERVED THAT PRINCIPLE FOR VALUATION OF STOCK AT C OST OR MARKET VALUE WHICHEVER IS LOWER WAS TO BE ADOPTED UNIFORMLY FOR PHYSICAL STOCK AS WELL AS BOOK STOCK. HE SUBMITTED THAT THE ASSESSEE HAS DEDUCTED GROSS PROFIT OUT OF TAG PRICE OF THE STOCK IN ORD ER TO ARRIVE AT COST PRICE OF THE GOODS, AND THEREFORE, IT CANNOT TAKE A DIFFERENT METHOD OF VALUATION OF STOCK AS MARKET VALUE WITH RESPECT TO THE GOODS KEPT FOR SALE AT DISCOUNT. HE RELIED ON THE ORDERS OF THE A O AND THE CIT(A). 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS CAREFULLY A ND HAVE PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND ALS O COPIES OF VARIOUS DOCUMENTS FILED BY THE ASSESSEE IN ITS COMP ILATION BEFORE US. WE FIND THAT METHOD OF VALUATION OF STOCK OF THE AS SESSEE IS ADMITTEDLY LOWER OF COST OR MARKET VALUE WE FIN D THAT SURVEY ACTION WAS TAKEN AT THE PREMISES OF THE ASSESSEE UN DER SECTION 133A OF THE ACT ON 14.10.2003, AND DURING THE SURVEY ACT ION, THE VALUE OF STOCK WAS WORKED OUT AT COST PRICE. THE DEPARTMENT HAS MADE A SUITABLE DEDUCTION ON ACCOUNT OF GROSS PROFIT OUT OF PHYSICAL STOCK FOUND AT THE TIME OF SURVEY AT ITS SALE PRICE IN OR DER TO ARRIVE THE COST PRICE OF THE PHYSICAL STOCK. IT IS NOT UNCOMMON TH AT SOME PART OF THE STOCK OF SARI BECOME OUT OF FASHION AFTER A LAPSE OF TIME AND HA VE TO BE PUT UP FOR SALE BY OFFERING SOME DISCOUNT TO THE CUSTOMERS. BUT IN ACCORDANCE WITH THE ACCEPTED PRINCIPLES OF ACCOUNTI NG, THE VALUE OF STOCK FOUND PHYSICALLY HAS TO BE ADOPTED UNIFORMLY EITHER AT MARKET PRICE OR AT COST PRICE, WHICHEVER IS LOWER. WE FIN D THAT THE ASSESSEE HAS BEEN ALLOWED DEDUCTION ON ACCOUNT OF GROSS PRO FIT OUT OF ITS SALE PRICE OF THE STOCK, AND THEREFORE IT IS OBVIOU S THAT THE ASSESSEE HAS TAKEN COST PRICE WHICH HAPPENS TO BE THE LOWER OF THE MARKET PRICE ITA NO.444 AND 670/AHD/2009 -4 OR THE COST. IF THE ARGUMENT OF THE ASSESSEE THAT SUITABLE DEDUCTION ON ACCOUNT OF OUT OF FASHION STOCK SHOULD BE ALLOWED, IS ACCEPTED, IT WILL LEAD TO THE PROPOSITION THAT THE OUT OF FASHION GOO DS WOULD BE VALUED AT MARKET PRICE (SINCE DISCOUNT OFFERED IS DEDUCTED ) AND THE OTHER PHYSICAL STOCK FOUND AT THE TIME OF SURVEY SHALL BE VALUED AT COST PRICE BY DEDUCTING THE GROSS PROFIT ELEMENT OUT OF THE TAG-PRICE OF THE GOODS. THIS METHOD OF VALUING THE STOCK BY VAL UING PART OF THE STOCK AT MARKET PRICE AND OTHER PART OF THE STOCK A T COST PRICE IS NOT PERMISSIBLE IN LAW. IN THESE FACTS OF THE CASE, WI THOUT COMMENTING ON THE MERIT OF THE CLAIM OF THE ASSESSEE THAT IT WAS OFFERING OBSOLETE ITEMS OF SARIS AT 50% DISCOUNT, WE HOLD THAT IN ACC ORDANCE WITH METHOD OF VALUATION OF STOCK ADOPTED BY THE ASSESSE E I.E. LOWER OF COST OR MARKET VALUE, NO FURTHER DEDUCTION FOR DIS COUNT SALE COULD BE ALLOWED TO THE ASSESSEE, AND MORE SO SINCE THE ASSE SSEE HAS ALREADY BEEN ALLOWED DEDUCTION OF GROSS PROFIT OUT OF SAL E PRICE OF THE GOODS WHILE VALUING THE PHYSICAL STOCK FOUND AT THE TIME OF SURVEY. IN THESE VIEW OF THE MATTER, WE HOLD THAT THERE IS NO MERIT IN THE GROUND NO.1 OF THE ASSESSEES APPEAL, AND ACCORDINGLY THE ORDER OF THE CIT(A) ON THIS ISSUE IS CONFIRMED AND THE GROUND NO.1 OF T HE ASSESSEES APPEAL IS DISMISSED. 5. THE GROUND NO.2 OF THE ASSESSEES APPEAL READS A S UNDER: 2. THE LD.CIT(A) ERRED IN REJECTING THE CLAIM OF T HE STOCK, WHICH WAS RECEIVED BUT THE BILLS FOR WHICH WERE NOT CREDITED IN THE BOOKS OF ACCOUNTS, PENDING FOR ACCOUNTING. IN FACT BILLS WERE THERE BUT IT IS NOT UNDERSTOOD WHY SURVEY PART IES NOT TAKEN INTO CONSIDERATION. AS IT WAS GENUINE STOCK FOR WH ICH NO DEBIT WAS MADE, IT IS SUBMITTED THAT THE ADDITION OF RS.2 ,42,000/- BE DELETED. ITA NO.444 AND 670/AHD/2009 -5 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT BILLS FOR RS.2,42,501/- WERE AVAILABLE AT THE BUSINESS PREMIS ES OF THE ASSESSEE AT THE TIME OF SURVEY AND EVEN SERIAL NUMBERS WERE PUT ON THEM BY SURVEY PARTY, BUT SOMEHOW THIS REMAINED TO BE INCLU DED IN THE INVENTORY OF BOOKS, DOCUMENTS PREPARED BY THE SURVE Y PARTY. HE SUBMITTED THESE FACTS WERE BROUGHT TO THE NOTICE OF THE DEPARTMENT IN THE RETURN OF INCOME FILED BY THE ASSESSEE AND STIL L ON THE PRETEXT OF INORDINATE DELAY TO MAKE THIS CLAIM, THE GENUINENES S OF THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED WITHOUT ANY VALID REA SONS. THE LEARNED DR SUBMITTED THAT INVENTORY OF STOCK WAS NOT PRODUC ED BY THE ASSESSEE BEFORE THE AO. HE SUBMITTED THAT NO SUCH INDICATION THAT THE BILLS OF RS.2,42,501/- AVAILABLE AT THE BUSINESS PR EMISES OF THE ASSESSEE WERE GIVEN TO THE DEPARTMENT AT THE TIME O F SURVEY AND IT WAS GIVEN ONLY IN THE RETURN OF INCOME FILED ONE YEAR L ATER, AND THEREFORE, INORDINATE DELAY IN MAKING THE CLAIM CASTS SERIOUS DOUBTS ABOUT GENUINENESS OF THE ASSESSEES CLAIM. HE SUBMITTED THAT THE ASSESSEE IN STATEMENT RECORDED AT THE TIME OF SURVEY SHOULD HAV E POINTED THE SOCALLED MISTAKE IN NOT SEEKING THE CREDIT FOR THE BILLS FOUND AVAILABLE AT THE TIME OF SURVEY. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PE RUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE ASSESSEE HAS PRODUCED BILLS AMOUNTING TO RS.2,42,501/- AND HAS C LAIMED IN ITS RETURN OF INCOME BEFORE THE DEPARTMENT. MERELY BEC AUSE THERE WAS DELAY IN MAKING THE CLAIM AND THE CLAIM WAS NOT MAD E AT THE TIME OF SURVEY ITSELF OR AT THE TIME OF MAKING STATEMENT OF THE PARTNER OF THE ASSESSEE-FIRM, IT COULD NOT BE SAID THAT THE FACTS SHOULD NOT HAVE BEEN VERIFIED BY THE AO AND CREDIT OF THE BILLS OF RS.2, 42,501/- CLAIMED TO BE AVAILABLE AT THE BUSINESS PREMISES OF THE ASSESS EE AT THE TIME OF ITA NO.444 AND 670/AHD/2009 -6 SURVEY WAS NOT ALLOWABLE. THERE IS NO MATERIAL BEF ORE US TO SUGGEST THAT ANY EXERCISE TO VERIFY THE GENUINENESS OF THE BILLS OF RS.2,42,501/- WAS MADE BY THE AO AT ANY STAGE OF THE ASSESSMENT A ND NO REASON FOR NOT DOING SO COULD BE ASSIGNED, AND THEREFORE, THE ADDITION MADE MERELY ON SUSPICION COULD NOT BE SUSTAINED, WITHOUT BRINGING ANY MATERIAL ON RECORD TO DOUBT THE GENUINENESS THEREOF , AND ACCORDINGLY THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. 8. THE GROUND NO.3 AND 4 OF THE ASSESSEES APPEALS ARE AS UNDER: 3. THE LD.CIT(A) ERRED IN REJECTING THE CLAIM OF THE VALUE OF CLOSING STOCK, WHICH WAS TAKEN AT RS.2,97,529/- IN THE BOOKS OF ACCOUNTS AND FOR WHICH AMOUNT WAS CLAIMED OF RS.195 ,702/-. IT IS THEREFORE SUBMITTED THAT THE DIFFERENCE BETWEEN RS.2,97,529/- AND RS.1,95,702/- MAY KINDLY BE ALLOWED AS A DEDUCT ION. 4. THE LD.CIT(A) ERRED IN RESTRICTING THE DEDUCTION OF DISCOUNT FROM RS.1,08,000/- TO RS.81,000/- THE APP ELLANT SUBMITS THAT DEDUCTION SHOULD BE ALLOWED AT RS.1,08 ,000/- AS AGAINST RS.81,000/- 9. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRE SSED THESE GROUNDS OF THE APPEAL WHICH ARE ACCORDINGLY DISMISS ED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.670/AHD/2009 (REVENUES APPEAL) 11. THE GROUND NOS.1 AND 2 OF THE REVENUES APPEAL READ AS UNDER: I) THE CIT(A) HAS ERRED IN LAW AND FACTS IN DELETI NG THE ADDITION OF RS.81,000/- ON ACCOUNT OF TRADE DISCOUN T, RS.1,08,752/- ON ACCOUNT OF GROSS SALES AND RS.1,95 ,702/- ON ITA NO.444 AND 670/AHD/2009 -7 ACCOUNT OF SHORTAGE OF DISCLOSURE OUT OF THE TOTAL ADDITION OF RS.11,00,000/- II) THE CIT(A) HAS ERRED IN LAW AND FACTS IN DELET ING THE ADDITION OF RS.4.00 LAKHS MADE BY APPLYING THE PROV ISIONS OF SECTION 145(3) OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS POINTED OU T THAT THE DISPUTED TAX EFFECT IN THIS CASE IS LESS THAN RS.2 LAKHS AND AS PER VARIOUS INSTRUCTIONS OF THE CBDT ISSUED FROM TIME TO TIME, RESTRICTED THE FILING OF THE APPEAL BY THE REVENUE, THE PRESENT APPEAL IS NOT MAINTAINABLE. THE LEARNED DR COULD NOT CONTROVERT THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE. 12. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT ITAT IS TAKING CONSISTENT VIEW ON THE ISSUE OF ADMISSIBILITY OF APPEAL FILED BY TH E REVENUE IN THE LIGHT OF VARIOUS INSTRUCTIONS ISSUED BY CBDT FROM T IME TO TIME, VIZ. INSTRUCTION NO.1979 DATED 27-3-2000, NO.1985 DATED 29-6-2000, NO.6 OF 2003 DATED 17-70-2003, NO.19 OF 2003 DATED 23-12 -2003, NO.5/2004 DATED 27-5-2004, NO.2/2005 DATED 24-10-20 05 AND NO.5/2007 DATED 16-7-2007 AND INSTRUCTION NO.F.NO.2 79/MISC.142/ 2007-IT DATED 15-5-2008 WHEREIN MONETARY LIMITS FOR FILING DEPARTMENTAL APPEALS (INCOME-TAX MATTERS) AND OTHER CONDITIONS WERE SPECIFIED, RESTRICTING FILING APPEALS BEFORE APPELL ATE TRIBUNAL. WE THEREFORE HOLD THAT THE PRESENT APPEAL OF THE DEPAR TMENT IS NOT MAINTAINABLE IN VIEW OF THE ABOVE CBDT CIRCULARS, A ND ACCORDINGLY DISMISS THE APPEAL OF THE REVENUE IN LIMINE ITA NO.444 AND 670/AHD/2009 -8 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. ( %& %& %& %& / TEJ RAM MEENA) &' ( &' ( &' ( &' ( /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD