Sri Ganapathy Silks, CHENNAI V. ACIT, Madurai

ITA 452/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8722 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: D ANAND
• Keywords: Unexplained investment
• Section: 133A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 452/MDS/2016 ' (' / ASSESSMENT YEAR : 2008-09 M/S SRI GANAPATHY SILKS, C/O PASS ASSOCIATES, NO.90, ARMENIAN STREET, 4 TH FLOOR, ORIENT CHAMBERS, CHENNAI - 600 001. PAN : AADFS 6190 E V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE III, MADURAI. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI D. ANAND, ADVOCATE ,-*+ . / / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT 0 . 1$ / DATE OF HEARING : 05.05.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 22.07.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 19, CHEN NAI, DATED 17.12.2015 AND PERTAINS TO THE ASSESSMENT YEAR 2008 -09. 2 I.T.A. NO.452/MDS/2016 2. SHRI D. ANAND, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE, PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF RETAIL TEXTILE IN COIMBATORE AND SANKARANKOIL. THE RE WAS SEARCH OPERATION AT THE RESIDENTIAL PREMISES OF THE PARTNE RS OF THE ASSESSEE AND ALSO IN THE GODOWN AT COIMBATORE. THERE WAS SI MULTANEOUS SURVEY UNDER SECTION 133A OF THE INCOME-TAX ACT, 19 61 (IN SHORT 'THE ACT') IN OTHER BUSINESS PREMISES AT SANKARANKO IL AND COIMBATORE ON THE SAME DAY. DURING THE COURSE OF S EARCH AND SURVEY OPERATION, THE REVENUE AUTHORITIES FOUND EXC ESS STOCK AT COIMBATORE AND SANKARANKOIL. THE ASSESSING OFFICER , IN FACT, FOUND EXCESS STOCK AT SANKARANTKOIL WHICH WAS VALUED AT ` 63,72,427/-. SIMILARLY, THE ASSESSING OFFICER FOUND UNACCOUNTED INVESTMENT AT COIMBATORE AT ` 90,46,580/-. THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNT REGULARLY AND ALSO MAINTAINING THE ACCOUNTS IN VASTRA SOFTWARE. IN V ASTRA SOFTWARE, THERE ARE SOME DUPLICATION OF ENTRIES WHICH RESULTE D THAT THE ACCOUNTS ARE NOT PROPER. WHEN THIS WAS DEMONSTRATE D BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER ACCEPTED T HE PLEA OF THE ASSESSEE AND FOUND THAT VASTRA SOFTWARE DOES NOT RE FLECT THE CORRECT STOCK POSITION. HOWEVER, THE ASSESSING OFF ICER FOUND THE DIFFERENCE BETWEEN THE BOOK VALUE AND THE PHYSICAL INVENTORY TAKEN 3 I.T.A. NO.452/MDS/2016 ON THE DATE OF SEARCH, HAS TO BE TREATED AS UNACCOU NTED INVESTMENT IN THE STOCK. ACCORDING TO THE LD. COUNSEL, IN THE TEXTILE BUSINESS, THE DESIGN AND FASHION ARE CHANGING DAY BY DAY. TH EREFORE, IF THE ASSESSEE COULD NOT SELL THE PRODUCT IN THE YEAR IN WHICH IT WAS PURCHASED, THE SAME HAS TO BE SOLD AT A DISCOUNTED PRICE IN THE SUBSEQUENT YEARS. THE DAMAGED PIECE OF THE GOODS H AS TO BE DISCOUNTED WHILE TAKING INVENTORY BY THE REVENUE AU THORITIES. THE REVENUE AUTHORITIES COMPLETED THE PHYSICAL INVENTOR Y IN HURRIED MANNER WITHIN 24 HOURS. ACCORDING TO THE LD. COUNS EL, THE REVENUE AUTHORITIES COULD NOT TAKE THE PHYSICAL INVENTORY W ITHIN A PERIOD OF 24 HOURS. 3. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT WHILE TAKING INVENTORY OF STOCK, THE ASSESSING OFFICER AR RIVED AT THE VALUE OF STOCK BY TAKING THE TAGGED PRICE OF THE STOCK AN D THEREAFTER ADJUSTED THE GROSS PROFIT DECLARED BY THE ASSESSEE AND GAVE A MEAGRE DISCOUNT OF 2.78% ON ACCOUNT OF DEAD STOCK, AND THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT DISCOUNT FOR DEAD STOCK WILL BE MORE THAN 10%. THIS WAS NOT CON SIDERED EITHER BY THE ASSESSING OFFICER OR CIT(APPEALS). THE LD.C OUNSEL FURTHER SUBMITTED THAT IT IS A COMMON PRACTICE IN TEXTILE B USINESS THAT GOODS 4 I.T.A. NO.452/MDS/2016 PURCHASED ON WHOLESALE NEED TO BE EXAMINED WITH REG ARD TO PHYSICAL DAMAGE TO GOODS AND OBSOLETE STOCKS. THE DAMAGED GOODS AND OBSOLETE STOCK WOULD NORMALLY BE SOLD IN KILOGRAMS WHICH RESULTS IN HUGE LOSSES TO THE ASSESSEE. HUGE DISCOUNTS ARE ALSO GIVEN DURING FESTIVAL SEASON AND TO THE REGULA R CUSTOMERS OF THE ASSESSEE. THESE DISCOUNTS AND THE DISCOUNTS GI VEN DURING FESTIVAL SEASON WERE NOT TAKEN INTO CONSIDERATION B Y THE REVENUE AUTHORITIES WHILE TAKING THE PHYSICAL INVENTORY. R EFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD.COUNSEL POINTED O UT THAT THE CIT(APPEALS) HAS TAKEN THE UNACCOUNTED STOCK AT SAN KANKOIL AT ` 40,33,282/- AS AGAINST ` 63,72,427/-. ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) OUGHT TO HAVE DELETED THE ENTIRE A DDITION MADE BY THE ASSESSING OFFICER. 4. REFERRING TO THE ORDER OF THE CIT(APPEALS), MORE PARTICULARLY AT PAGS 13 AND 14, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS) HAS TAKEN THE GROSS PROFIT MARGIN AT 14.87% AND DETERMINED THE INVESTMENT IN THE UNACCOUNTED STOCK AT ` 40,33,282/- REFERRING TO THE ALLOWANCE FOR DEAD STOCK, THE LD.C OUNSEL SUBMITTED THAT THE CIT(APPEALS), AFTER REPRODUCING THE REMAND REPORT SAID TO BE FILED BY THE ASSESSING OFFICER, REJECTED THE CLA IM OF THE ASSESSEE 5 I.T.A. NO.452/MDS/2016 FOR ALLOWING 10% ALLOWANCE FOR DEAD STOCK. ACCORDI NG TO THE LD. COUNSEL, THE CIT(APPEALS) OUGHT TO HAVE ALLOWED DEA D STOCK TO THE EXTENT OF 10% AS CLAIMED BY THE ASSESSEE. MOREOVER , THE DISCOUNT THAT MAY BE GIVEN BY THE ASSESSEE ALSO NEEDS TO BE TAKEN INTO CONSIDERATION WHILE CONSIDERING THE GROSS PROFIT. 5. REFERRING TO THE ADDITION MADE WITH REGARD TO CO IMBATORE BRANCH, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ADDITION WAS MADE BY THE ASSESSING OFFICER TO THE EXTENT OF ` 90,46,580/-. THE CIT(APPEALS), AFTER CONSIDERING THE ARITHMETIC ERROR COMMITTED BY THE ASSESSING OFFICER, FOUND THAT THE ACTUAL DIF FERENCE WAS ONLY ` 26,74,766/-. HERE ALSO, ALLOWANCE FOR DEAD STOCK W AS NOT GIVEN AND THE ASSESSING OFFICER FAILED TO GIVE DISCOUNTS TO THE ITEMS WHICH REMAIN UNSOLD FOR MORE THAN ONE YEAR. THEREFORE, A CCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) OUGHT TO HAVE DELETED THE ENTIRE ADDITION TOWARDS THE SO-CALLED UNACCOUNTED INVESTME NT IN THE STOCK. 6. COMING TO THE INFLATED PURCHASES TO THE EXTENT O F ` 2,73,97,185/-, THE LD.COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THA T TEXTILE MATERIALS ARE PURCHASED IN THE SHANDY MARKET THROUG HOUT THE COUNTRY. TEXTILES, HANDLOOM AND POWERLOOM PRODUCTS WERE 6 I.T.A. NO.452/MDS/2016 PURCHASED FROM SHANDY MARKET. NO BILLS WERE AVAILA BLE IN ALL THESE TRANSACTION. THEREFORE, THE SAME WAS ROUTED THROUG H AN ENTITY KNOWN AS M/S NARAYANA AGENCIES CREATED BY THE ASSES SEE. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT NARAYANA A GENCIES IS A NON-EXISTING ENTITY. ACCORDING TO THE LD. COUNSEL, NARAYANA AGENCIES WAS ESTABLISHED BY THE ASSESSEE FOR THE PU RPOSE OF ROUTING THE SUNDRY PURCHASES MADE IN SHANDY MARKET. THE LD.COUNSEL FURTHER SUBMITTED THAT ONE M/S YOGESH TR ADING COMPANY AT DELHI PURCHASED TEXTILE GOODS IN SHANDY MARKET IN NORTHERN INDIA FOR THE ASSESSEE. THE SAME WAS ROUT ED THROUGH NARAYANA AGENCIES. REFERRING TO THE COPIES OF CITY UNION BANK STATEMENTS OF ACCOUNT MAINTAINED AT COIMBATORE, THE LD.COUNSEL SUBMITTED THAT THE PAYMENT WAS MADE TO YOGESH TRADI NG COMPANY THROUGH BANKING CHANNEL. IN FACT, ` 1,52,56,423/- WAS PAID THROUGH BANKING CHANNEL TO M/S YOGESH TRADING COMPANY. IN FACT, M/S YOGESH TRADING COMPANY CONFIRMED THE PAYMENT MADE B Y THE ASSESSEE ON BEHALF OF M/S NARAYANA AGENCIES. A COP Y OF THIS LETTER IS AVAILABLE AT PAGE 9 OF THE PAPER-BOOK. THIS WAS OMITTED TO BE CONSIDERED BY THE ASSESSING OFFICER. THE EXISTENCE OF M/S YOGESH TRADING COMPANY AT DELHI IS NOT IN DISPUTE. THE PAYMENT MADE BY 7 I.T.A. NO.452/MDS/2016 THE ASSESSEE THROUGH BANKING CHANNEL TO M/S YOGESH TRADING COMPANY IS ALSO NOT IN DISPUTE. M/S YOGESH TRADING COMPANY IN FACT CONFIRMED THAT THE GOODS WERE DISPATCHED TO TH E ASSESSEE THROUGH M/S NARAYANA AGENCIES. THE PAYMENT WAS REC EIVED FROM THE ASSESSEE ON BEHALF OF NARAYANA AGENCIES. THESE MATERIAL FACTS CANNOT BE DISPUTED BY THE REVENUE MERELY BECA USE SOME OF THE EMPLOYEES WERE AVAILABLE IN THE PREMISES OF NAR AYANA AGENCIES DURING THE VISIT OF THE OFFICERS. THE LD .COUNSEL FURTHER SUBMITTED THAT ON THE DATE OF SEARCH, THE OUTSTANDI NG AMOUNT PAYABLE TO M/S YOGESH TRADING COMPANY WAS ` 28,44,740/-. ACCORDING TO THE LD. COUNSEL, THIS AMOUNT HAS TO BE REDUCED FROM THE SHANDY PURCHASE OF ` 2,73,54,211/-. MOREOVER, THE ASSESSEE WAS GIVEN DISCOUNT OF ` 26,86,875/-. IF THE OUTSTANDING AMOUNT OF ` 28,44,740/-, THE PAYMENTS MADE THROUGH BANKING CHAN NEL TO M/S YOGESH TRADING COMPANY TO THE EXTENT OF ` 1,52,56,423/- AND DISCOUNTS OF ` 26,86,875 WERE TAKEN INTO CONSIDERATION, IT CAN BE SAFELY CONCLUDED THAT ` 2,07,88,038/- CANNOT BE CONSTRUED AS UNACCOUNTED INVESTMENT. THEREFORE, THE UNACCOUNTED INVESTMENT, IF ANY, COULD BE ONLY TO THE EXTENT OF ` 65,66,173/-. IN VIEW OF THE ABOVE, ACCORDING TO THE LD. COUNSEL, THE ADDITION M ADE BY THE ASSESSING OFFICER TO THE EXTENT OF ` 2,73,97,185/- TOWARDS INFLATED 8 I.T.A. NO.452/MDS/2016 PURCHASE CANNOT STAND. ACCORDING TO THE LD. COUNSE L, THE ADDITION MADE BY THE ASSESSING OFFICER AS CONFIRMED BY THE C IT(APPEALS) CANNOT STAND IN THE EYE OF LAW. 7. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT DURING THE COURSE OF SEARCH OPERATION, THE REVENUE AUTHORITIES ADMITTEDLY FOUND EXCESS PHYSICAL STOCK OF TEXTILES AT SANKARANKOIL AND COIMBATORE. IN RESPECT OF SANKARANKOIL, THE ASSESSING OFFICER FOUND UNACCOUNT ED INVESTMENT IN THE STOCK TO THE EXTENT OF ` 63,72,427/-. THE CIT(APPEALS) BY ACCEPTING THE CLAIM OF THE ASSESSEE RESTRICTED THE UNACCOUNTED INVESTMENT TO THE EXTENT OF ` 40,33,282/-. SIMILARLY, FOR COIMBATORE, THE INVESTMENT IN UNACCOUNTED STOCK WAS RESTRICTED TO ` 26,74,756/- AS AGAINST THE ADDITION MADE BY THE ASSESSING OFFIC ER TO THE EXTENT OF ` 90,46,580/-. REFERRING TO THE CLAIM OF ALLOWANCE F OR DEAD STOCK AT THE RATE OF 10%, THE LD. D.R. SUBMITTED THAT THE CIT(APPEALS) FOUND THAT THIS CLAIM OF DEAD STOCK OR SLOW MOVING STOCK SHOULD BE MADE WHILE VALUING THE STOCK FOR THE PURPOSE OF PRE PARING STATEMENT IN THE END OF THE FINANCIAL YEAR AND, SUCH A CLAIM CANNOT BE MADE AT THIS STAGE. REFERRING TO THE COIMBATORE BRANCH, TH E CIT(APPEALS) FOUND THAT THE BRANCH ITSELF WAS OPENED 1-1/2 YEARS AGO, THEREFORE, 9 I.T.A. NO.452/MDS/2016 THERE CANNOT BE ANY DEAD STOCK. ACCORDING TO THE L D. D.R., THIS OBSERVATION OF THE CIT(APPEALS) CANNOT BE BRUSHED A SIDE. 8. COMING TO THE INFLATED PURCHASE TO THE EXTENT OF ` 2,73,97,185/-, THE LD. D.R. SUBMITTED THAT DURING T HE SEARCH OPERATION, A BILL BOOK IN THE NAME OF NARAYANA AGEN CIES WAS FOUND. IN THE INVESTIGATION IT REVEALED THAT NO SUCH NARAY ANA AGENCIES WAS IN THE GIVEN ADDRESS. ALL THE TRANSACTIONS OF PURC HASE WERE ROUTED THROUGH THE NON-EXISTING NARAYANA AGENCIES. WHEN T HE INSPECTOR OF INCOME-TAX VISITED THE SO-CALLED PREMISES OF NAR AYANA AGENCIES, SOME OF THE EMPLOYEES OF THE ASSESSEE WERE THERE AN D NO SUCH BUSINESS CONCERN WAS EXISTING, THEREFORE, THE ASSES SEE CREATED A NON-EXISTING ENTITY FOR INFLATING THE PURCHASE. SI MILARLY, IN RESPECT OF M/S YOGESH TRADING COMPANY AT DELHI THROUGH WHOM TH E ASSESSEE CLAIMED THAT NARAYANA AGENCIES ARRANGED PURCHASES, IT WAS ALSO FOUND THAT M/S YOGESH TRADING COMPANY HAD NO BUSINE SS CONNECTION WITH NARAYANA AGENCIES. REFERRING TO PA GE 18 OF IMPUGNED ORDER OF THE CIT(APPEALS), THE LD. D.R. SU BMITTED THAT M/S YOGESH TRADING COMPANY BY THEIR LETTER DATED 31 .12.2009 CLARIFIED THAT THEY HAVE NO BUSINESS DEALING EITHER WITH NARAYANA AGENCIES OR WITH THE ASSESSEE. IN VIEW OF THIS, AC CORDING TO THE LD. 10 I.T.A. NO.452/MDS/2016 D.R., THE ASSESSING OFFICER HAS RIGHTLY FOUND THAT THE ASSESSEE HAS INFLATED THE PURCHASE TO THE EXTENT OF ` 2,73,97,185/-. IN FACT, A REMAND REPORT WAS CALLED FOR AND THE ASSESSING OFFI CER AFTER EXAMINING THE MATERIAL AVAILABLE ON RECORD FOUND TH AT THE ASSESSEE WAS GIVING CONTRADICTORY STATEMENTS FROM THE DATE O F SEARCH TILL THE REMAND PROCEEDING, THEREFORE, THERE IS NO MERIT IN THE CLAIM OF THE ASSESSEE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY THERE WAS A SEARCH IN THE PREMISES OF THE ASSESSEE AND A SIMULTANEOUS SURVEY WAS ALSO INITIATED UNDER SECTION 133A OF THE ACT. DURING THE COURSE OF SEARCH AND SURVEY OPERATION, THE REVENUE AUTHORITIES FOUND EXCESS STOCK OF ` 63,72,427/- AT SANKARANKOIL BRANCH OF THE ASSESSEE. THIS EXCESS STOCK WAS ASSESSED AS UNACCO UNTED INVESTMENT IN THE STOCK BY THE ASSESSING OFFICER. THE CIT(APPEALS), AFTER VERIFYING THE MATERIAL AVAILABL E ON RECORD, FOUND THAT THERE WAS ARITHMETIC ERROR IN COMPUTING THE UN ACCOUNTED INVESTMENT IN THE STOCK BY THE ASSESSING OFFICER AN D ACCORDINGLY, RESTRICTED THE ADDITION TO THE EXTENT OF ` 40,33,282/- IN RESPECT OF SANKARANKOIL BRANCH AS AGAINST THE ADDITION OF ` 63,72,427/-. 11 I.T.A. NO.452/MDS/2016 SIMILARLY, IN RESPECT OF COIMBATORE BRANCH, THE CIT (APPEALS) RESTRICTED THE ADDITION TO THE EXTENT OF ` 26,74,766/- AS AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER AT ` 90,46,580/-. THE CIT(APPEALS) FURTHER REJECTED THE CLAIM OF DEAD STO CK TO THE EXTENT OF 10%. REFERRING TO COIMBATORE BRANCH, THE CIT(AP PEALS) FOUND THAT THE BRANCH ITSELF WAS OPENED 1-1/2 YEARS AGO. THEREFORE, THERE MAY NOT BE ANY DEAD STOCK. WHILE CONSIDERING THE V ALUE OF THE STOCK IN THE TEXTILE RETAIL BUSINESS, THE CHANGING FASHION AND DESIGN CANNOT BE IGNORED BY THE REVENUE AUTHORITIES. IT I S COMMON KNOWLEDGE THAT FASHION AND DESIGN ARE CHANGING DAY BY DAY. IF THE ASSESSEE COULD NOT SELL THE PRODUCT WITHIN A YEAR, THE SAME WOULD REMAIN UNSOLD IN THE NEXT YEAR. THEREFORE, THE VAL UE OF SUCH UNSOLD STOCK MAY BE MUCH LESS THAN THE COST PRICE. IT IS WELL SETTLED PRINCIPLES OF LAW THAT THE CLOSING STOCK HAS TO BE VALUED EITHER AT COST PRICE OR MARKET PRICE WHICHEVER IS LESS. WHEN THE MARKET PRICE IS LESS THAN THE COST PRICE IN VIEW OF THE FACT IT REMAINED UNSOLD, THE SAME CANNOT BE IGNORED BY THE REVENUE AUTHORITIES. SOME OF THE TEXTILE SHOPS ARE ESTIMATING THE MARKET PRICE AT 25 % OF COST WHILE VALUING THE CLOSING STOCK OF THE EARLIER YEAR. IF THE SAME GOODS REMAIN UNSOLD IN THE SECOND YEAR, SOME OF THE TEXTI LE SHOPS ESTIMATE THE VALUE AT 50% OF THE COST, CONSIDERING THE SAME AS THE 12 I.T.A. NO.452/MDS/2016 DEAD STOCK. IN THE CASE BEFORE US, THE ASSESSEE CL AIMS ONLY 10% ON DEAD STOCK. MOREOVER, WHEN THE TEXTILE GOODS AR E PURCHASED ON WHOLE SALE, THE INHERENT DEFECT IN THE GOODS CANNOT BE TOTALLY RULED OUT. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT CLAIMING 10% OF THE STOCK AS DEAD STOCK IS VERY REA SONABLE IN THE LINE OF TEXTILE BUSINESS. THEREFORE, THE CIT(APPEA LS) IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. 10. SIMILARLY, COMING TO COIMBATORE BRANCH, THE CLA IM OF THE ASSESSEE WAS DISALLOWED ONLY ON THE GROUND THAT THE BRANCH WAS OPENED 1-1/2 YEARS AGO BEFORE THE DATE OF SEARCH. THE FACT REMAINS THAT WHEN THE STOCK REMAINED UNSOLD FOR MOR E THAN ONE YEAR, THE VALUE WOULD BE CONSIDERABLY REDUCED BECAU SE OF CHANGE IN DESIGN AND FASHION. MOREOVER, THE INHERENT DEFE CT WHILE PURCHASING THE GOODS ON WHOLE SALE CANNOT BE RULED OUT. THEREFORE, CLAIMING 10% ALLOWANCE BY THE ASSESSEE T OWARDS DEAD STOCK IS VERY REASONABLE IN THE LINE OF TEXTILE BUS INESS. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS TO ALLOW DEAD STOCK ALLOWANCE AT THE RATE OF 10 % AS CLAIMED BY THE ASSESSEE ON THE ESTIMATED UNACCOUNTED INVESTMEN T IN THE STOCK. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE MODIFIED 13 I.T.A. NO.452/MDS/2016 AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW 10% DISCOUNT ON THE UNACCOUNTED INVESTMENT OF THE STOCK DETERMINED BY T HE CIT(APPEALS). 11. NOW COMING TO INFLATED PURCHASE TO THE EXTENT O F ` 2,73,97,185/-. THE ASSESSEE CLAIMS THAT THESE ARE ALL TEXTILES, HANDLOOM AND POWERLOOM PRODUCTS PURCHASED FROM SHAN DY MARKET. THE PURCHASES MADE IN THE SHANDY MARKET ARE ROUTED THROUGH AN ENTITY CREATED BY THE ASSESSEE, NAMELY, M/S NARAYAN A AGENCIES. THIS NARAYANA AGENCIES IS NOTHING BUT AN ENTITY FOR ROUTING THE SHANDY PRODUCTS. THE ASSESSING OFFICER FOUND THAT THE NARAYANA AGENCIES WAS NOT IN EXISTENCE. THE FACT REMAINS TH AT M/S YOGESH TRADING COMPANY ROUTED THE PRODUCTS PURCHASED IN SH ANDY MARKET THROUGH NARAYANA AGENCIES, TO THE ASSESSEE. M/S YO GESH TRADING COMPANY, BY THEIR LETTER DATED 31.12.2009, CLARIFIE D THAT THEY HAVE NO BUSINESS DEALING EITHER WITH NARAYANA AGENCIES O R WITH THE ASSESSEE FROM ITS INCEPTION TILL DATE. THE COPY OF CONFIRMATION LETTER DATED 15.12.2009 FROM M/S YOGESH TRADING COMPANY, A VAILABLE AT PAGE 9 OF THE PAPER-BOOK, SHOWS THAT THE VERY SAME M/S YOGESH TRADING COMPANY RECEIVED PAYMENT FROM THE ASSESSEE- PARTNERSHIP FIRM ON BEHALF OF NARAYANA AGENCIES FOR THE GOODS S UPPLIED BY 14 I.T.A. NO.452/MDS/2016 THEM. THIS CONFIRMATION LETTER WAS APPARENTLY IGNO RED BY BOTH THE AUTHORITIES BELOW. MOREOVER, SOME OF THE TEXTILE P RODUCTS LIKE POWERLOOM, ETC. ARE SOLD IN AN UNREGULATED MARKET I N THE COUNTRY. THESE PRODUCTS WERE PURCHASED BY THE ASSESSEE THROU GH M/S YOGESH TRADING COMPANY FROM AN UNREGULATED MARKET A ND WAS ROUTED THROUGH NARAYANA AGENCIES. THEREFORE, THERE IS AN ARRANGEMENT BETWEEN M/S YOGESH TRADING COMPANY AND THE ASSESSEE-PARTNERSHIP FIRM FOR ROUTING THE PRODUCTS PURCHASED IN THE SHANDY MARKET THROUGH THE SO-CALLED NARAYANA AGENCI ES. THE FACT REMAINS THAT M/S YOGESH TRADING COMPANY RECEIVED PA YMENT FOR THE GOODS SUPPLIED TO THE ASSESSEE THROUGH NARAYANA AGENCIES BY CHEQUES AND THE SAME IS REFLECTED IN THE BANK STATE MENT FILED BY THE ASSESSEE, A COPY OF WHICH IS AVAILABLE ON RECORD. THE PAYMENT WAS CLEARED THROUGH BANKING CHANNEL. IF THERE WAS NO C ONNECTION BETWEEN THE ASSESSEE AND M/S YOGESH TRADING COMPANY AS MENTIONED IN THE LETTER DATED 31.12.2009, IT IS NOT KNOWN WHY THE SAID M/S YOGESH TRADING COMPANY RECEIVED MONEY FROM THE ASSESSEE-COMPANY BY WAY OF CHEQUE DRAWN ON CITY UNI ON BANK. THE VERY FACT THAT THE MONEY WAS PAID THROUGH CITY UNION BANK TO M/S YOGESH TRADING COMPANY ESTABLISHES ITS BUSINESS CONNECTION, THEREFORE, THE CLAIM OF THE ASSESSEE THAT THEY HAVE PURCHASED THE 15 I.T.A. NO.452/MDS/2016 PRODUCTS IN SHANDY MARKET THROUGH M/S YOGESH TRADIN G COMPANY CANNOT BE TOTALLY REJECTED. OUT OF THE TOTAL SHAND Y PURCHASES OF ` 2,73,97,185/-, THE OUTSTANDING AMOUNT AS ON THE DAT E OF SEARCH WAS ` 28,44,740/-. THIS IS NOT IN DISPUTE. FURTHERMORE, THE DETAILS OF THE BANKING TRANSACTIONS AS PER THE STATEMENT FILED BY THE ASSESSEE FROM CITY UNION BANK CLEARLY ESTABLISHES THE PAYMEN T TO THE EXTENT OF ` 1,52,56,423/-. THEREFORE, THE PAYMENT MADE THROUGH BANKING CHANNEL TO YOGESH TRADING COMPANY CANNOT BE TREATED AS UNACCOUNTED INVESTMENT IN THE STOCK. FURTHERMORE, DISCOUNTS WERE OFFERED TO THE EXTENT OF ` 26,86,875/-. THIS IS OBVIOUS FROM THE MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATIO N. AFTER DISCOUNT, THE AMOUNT OUTSTANDING WAS TO THE EXTENT OF ` 28,44,740/- AND THE MONEY PAID THROUGH BANKING CHANNEL WAS TO T HE EXTENT OF ` 1,52,56,423/-. THEREFORE, THE UNDISCLOSED INVESTME NT WOULD BE ` 65,66,173/-. AFTER TAKING INTO CONSIDERATION THE C ONFIRMATION LETTER FROM M/S YOGESH TRADING COMPANY DATED 15.12.2009 AN D 14.06.2014 AND THE PAYMENT MADE THROUGH BANKING CHA NNEL, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT AT THE B EST, THE ADDITION CAN BE SUSTAINED ONLY TO THE EXTENT OF ` 65,66,173/-. IN OTHER WORDS, THE ADDITION TO THE EXTENT OF ` 65,66,173/- COULD BE TREATED AS UNDISCLOSED INVESTMENT. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES 16 I.T.A. NO.452/MDS/2016 BELOW ARE MODIFIED AND THE ADDITION MADE BY THE ASS ESSING OFFICER TO THE EXTENT OF ` 65,66,173/- IS SUSTAINED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 22 ND JULY, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 22 ND JULY, 2016. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-19, CHENNAI-34 4. PRINCIPAL CIT, CENTRAL-2, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.