Smt. Sushama Bhatia, New Delhi V. ITO, New Delhi

ITA 4764/DEL/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97076 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 16-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 16-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JASWAL SENIOR
• Keywords: Gross profit estimation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.4764/DEL./2009 (ASSESSMENT YEAR : 2006-07) SMT. SUSHAMA BHATIA, VS. ITO, WARD 39 (4), PROP. M/S. SANJAY UDYOG, NEW DELHI. 10324, STREET NO.5, NEAR JAIN MANDIR, MOTIA KHAN, NEW DELHI 110 006. (PAN : AAPPB0542B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.S. SINGHVI, ADVOCATE REVENUE BY : SHRI K.K. JASWAL, SENIOR DR DATE OF HEARING : 16.07.2015 DATE OF PRONOUNCEMENT : 14.08.2015 O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DI RECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-X XVIII, NEW DELHI DATED 12.10.2009 FOR THE ASSESSMENT YEAR IS 2006-07 . 2. THE GROUNDS OF APPEAL ARE AS GIVEN BELOW :- 1. ON THE FACTS CIRCUMSTANCES AND AS PER THE PROVI SIONS OF INCOME TAX ACTS THE LEARNED CIT (A) ERRED IN CONFIR MING THE ADDITION OF RS.19,98,790.00 ON ACCOUNT OF DIFFERENC E IN VALUATION OF CLOSING STOCK BY REJECTING THE METHOD OF VALUATION OF CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOW. ITA NOS.4764/DEL./2009 2 2. ON THE FACTS CIRCUMSTANCES AND AS PER THE PROVIS IONS OF INCOME TAX ACTS THE LEARNED CIT (A) ERRED IN CONFIR MING THE ADDITION OF RS.7,08,043.00 ON ACCOUNT OF PURCHASE M ADE OUT OF BOOKS BY REJECTING THE REVISED STOCK RECONCILIATION DETAILS FILED BEFORE HIM. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD AMEND AND /OR ALTER THE GROUND OF APPEAL AT A LATER STAGE. 3. GROUND NOS.1 & 2, WHICH ARE ONLY EFFECTIVE GROUN DS ARE INTER- LINKED, ARE THEREFORE TAKEN UP TOGETHER. 4. THE ASSESSEE IS A LADY WHO IS DERIVING INCOME FR OM SMALL BUSINESS OF PURCHASE AND SALE OF SCRAP MATERIAL. FOR THE YE AR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN SALES OF RS.83,09,011/- GIVI NG A GROSS PROFIT (GP) OF RS.4,05,151/- YIELDING A GP RATE OF 4.87% AS AGA INST SALES OF RS.22,57,353/- GIVING GROSS PROFIT OF RS.2,14,448/- YIELDING A GP RATE OF 9.49% IN THE IMMEDIATELY PRECEDING YEAR. THE AO AS KED THE ASSESSEE TO GIVE REASONS FOR LOW GP RATE AND DIRECTED THE ASSES SEE TO PRODUCE STOCK REGISTER, ITEM-WISE DETAILS OF CLOSING STOCK, ETC. THE ASSESSEE INFORMED THE AO THAT SINCE SHE IS ENGAGED IN SMALL TIME SCRAP SA LE, NO SEPARATE ITEM- WISE STOCK WAS MAINTAINED BY HER. FROM THE ASSESSM ENT ORDER, WE FIND THAT THE ASSESSEE PRODUCED A STOCK REGISTER DATED 0 8.12.2008 WHEREIN THE AO FOUND CERTAIN DISCREPANCIES WHICH WERE BROUGHT T O THE NOTICE OF THE ASSESSEE TO EXPLAIN. THE ASSESSEE ON 18.12.2008 SU BMITTED A REVISED STOCK REGISTER AND TRIED TO RECONCILE THE DISCREPANCIES W HICH WERE BROUGHT TO HER ITA NOS.4764/DEL./2009 3 KNOWLEDGE. THE AO WAS NOT SATISFIED WITH THE ANSWE RS GIVEN BY THE ASSESSEE AND TOOK THE STOCK REGISTER WHICH WAS PROD UCED BEFORE HIM ON 08.12.2008 TO BE THE CORRECT ONE AND INSTEAD OF 18. 12.2008 (REVISED STOCK REGISTER) AND POINTED OUT THAT CERTAIN SALES HAVE B EEN MADE WITHOUT STOCK, BEING REFLECTED IN THE BOOKS, SO HE FORMED AN OPINI ON THAT THE SAME (I.E. THE SALE OF STOCKS) AS PURCHASES MADE BY THE ASSESSEE O F THE STOCKS WHICH WAS NOT ENTERED IN THE STOCK OF REGISTER, AND THUS CONC LUDED THAT SALES WERE MADE OF SCRAP WHICH WERE NOT ENTERED IN THE STOCK R EGISTER AND ADDITIONS WERE MADE. THE CLOSING STOCK AS PER BALANCE SHEET IS RS.16,47,303/- WHEREAS AS PER AO THE VALUE OF CLOSING STOCK IS RS. 36,46,093/-. SO, THE DIFFERENCE OF RS.19,98,790/- WAS ADDED BACK TO HER INCOME. LIKEWISE, ON SIMILAR ACCOUNT, ADDITIONS OF RS.3,58,470/- AND RS. 3,49,573/- WERE MADE. 5. AGGRIEVED BY THE SAID ADDITIONS MADE BY THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A) WHO WAS PLEASED TO CONFIRM THE AFORESAID ADDITIONS. 6. THE ASSESSEE, BEING AGGRIEVED, PREFERRED AN APPE AL AGAINST THE SAID IMPUGNED ORDER OF THE CIT (A) BEFORE US. 7. AT THE OUTSET, THE LD. AR, SHRI R.S. SINGHVI TOO K OUR ATTENTION TO ASSESSMENT ORDER FOR THE IMMEDIATE SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2007-08 WHEREIN THE ASSESSMENT ORDER HAD BEEN PASSE D U/S 143(3) OF THE ACT,WHEREIN, THE AO HAD TAKEN THE OPENING STOCK VA LUE, WHICH IS REFLECTED IN PAGE NO.2 OF THE ASSESSMENT ORDER AS RS.16,47,30 3/-; AND POINTED IT TO US ITA NOS.4764/DEL./2009 4 THAT IT IS THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY THAT VALUE OF CLOSING STOCK OF THE PREVIOUS YEAR, WILL BE THE VALUE OF OP ENING STOCK IN THE NEXT YEAR. THE LD. AR POINTED OUT THAT THUS IT CAN BE SE EN THAT THE AO HAS ACCEPTED THE CLOSING STOCK VALUATION MADE BY THE AS SESSEE OF THIS RELEVANT ASSESSMENT YEAR AND ACCEPTED IT AS THE OPENING STOC K AND TOOK THE VALUE AS RS.16,47,303/- WHICH MEANS THERE WAS NO NECESSITY O F MAKING ANY ADDITION WHATSOEVER IN THE CASE OF THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR 2006-07. IN THE LIGHT OF THE ABOVE, THE LD. A R PLEADED THAT THE ASSESSEES PRAYER TO DELETE THE ADDITION MAY BE GRA NTED. 8. THE LD. DR, ON THE OTHER HAND, TOOK OUR ATTENTIO N TO THE ASSESSMENT ORDER TO SHOW THAT THE AO IN FACT HAD RELIED ON THE STOCK REGISTER THAT WAS PRODUCED BEFORE HIM ON 08.12.2008 AND THE FIGURES H AVE BEEN TAKEN FROM THE STOCK REGISTER PRODUCED BY THE ASSESSEE ONLY. WHEN THE DISCREPANCIES WERE FOUND OUT BY THE AO, THE ASSESSEE HAD ATTEMPTE D TO COVER UP HER MISTAKE BY REVISING THE STOCK REGISTER WHICH THE AO HAD NOT ACCEPTED; AND THE FIGURES WHICH HAVE BEEN REFLECTED AS PER STOCK REGISTER DATED 08.12.2008 HAS BEEN TAKEN TO THE ESTIMATE VALUE OF THE CLOSING STOCK. LD. DR SUBMITTED THAT THE AO HAS FOUND THAT THE ASSESSE E HAS MADE SALES OF SCRAP WHEN THERE WAS NO STOCK AS PER THE STOCK REGI STER. THEREFORE, THE SALES CAN BE INFERRED TO HAVE BEEN SOLD OF THE STOC KS PURCHASED OUT OF THE BOOKS AND, THEREFORE, THE ADDITION IS VALID AND THE RE IS NO NECESSITY TO ITA NOS.4764/DEL./2009 5 INTERFERE WITH THE ORDER OF AO WHICH HAS BEEN RIGHT LY CONFIRMED BY THE CIT (A). 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. WE FIND THAT THE CLOSING STOCK VALUATION MADE BY THE ASSESS EE WAS TO THE TUNE OF RS.16,47,303/- WHEREAS IT WAS NOT ACCEPTED BY THE A O WHO HAS FOUND CERTAIN DISCREPANCIES IN THE STOCK REGISTER WHICH W AS FILED BEFORE HIM ON 08.12.2008. WE TAKE NOTE THAT THE ASSESSEE HAD, FR OM THE INCEPTION ITSELF, STATED THAT SHE WAS NOT KEEPING ANY STOCK REGISTER BECAUSE OF THE PECULIAR SMALL TIME BUSINESS DEALING IN SCRAP AND, THEREFORE , ITEM-WISE REGISTER OF SCRAP COULD NOT BE MAINTAINED. BUT, BECAUSE OF THE INSISTENCE OF THE AO, ASSESSEE PREPARED A STOCK REGISTER HURRIEDLY AND PR ODUCED BEFORE HIM ON 08.12.2008, IN WHICH THERE HAVE BEEN CERTAIN MISTAK ES WHICH HAVE BEEN POINTED OUT BY THE AO TO THE ASSESSEE. WE FIND THA T THE ASSESSEE HAD REVISED THE SAID STOCK REGISTER BY RECONCILING THE DISCREPANCY POINTED OUT BY THE AO AND FILED A REVISED ONE ON 18.12.2008. IT MAY BE NOTED THAT IN BOTH THE STOCK REGISTERS, THE QUANTITY OF THE INVEN TORY IN RESPECT TO CLOSING STOCK WAS THE SAME I.E. 95344 KGS THE AO WAS NOT A GREEING WITH THAT OF THE VALUATION OF THE CLOSING STOCK ONLY AND NOT OF QUANTITY WHICH IS THE SAME IN THE FIRST REGISTER AND SECOND CONCILIATORY REGISTER. WE ALSO FIND THAT THE ASSESSEE VIDE LETTER DATED 18.12.2008 FILE D BEFORE THE AO, A COPY OF WHICH IS PLACED AT PAGES 32 & 33 OF THE PAPER BO OK, EXPLAINED THAT THE ACCOUNTANT FAILED TO TRANSFER THE STOCK FROM SCRAP TO RESPECTIVE QUALITY ITA NOS.4764/DEL./2009 6 REGISTER AND THUS THE SHORTAGE OF STOCK WAS FOUND O N 07.10.2005 & 08.02.2006. WE FIND THAT THE ASSESSEE HAD FURNISHE D THE PHOTOCOPIES OF THE SALE AND PURCHASE BILLS. WHEN THE PHOTOCOPY OF EAC H AND EVERY BILL WAS GIVEN, THE AO WAS NOT AT ALL JUSTIFIED IN REJECTING THE SALES DISCLOSED BY THE ASSESSEE WITHOUT POINTING OUT ANY DEFECT IN SUCH BI LLS OR WITHOUT VERIFICATION OF THE CORRECTNESS OF THE SALES/PURCHA SES DISCLOSED BY THE ASSESSEE FROM THE BUYERS. SO WHEN THE ASSESSEE HAD RECONCILED THE DISCREPANCIES POINTED OUT BY THE AO WITH THE REVISE D STOCK-REGISTER ON 18.12.2008, THE AO WITHOUT POINTING OUT ANY DEFECTS IN THE SAME WAS NOT JUSTIFIED IN NOT ACCEPTING THE SAME WHERE THE FACT IS THAT THERE IS NO DISPUTE ABOUT THE QUANTITY OF CLOSING STOCK OF SCRAP. IT I S THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY THAT THE FIGURE OF THE CLOSING STOCK OF THE EARLIER YEAR HAS TO FORM THE OPENING STOCK OF THE NEXT ACCOUNTING YEAR WHICH PRINCIPLE HAS BEEN REITERATED BY THE HONBLE SUPREME COURT IN V.K .J. BUILDERS AND CONTRACTORS (P) LTD. VS. CIT (2009) 184 TAXMAN 35 7 (SC). IN THE PRESENT CASE, THE AO ACCEPTED THE QUANTITY OF THE S TOCK OF SCRAP BUT DOES NOT AGREE WITH THE VALUATION OF THE SALE AND ESTIMA TES AND MAKE THE ADDITION. HOWEVER, THE AO IN THE NEXT ASSESSMENT Y EAR TAKES THE VALUE OF THE CLOSING STOCK WHICH WAS REFLECTED BY THE ASSESS EE (I.E. RS.16,47,303/- AND NOT RS.36,46,093/- AS ESTIMATED BY AO IN THE IM PUGNED ORDER) AS VALUE OF THE OPENING STOCK FOR THE NEXT ACCOUNTING YEAR I.E. AY 2007-08. HERE, WE FIND THAT THE AO IS BLOWING HOT AND COLD A T THE SAME TIME; ON ONE ITA NOS.4764/DEL./2009 7 HAND HE IS ACCEPTING THE OPENING STOCK VALUE AS THA T CLAIMED BY THE ASSESSEE AS TRUE (I.E. VALUE OF THE CLOSING STOCK O F THE PREVIOUS ASSESSMENT YEAR) AND ON THE OTHER HAND, HE IS NOT ACCEPTING TH E VALUE OF THE CLOSING STOCK OF THE PRESENT ASSESSMENT YEAR, CANNOT BE COU NTENANCE. SINCE THERE IS NO QUARREL IN RESPECT OF THE QUANTITY OF SCRAP, THE ESTIMATION OF AO FOR THIS ASSESSMENT YEAR IN RESPECT OF CLOSING STOCK IS , THEREFORE, NOT JUSTIFIABLE AND NEEDS TO BE DELETED SINCE THE AO COULD NOT FIND FAULT WITH THE SALES AND PURCHASES FOR WHICH BILL WERE PRODUCED BEFORE HIM. UNLESS THE SALE AND PURCHASE BILLS PRODUCED BY THE ASSESSEE ARE FOUND T O HAVE BEEN FABRICATED OR NOT CORRECT, THE AO SHOULD NOT HAVE MADE THE ADD ITIONS, WHICH IS NOT JUSTIFIABLE. WE THUS FIND FORCE IN THE CONTENTION O F THE LD. AR THAT WHEN, IN SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2007-08, THE A O HAS ACCEPTED THE VALUE OF THE CLOSING STOCK OF THE ASSESSEE WHICH BE CAME THE OPENING STOCK FOR ASSESSMENT YEAR 2007-08 AS CORRECT AND HAS MADE THE ASSESSMENT BASED ON THAT, SHOWS THAT MERELY BECAUSE STOCK REGISTER H AS NOT BEEN MAINTAINED BECAUSE OF THE DIFFICULTY IN MAINTAINING THE SAME D UE TO THE BUSINESS OF SCRAP, THE ASSESSEE COULD NOT BE FASTENED WITH THE ADDITIONS MADE WITHOUT ANY BASIS WHEN THE QUANTITY OF STOCK AS SHOWN ON 08 .12.2008 & 18.12.2008 STOCK REGISTERS ARE THE SAME AND HAVE BE EN ACCEPTED BY THE AO. IN ANY CASE, ANY ADDITION MADE ON ACCOUNT OF ENHANC E OF CLOSING STOCK WOULD WARRANT CONSEQUENTIAL RELIEF IN THE NEXT YEAR . AND SINCE THE TAX RATE IS SAME THE ADDITION IS REVENUE NEUTRAL. IN SUCH C IRCUMSTANCES, THE ITA NOS.4764/DEL./2009 8 HONBLE APEX COURT HAS HELD IN EXCEL INDUSTRIES 358 ITR 295 THAT ADDITION IS NOT WARRANTED. THEREFORE, IN VIEW OF THE TOTALIT Y OF THE FACTS, WE FIND NO JUSTIFICATION FOR ESTIMATING THE SALES ON HYPOTHETI CAL BASIS WHEN COMPLETE DETAILS OF THE SALES ALONG WITH THE PHOTOCOPIES OF THE SALE/PURCHASE BILLS WERE DULY PRODUCED ALONG WITH RECONCILED STOCK-REGI STER BEFORE THE AO, IN WHICH HE COULD NOT POINT OUT ANY ERROR IN THEM. IN VIEW OF THE ABOVE, WE DELETE THE ADDITIONS OF RS.19,98,790/- AND RS.7,08, 043/- MADE BY THE AO BY ENHANCING THE SALE TAKEN BY THE ASSESSEE VIDE GR OUND NOS.1 & 2. THE GROUNDS ARE ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 14 TH DAY OF AUGUST, 2015. SD/- SD/- (J.S. REDDY) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 14 TH DAY OF AUGUST, 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.