RAJGURU CREATIONS, MUMBAI V. JTCIT RG 14(2), MUMBAI

ITA 4810/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1315 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 19-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Assessee Lawyers: B N RAO
• Keywords: Business income; Corroborative evidences
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO.4810/MUM/2009 ASSESSMENT YEAR-2005-06 RAJGURU CREATIONS, SHOP NO. 4/A, SHREENATH BHAVAN, 103/105, OLD HANUMAN LANE, KALBADEVI ROAD, MUMBAI-400 002 PAN AACFR 2651J VS. THE JTCIT, RANGE 14(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI B.N. RAO RESPONDENT BY: SHRI T.T. JACOB O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 17.3.2009 PASSED BY THE LD. CIT(A)-XIV, MUMBAI FOR THE ASSESSMENT YEAR 2005-06. 2. THE FIRST GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITIO NS OF RS. 9,15,579/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SUPPRESSION OF SALES. 3. THE ASSESSEE IS A MANUFACTURER AND SELLER OF SAR IS. HE PURCHASES SARIS FROM OUTSIDE AND GETS THEM DYED AND PRINTED, EMBROIDERED AND POLISHED BEFORE SELLING THEM. THE ASSESSEE DOES NOT MAINTAIN STOCK DETAILS IN NUMBER OF PIECES OF SARIS, BUT IN TERMS OF METERS. THE COST PRICE IS TAKEN BY AVERAGING THE PURCHASE PRICE AND SHOWN IN PER METERS. THERE WAS A SURVEY U/S 133A CARRIED OUT ON 14.2.200 5. THE STOCK FOUND ITA NO. 4810/M/09 2 ON THAT DAY WAS 275354 METERS WHILE AS PER BOOK IT WAS 225419 METERS. THERE WAS EXCESS STOCK OF 49,935 METERS. THE AO WOR KED OUT THE AVERAGE COST OF FINISHED SARI AT RS. 91.40, BY TAKING THE A VERAGE COST OF PURCHASE AND ADDING TO IT THE AVERAGE COST OF DYEING, PRINTI NG, EMBROIDERING AND POLISHING CHARGES. 4. SHRI. RAJESH BAFNA, PARTNER OF THE ASSESSEE FIRM , ACCEPTED THE DISCREPANCY AND THE VALUATION OF EXCESS STOCK FOUND DURING THE COURSE OF SURVEY IN HIS STATEMENT GIVEN ON 15.2.2005. THE REL EVANT QUESTION AND ANSWER IS AS UNDER: Q-14: FROM THE INVENTORY OF STOCK PREPARED AT YOUR PREMISES IS BEING SHOWN TO YOU. A REPORT GENERATED FROM COMPUTER BY YOU REGARDING THE STOCK LYING WITH LABOUR CONTRACTORS IS ALSO BEING SHOWN TO YOU. THE GRAND TOTAL OF THE TOTAL STOCK IS 43707 SARIS. TAK ING AN AVERAGE SARI LENGTH HOW WOULD YOU CONVERT IT INTO METRES AND WHAT IS THE STOCK AS PER BOOKS? ANS: THE AVERAGE SARI LENGTH IS 6.3 METERS. THEREF ORE, THE PHYSICAL STOCK AS PER INVENTORY PREPARED IS 275354 METERS. THE STOCK AS PER OUR BOOKS IS HOWEVER 2254 19 METERS. THEREFORE, THERE IS AN EXCESS STOCK OF 499 35 METERS. THE AVERAGE CLOSING STOCK VALUATION AS ON 31.3.2004 AS PER THE RETURN FILED HAS BEEN DONE AT RS. 91.4 PER METRE. THEREFORE, THE VALUATION OF EXCESS STOCK COMES TO RS. 45,64,059/-. THE SAID DIFFERENCE CANN OT BE EXPLAINED. I, THEREFORE VOLUNTARILY OFFER AN AD DITIONAL INCOME OF RS. 46 LACS ON THIS ACCOUNT FOR A.Y. 2005 -06. 5. THE AO REJECTED THE GP RATES FOR THE EARLIER YEA RS AS NOT COMPARABLE, AS THE ASSESSEE PURCHASED SARIS BY PIEC ES WHILE THE STOCK WAS BY METERS. THE ASSESSEE HAS NOT MAINTAINED QUAL ITY-WISE RECORD SO THAT THE ACTUAL COST PRICE OF A PARTICULAR SARI AND THE CORRESPONDING SALE PRICE CANNOT BE DETERMINED. THE AO FOUND THAT THE A SSESSEE HAD MADE NUMEROUS CASH SALES OF SARIS AT A VERY LOW PRICE AN D HAD ASKED FOR ASSESSEES EXPLANATION. ITA NO. 4810/M/09 3 6. THE ASSESSEE EXPLAINED THAT THE CASH SALES WERE OF REJECTED/ DAMAGED SARIS. THERE IS A HIGH REJECTION RATE OF SA RIS RANGING FROM 13 TO 17% AND IN FACT THE PERCENTAGE OF REJECTED SARIS WA S 11% FOR THE CURRENT YEAR WHICH IS MUCH LESS THAN 17% FOR AY 2001-02 OR 13% FOR THE EARLIER TWO YEARS. WHILE THE AO ACCEPTED THE REJECTION AND DAMAGED SARIS, HE CONCLUDED THAT NO PROOF WAS GIVEN THAT DAMAGED SARI S WERE SHOWN AT THE PRICE AT WHICH IT HAS BEEN STATED TO HAVE BEEN SOLD . FURTHER, HE FELT THAT THE PARTNER WHILE GIVING THE STATEMENT HAD NOT MENT IONED ANYTHING ABOUT REJECTIONS. 7. THE AO FOUND THAT THE ASSESSEE HAD SOLD 5296 SAR IS FOR RS. 6,04,900/- @ RS. 114.22 PER SARI. HE FELT THAT THE DAMAGED SARI WOULD HAVE FETCHED ATLEAST HALF THE PRICE OF A GOOD SARI AND THEREFORE ASSUMED THE SALE PRICE OF THE DAMAGED SARIS AT 50% OF THE P RICE OF GOOD SARIS, RS. 287.09 (HALF OF (RS. 574.18). HE CALCULATED THE SAL E PRICE OF 5296 SARIS AT RS. 15,20,429/- AND ADDED THE BALANCE OF RS. 9,15,5 29/- ( RS. 15,20,429 6,04,900) AS UNDISCLOSED INCOME. 8. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT(A). THE AR OF THE APPELLANT REITERATED THE CONTENTIONS MADE BEFORE THE AO AND FURTHER CONTENDED THAT THE AO OUGHT TO HAVE APP RECIATED THAT THE TREND IN THE BUSINESS THAT THE INFERIOR QUALITY OF SARIS PRODUCED DURING THE YEARS ARE BEING SOLD THROUGH AGENTS TO PHERIWAL AS ON CONSISTENT BASIS IN THE PAST ALSO AND THAT IT HAD PRODUCED THE LEVEL OF WASTE GENERATION IN THE PAST AS WELL AS CURRENT YEAR UNDER CONSIDERATIO N AT 17%,13%,13% AND 11 RESPECTIVELY FOR F.YS 2001-02,02-03,03-04 AN D 04-05 WHICH WOULD INFER THAT THE APPELLANT HAS NOT SUPPRESSED A NY SALES AND THE DAMAGE ALSO IS CONTAINED FROM YEAR TO YEAR AND BROU GHT TO ALL TIME LOW LEVEL OF 11% WHICH HAS BEEN SOLD IN THE MARKET. IT WAS FURTHER CONTENDED THAT THE AO ASSUMED SUPPRESSION OF SALES AND HENCE MADE THE SAID ADDITION OF RS.9,15,579/- AND ALSO PLACED RELIANCE IN THE CASE OF ITA NO. 4810/M/09 4 CIT VS SANJAY OIL CAKE INDUSTRIES WHEREIN IT IS HEL D THAT AO HAS NOT POINTED OUT ANY SPECIFIC OMISSION OR SUPPRESSION IN THE ASSESSEES BOOKS OF ACCOUNT. THE APPELLANT ALSO RELIED ON THE DECIS ION IN THE CASE OF K.M. KADAM VS CIT AND REQUESTED THAT THE ADHOC ADDITION MADE BY THE AO WITHOUT APPLICATION OF MIND BE DELETED. 9. THE CIT(A) DISMISSED THE ASSESSEES APPEAL ON TH IS ISSUE OBSERVING AS UNDER: 6.1 IN THE ABOVE SUBMISSIONS THE APPELLANT HAS REITERA TED WHATEVER HAS BEEN CONTENDED BEFORE THE AO AND FURTH ER CONTENDED THAT THE TREND IN THE BUSINESS OF SELLING INFERIOR QUALITY OF SARIS PRODUCED DURING THE YEAR THROUGH AGENTS TO PHERIWAL AS ON CONSISTENT BASIS IN THE PAST ALSO AND THE WASTE GEN ERATION IN THE PAST AS WELL AS IN THE CURRENT YEAR WAS AT 17%,13%, 13% AND 11% RESPECTIVELY FOR F.YS 2001-02,02-03,03-04 AND 04-05 ON THE BASIS OF THIS IT WAS CONTENDED THAT THE APPELLANT HAS NOT SU PPRESSED ANY SALES AND THE DAMAGE ALSO IS C0ONTAINED FROM YEAR T O YEAR AND BROUGHT TO ALL TIME LOW LEVEL OF 11% WHICH HAS BEEN SOLD IN THE MARKET. THE AO HAS ASSUMED SUPPRESSION OF SALES AN D HENCE MADE ADDITION BUT WITHOUT POINTING OUT ANY SPECIFIC OMIS SION OR SUPPRESSION IN THE ASSESSEES BOOKS OF ACCOUNTS AND ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS SANJ AY OIL CAKE INDUSTRIES AND CLAIMED THAT THE ADHOC ADDITION MADE BY THE AO NEEDS TO BE DELETED. 6.2 HOWEVER, I DO NOT FIND ANY FORCE IN THE ABOVE CONTE NTIONS OF THE APPELLANT PARTICULARLY IN VIEW OF THE ADMITTED FACTS OF HAVING CARRIED OUT A SURVEY U/S 133A ON 14.2.05 AT THE BUS INESS PREMISES OF THE APPELLANT AS A RESULT OF WHICH EXCESS STOCK OF SARIS AND CASH ETC WERE FOUND WHICH COULD NOT BE EXPLAINED AND FOR WHICH THE APPELLANT SURRENDERED A SUM OF RS.50 LAKHS TO BE O FFERED AS INCOME OVER AND ABOVE ITS REGULAR INCOME. DURING THE SURV EY NO SUCH REJECTED DAMAGE STOCK WAS FOUND NEITHER THE APPELLA NT HAD CLAIMED THAT IN ANY OF THE EXCESS STOCK FOUND THERE WERE RE JECTED AND DAMAGED SAREES EVEN THE COST OF EACH SAREE WAS ACCE PTED AND HE ADMITTED TO BE AT RS.574.82. SURPRISINGLY THE NUMB ER OF REJECTED AND DAMAGED SAREES CLAIMED HAVING SOLD BY THE APPEL LANT WAS ONLY AFTER THE SURVEY ACTION I.E. ONLY WITHIN ONE AND A HALF MONTH AND THE TOTAL SALES OF SUCH DAMAGED AND REJECTED SAREES AT 13 TO 17% THROUGHOUT THE YEAR FOR THE EARLIER YEARS. THEREFOR E THE CLAIM OF THE APPELLANT IN THE ABOVE SUBMISSIONS THAT IT HAS CONT AINED THE SALE OF ITA NO. 4810/M/09 5 DAMAGED AND REJECTED GOODS BY BRINGING IT TO ALL TI ME LOW LEVEL OF 11% IS NOT FACTUALLY CORRECT. SECONDLY THE APPELLAN T IS FOUND HAVING NOT FURNISHED THE REQUISITE DETAILS AS CALLED FOR B Y THE AO PERTAINING TO CASH SALES OF THESE SAREES DURING THE ASSESSMENT PROCEEDINGS IT WAS ONLY AFTER HIS ISSUING SHOW CAUSE NOTICE THE AP PELLANT IS FOUND HAVING RESPONDED. THE OBSERVATION MADE BY THE AO TH AT THE ASSESSEE HAS NOT MAINTAINED QUALITATIVE RECORDS IN THE ABSENCE OF WHICH ACTUAL COST PRICE OF A PARTICULAR SAREE AND C ORRESPONDING SALE PRICE CANNOT BE DETERMINED THE DETAILS OF PURCHASE AND SALES MAINTAINED IS IN METERS WHEREAS THE ACTUAL PURCHAS E BILLS AND SALE BILLS ARE IN PIECES NO DETAILS OF SALE PARTIES COUL D BE FURNISHED. MOREOVER NO JUSTIFICATION FOR SELLING A SAREE FOR A S LOW A PRICE AS RS.100/- AS AGAINST THE COST PRICE OF RS 574.18 COU LD BE GIVEN. ALL THESE OBSERVATIONS OF THE AO HAVE NOT BEEN EITHER D ISPUTED OR CONTROVERTED IN THE SUBMISSIONS BY THE APPELLANT DU RING THE APPELLATE PROCEEDINGS THESE ARE THE DEFECTS AND D ISCREPANCIES IN THE ACCOUNTS MAINTAINED BY THE APPELLANT HENCE THE AO CONCLUDED THAT THE APPELLANT BY RESORTING TO CASH SALE AFTER THE SURVEY ACTION IN SUPPRESSING THE SALES THUS HAS FORCE AND JUSTIFICAT ION IT IN. EVIDENTLY TO NULLIFY THE EFFECT OF ADDITIONAL INCOME OFFERED BY THE APPELLANT DURING THE COURSE OF SURVEY ACTION ON FINDING THE E XCESSIVE STOCK AND CASH THE SALES MADE IN CASH AT SUCH A LOW PRICE AT RS.100/- AGAINST THE COST PRICE OF A SAREE AT RS.574.18 IS THUS NOT AT ALL JUSTIFIABLE AND NEITHER THE SAME COULD BE AUTHENTICATED BY PROD UCING ANY VERIFIABLE SUPPORTING EVIDENCE. EVEN THE CASH BILL S WERE ISSUED JUST BELOW AN AMOUNT OF RS.20,000/- THEREFORE THE AO IS RIGHT IN CONCLUDING THAT THE EXCESS CASH AND STOCK WORTH RS 50 LAKHS HAVING FOUND IN POSSESSION OF THE ASSESSEE ON THE DATE OF SURVEY I.E. 15.2.05 PROVE THE ALLEGATION THAT IT HAD GENERATED UNACCOUNTED MONEY BY OPTING THE MODUS OPERANDI OF SHOWING UNVER IFIABLE CASH SALES OVER THE YEARS. HE IS ALSO RIGHT IN OBSERVING THAT EVEN THOUGH THE .ACCOUNTS OF THE ASSESSEE HAVE BEEN AUDITED AN D ALL THE PURCHASES AND SALES BILLS WERE DULY RECORDED IN QUA NTITATIVE TERMS IDEALLY THERE CAN BE NO SCOPE FOR GENERATION OF UNA CCOUNTED CASH AND EXCESS STOCK WAS FOUND. FURTHER, I FIND THAT T HE AO HAS TAKEN A LENIENT AND LIBERAL VIEW BY ONLY APPLYING 50% OF TH E COST PRICE AS THE SALE PRICE FOR ALLEGED REJECTED AND DAMAGED GOO DS SOLD IN CASH BY THE APPELLANT. IN THIS WAY, THE AO HAS BEEN REA SONABLE AS WELL. THE RELIANCE PLACED ON THE TWO DECISIONS BY THE APP ELLANT IN VIEW OF THE ABOVE FACTS ARE NOT APPLICABLE IN ITS CASE. I, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE AO IN MAKIN G THIS ADDITION OF RS.9,15,579/- WHICH IS UPHELD. ACCORDINGLY, THIS G ROUND OF APPEAL IS DECIDED AGAINST THE APPELLANT. 10. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. ITA NO. 4810/M/09 6 11. WE HEARD BOTH THE PARTIES. THE CRUX OF THE ISSU E IS THE SALE PRICE OF DAMAGED SARIS. WE FIND THAT THE ASSESSEE HAS BEEN S ELLING SIMILAR DAMAGED SARIS AT A LOW PRICE EVEN IN THE EARLIER YE AR. IN THEIR LETTER DATED 24.10.2007 TO THE JCIT, THEY HAVE EXPLAINED THAT TH EIR GP RATE IS HIGHER THAN THE EARLIER YEARS AND RATE OF REJECTION IS LES S THAN THE EARLIER YEARS. THE SALE PRICE OF DAMAGED SARIS WAS RS. 90.90 PER S ARI AND RS. 14.40 PER METRE FOR THE AY 2004-05 AND WAS HIGHER AT RS. 133. 20 PER SARI AND RS. 21.10 PER METRE THIS YEAR. THE AO HAS OBSERVED THAT IMMEDIATELY AFTER SURVEY U/S. 133A, THE ASSESSEE HAS SHOWN BULK CASH SALES OF 5296 SARIS FOR RS. 6,04,900/- AT AVERAGE SELLING PRICE OF RS. 114.22 ONLY. 12. THE AO FURTHER OBSERVED AS FOLLOWS: THUS TAKING A LENIENT VIEW, IT IS HELD THAT THE D AMAGED SARIS WOULD HAVE BEEN SOLD AT THE AVERAGE PRICE OF 50% OF THE COST PRICE I.E. 574.18/2 = RS. 287.09. HENCE CORRE SPONDING CASH SALES AFTER THE DATE OF SURVEY BECOMES 5296X 2 87.09 = RS. 15,20,429/-. SINCE THE ASSESSEE HAS SHOWN THE SALE VALUE AT RS. 6,04,900/- THE DIFFERENCE OF THE TWO 1 5,20,429 6,04,900 = RS. 9,15,529/- IS ADDED TO THE INCOME OF THE ASSESSEE. 13. WE FIND THAT THE AVERAGE SELLING PRICE OF RS. 1 14.22 PER SARI HAS SHOWN BY THE ASSESSEE IS VERY LOW. ON THE OTHER HA ND THE PRICE ADOPTED BY THE AO AT RS. 287.09 SEEMS TO BE ON THE HIGHER S IDE. WE THEREFORE HOLD THAT THE SALE PRICE OF RS. 175/- PER DAMAGED S ARIS CAN BE ADOPTED WHICH WILL RESULT IN SALE PRICE OF 5296 SARIS AT RS . 9,26,800/-. WE THEREFORE SUSTAIN AN ADDITION OF RS. 3,21,900/- IN THE PLACE OF RS. 9,15,579/-, AS UNDISCLOSED INCOME IN RESPECT OF SAL E OF DAMAGED SARIS. THE ASSESSEES APPEAL ON THIS ISSUE IS PARTLY ALLOW ED. ITA NO. 4810/M/09 7 14. THE NEXT ISSUE IS DISALLOWANCE OF RS. 48,877/- BEING 10% OF THE TOTAL EXPENSES ON ACCOUNT OF CONVEYANCE EXPENSES, D EPRECIATION ON MOTOR CAR AND TELEPHONE EXPENSES AGGREGATING TO RS. 4,88,776/-. 15. THE LD. CIT(A) HELD AS FOLLOWS: THE APPELLANT HAS NOT SUBSTANTIATED THE SAME EITH ER IN THE WRITTEN SUBMISSIONS FILED OR ORALLY DURING THE APPE LLATE PROCEEDINGS. MOREOVER, THE DISALLOWANCE MADE AT 1/ 10 TH ON THE GROUND THAT PERSONAL USE OF THE MOTOR CAR AND T ELEPHONE CANNOT BE RULED OUT, CANNOT BE CONSIDERED AS EXCESS IVE. THEREFORE, THIS GROUND IS ALSO DECIDED AGAINST THE APPELLANT. 16. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSES SEE PREFERRED AN APPEAL BEFORE US. THE ASSESSEE HAS RAISED THE GROUN D OF SUMMARY DISALLOWANCE MADE BY THE AO ON ADHOC BASIS. 17. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENSES WERE INCURRED FOR THE STAFF OF THE FIRM. SINCE THE AO H AS DISALLOWED THIS AMOUNT WITHOUT CALLING FOR AN EXPLANATION FROM THE ASSESSEE ON A SUMMARY BASIS, WE SET ASIDE THE ISSUE TO THE FILE O F THE AO TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO PRODUCE DETAILS OF E XPENSES. 18. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE ,2010 RJ ITA NO. 4810/M/09 8 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 4810/M/09 9 DATE INITIALS 1 DRAFT DICTATED ON: 5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______