The ITO, Ward-2(4), Vijayawada V. Sri Jugraj Pukhrajji, Vijayawada

ITA 494/VIZ/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5919 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 24-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 29-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SINGH
• Keywords: Unexplained investment
• Section: 133A

Judgement Text

ITA NO.494/VIZ/2010 JUGRAJ PUKHRAJJI, VIJAYAWADA IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 494 /VIZAG/ 2010 ASSESSMENT YEAR : 2007-08 ITO WARD-2(4) VIJAYAWADA VS. JUGRAJ PUKHRAJJI VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.ACIPP 4574C ASSESSEE BY: SHRI C. SUBRAHMANYAM, CA REVENUE BY: SHRI R.K. SINGH, ADDL. CIT DATE OF HEARING : 24.02.2014 DATE OF PRONOUNCEMENT : 26.02.2014 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2007-08 AGAINST ORDER DATED 13.08.2010 OF LD. CIT(A) VIJAYA WADA. 2. THE DEPARTMENT HAS RAISED SIX GROUNDS. GROUND N OS.1 & 6 BEING GENERAL IN NATURE ARE NOT REQUIRED TO BE ADJUDICATE D. THE ONLY ISSUE AS RAISED IN GROUND NOS.2 TO 5 IS WITH REGARD TO THE DIRECTIO N OF THE CIT(A) TO ADOPT THE VALUE OF CLOSING STOCK AT RS.25,63,484/-. 3. BRIEFLY STATED, THE ASSESSEE IS AN INDIVIDUAL EN GAGED IN WHOLESALE AND RETAIL TRADE OF OPTICAL AND FRAMES THROUGH HIS PROP RIETARY CONCERN M/S. JAIN OPTICALS. ON 16.10.2006, SURVEY U/S 133A OF THE INC OME-TAX ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE. DURING THE SURVEY OPERATION, PHYSICAL INVENTORY OF STOCK WAS TAKEN TO WORK OUT THE VALUE OF THE STOCK. THOUGH BOOKS OF ACCOUNTS WERE IMPOUNDED, NO OTHER INCRIMINATING MATERIAL WAS FOUND AT THE TIME OF SURVEY. HOWEVER EXCESS CASH OF RS.1,46,026/- WAS FOUND WHICH WAS ALSO OFFERED TO T AX BY THE ASSESSEE BEING POSSIBLE UNACCOUNTED SALES. SUBSEQUENT TO THE SURV EY OPERATION, THE ITA NO.494/VIZ/2010 JUGRAJ PUKHRAJJI, VIJAYAWADA 2 ASSESSEE FILED HIS RETURN OF INCOME ON 27.03.2008 D ECLARING TOTAL INCOME OF RS.2,55,720/-. DURING THE SCRUTINY ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER. ON GOING THROUGH THE STATEMENT RECORDED FROM THE ASSES SEE AT THE TIME OF SURVEY THE AO NOTED THE FOLLOWING FACTS. THE ASSES SEE HAD CONFIRMED THAT (A) HE HAS NOT TAKEN ANY INVENTORY OF THE STOCK EIT HER AS ON 31.3.2006 OR IN ANY EARLIER YEAR, (B) THE INVENTORY OF STOCK WAS RE CORDED PROPERLY BY THE DEPARTMENT, (C) THE DETAILS OF GOODS, QUANTITIES AN D COST PRICE WERE GIVEN BY HIMSELF AND HIS SON WHICH WAS CORRECTLY RECORDED BY THE DEPARTMENT, (D) THE COST PRICE WAS GIVEN BY HIM AS PER THE PURCHASE INV OICES FOR THE CURRENT FINANCIAL YEAR, (E) HE DID NOT HAVE ANY WAY BILLS I N RESPECT OF PURCHASES MADE AND (F) HE DID NOT HAVE THE PRACTICE OF MENTIONING THE BATCH NUMBER, INVOICE NUMBER ON THE STOCK AND ALSO THE SUPPLIERS OF GOODS DID NOT MENTION ANY BATCH NUMBER, IDENTIFICATION NUMBER AND INVOICE NUM BER ON THE GOODS/STOCK SUPPLIED TO HIM OR SUPPLIED BY HIM. THE ASSESSIN G OFFICER NOTED THAT WHILE TAKING THE INVENTORY, VALUE OF GOODS WAS TAKEN AT S ALE PRICE ON THE BASIS OF SALE BILLS AVAILABLE IN THE SALE BOOKS FOUND AT THE TIME OF SURVEY. ON THAT BASIS THE TOTAL SALE VALUE OF STOCK AVAILABLE IN AS SESSEES BUSINESS PREMISES WAS QUANTIFIED AT RS.57,57,190/-. APPLYING THE GRO SS PROFIT RATE OF 15.20% ADMITTED BY THE ASSESSEE, THE COST PRICE OF THE GOO DS WAS WORKED OUT TO RS.49,97,560/-, WHEREAS AS PER THE ASSESSEES BOOKS OF ACCOUNTS THE CLOSING STOCK AVAILABLE WAS ONLY RS.21,64,023/-. THEREFORE , ACCORDING TO THE ASSESSING OFFICER THERE WAS AN EXCESS STOCK OF RS.2 8,33,537/- FOUND AS A RESULT OF PHYSICAL INVENTORY WHICH HAS NOT BEEN REC ORDED IN THE BOOKS OF ACCOUNTS. HE FURTHER NOTED THAT IN THE STATEMENT R ECORDED ON 12.01.2007 WHEN THE ASSESSEE WAS SPECIFICALLY ASKED AS TO WHY THE EXCESS STOCK ARRIVED AT RS.28,33,537/- SHOULD NOT BE TREATED AS UNEXPLAI NED INVESTMENT, HE REPLIED THAT HE DOES NOT HAVE ANY EXPLANATION TO OF FER. FROM THESE FACTS, THE ASSESSING OFFICER INFERRED THAT THE ASSESSEE HAS NE VER QUESTIONED THE VALUE OF STOCK ARRIVED AT RS.57,57,190/- AND HAS CONFIRMED T HAT THE STOCK TAKING AT THE TIME OF SURVEY WAS PROPERLY DONE AND RATES WERE REC ORDED AS STATED BY THE ASSESSEE AND HIS SON. IN THE AFORESAID CONTEXT, TH E ASSESSING OFFICER NOTED THAT THE SUBSEQUENT EXPLANATION SUBMITTED BY THE AS SESSEE ON 17.1.2007 OBJECTING TO THE METHOD OF VALUATION OF STOCK CANNO T BE ACCEPTED. ITA NO.494/VIZ/2010 JUGRAJ PUKHRAJJI, VIJAYAWADA 3 ACCORDINGLY, ASSESSING OFFICER PROCEEDED TO DETERMI NE THE VALUE OF CLOSING STOCK AT RS.57,57,190/- AND ON THAT BASIS WORKED OU T THE EXCESS STOCK OF RS.28,33,537/- WHICH WAS TREATED AS THE UNEXPLAINED INVESTMENT AND ADDED TO THE INCOME OF THE ASSESSEE FOR THE IMPUGNED ASSE SSMENT YEAR. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED, THE AS SESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. IN COURSE OF HEARING OF APPEAL BEFORE THE CIT(A) IT WAS CONTENDED BY THE ASSESSEE THAT THE METHOD OF VALUATION OF STOCK ADOPTED BY THE DEPARTMENT AT THE TIME OF SURVEYING IS UNSCIENTIFIC AND NOT AS PER THE ACCOUNTING PRINCIPLES THEREBY RESULTING IN HYPOTHET IC VALUATION OF STOCK. IT WAS CONTENDED BY THE ASSESSEE THAT THOUGH THE ASSES SEE HAD DEMONSTRATED BEFORE THE ASSESSING OFFICER THAT CLOSING STOCK AS VALUED BY THE DEPARTMENT WOULD GIVE RISE TO AN ABNORMAL GROSS PROFIT OF 224. 98% AS ON THE DATE OF SURVEY AND FOR THE PERIOD FROM THE DATE OF SURVEY T O THE END OF THE ACCOUNTING PERIOD, THE ASSESSEE WOULD INCUR A LOSS OF 172%. THE ASSESSING OFFICER COMPLETELY BRUSHED ASIDE SUCH EXPLANATION O F THE ASSESSEE. IT WAS FURTHER CONTENDED THAT THE ASSESSING OFFICER HAD RE SORTED TO ADOPTING THE MAXIMUM SALE PRICE FROM SELECTED SALE BILL BOOKS WI THOUT CONSIDERING THE QUANTITY OF SALES MADE. IT WAS CONTENDED THAT THE T OTAL PURCHASES MADE OVER A PERIOD OF TIME AND SALE VALUE IN ISOLATION SHOULD NOT BE A GUIDING FACTOR FOR VALUING WHOLE OF THE STOCK. THE ASSESSEE SUBMITTED THAT SALE PRICE OF A PARTICULAR ITEM WAS NEVER CONSISTENT AND VARIED FRO M CUSTOMER TO CUSTOMER. THE STOCK ALSO INCLUDED SLOW AND NON-MOVING ITEMS, OBSOLETE, OUTDATED AND DAMAGED GOODS. IT WAS SUBMITTED THAT THOUGH THE ASS ESSEE FILED DETAILED STATEMENT SHOWING THE COST OF EACH ITEM AS GIVEN DU RING THE COURSE OF SURVEY PROCEEDING SUPPORTED BY COPIES OF PURCHASE INVOICES , THE SAME WAS COMPLETELY IGNORED BY THE ASSESSING OFFICER. IN SUP PORT OF SUCH CONTENTION, THE ASSESSEE ALSO SUBMITTED THE PURCHASE INVOICES W HICH WERE ALSO FILED BEFORE THE ASSESSING OFFICER. SIMILARLY, THE ASSES SEE DEMONSTRATED BEFORE THE CIT(A) THAT EVEN AS PER THE ASSESSING OFFICERS MET HOD OF VALUATION OF STOCK IF THE AVERAGE SALE PRICE TAKING INTO CONSIDERATION AL L THE BILLS AVAILABLE WITH THE DEPARTMENT FOR A PARTICULAR ITEM WILL BE MADE, THE TOTAL VALUE OF INVENTORY CAN BE QUANTIFIED AT RS.25,63,484/-. THUS, IT WAS CONT ENDED BY THE ASSESSEE THAT ITA NO.494/VIZ/2010 JUGRAJ PUKHRAJJI, VIJAYAWADA 4 PROPER COURSE OF ACTION FOR THE VALUATION OF STOCK AS ON THE DATE OF SURVEY WHICH SHOULD HAVE BEEN DONE IS TO VALUE THE STOCK A T COST OR AT THE MARKET PRICE. IT WAS SUBMITTED THAT BY APPLYING THE AVERAG E SALE PRICE IN CONFORMITY WITH THE METHOD ADOPTED BY THE ASSESSING OFFICER AL SO THE TOTAL VALUE OF INVENTORIES WAS ONLY RS.25,63,484/- AS AGAINST RS.5 7,57,190/- QUANTIFIED BY THE ASSESSING OFFICER. THE CIT(A) AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE VIS--VIS THE MATERIALS AVAILABLE ON RECOR D WAS IN AGREEMENT WITH THE CONTENTIONS OF THE ASSESSEE THAT THE TOTAL VALU E OF INVENTORIES WAS ONLY RS.25,63,484/-. THE FINDINGS OF THE CIT(A) AS CONT AINED IN PARA-7 OF HIS ORDER ARE EXTRACTED HEREUNDER: IT IS EVIDENT THAT THERE IS NO FIXED SALE PRICE FOR THE VARIOUS ITEMS INVENTORISED DURING THE COURSE OF SURVEY ACTION. F ROM THE MATERIAL ON RECORD, IT WOULD APPEAR THAT THE ASSESSING OFFICER HAS ADOP TED SINGLE SALE PRICE FOR A PARTICULAR ITEM TO DETERMINE THE PROBABLE SALE PRIC E IN ORDER TO DETERMINE ITS COST PRICE. HOWEVER, FROM THE SALE BILLS, IT IS SE EN THAT THERE IS A VIDE VARIATION IN THE SALE PRICE FOR A PARTICULAR ITEM D URING THE YEAR. WHEN THE PURCHASE PRICE OF THE STOCK IS NOT BEING TAKEN INTO CONSIDERATION TO VALUE THE STOCK, THERE CAN BE NO JUSTIFICATION FOR ADOPTING T HE MAXIMUM SALE PRICE IN ORDER TO WORK OUT THE VALUE OF THE STOCK. THE MORE REASONABLE AND SCIENTIFIC METHOD WOULD BE TO APPLY THE AVERAGE SALE PRICE AND THIS EXERCISE HAS ALREADY BEEN CONDUCTED BY THE APPELLANT AND FILED B EFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. IT IS AL SO PERTINENT TO NOTE THAT THE AVERAGE SALE PRICE HAS BEEN ARRIVED AT FROM THE SALE BILL BOOKS IN THE CUSTODY OF THE DEPARTMENT ITSELF AND THEREFORE THEN CAN BE NO GRIEVANCE ON THIS COUNT. I AM, THEREFORE, OF THE VIEW THAT THE V ALUATION DONE BY THE ASSESSING OFFICER IS ARBITRARY AND UNREASONABLE WHE REAS IF THE AVERAGE SALE PRICE IS ADOPTED FOR THE PURPOSE OF ARRIVING AT THE VALUATION OF THE INVENTORIES RECORDED AT THE TIME OF SURVEY, THE ENDS OF JUSTICE WOULD HAVE BEEN MET. THE TOTAL SALE VALUE OF THE INVENTORIES BY ADOPTING THE AVERAGE SALE PRICE AS ON 16.10.2006 IS RS.30,22,977/-. BY ADOPTING THE S AME GROSS PROFIT RATE OF 15.2% AS IN THE ASSESSMENT ORDER, THE VALUE OF CLOS ING STOCK AS PER COST PRICE WORKS OUT TO RS.25,63,484/-. THE ASSESSING OFFICER IS DIRECTED TO ADOPT THIS VALUE AND RECOMPUTED THE ADDITION TOWARDS EXCESS ST OCK AFTER TAKING INTO ACCOUNT THE VALUE OF STOCK ALREADY OFFERED BY THE A PPELLANT IN THE BOOKS OF ACCOUNT AND IN THE RETURN OF INCOME. 5. BEING AGGRIEVED OF THE AFORESAID ORDER OF THE CI T(A), THE DEPARTMENT IS BEFORE US. THE LD. D.R. STRONGLY CONTESTING THE FINDINGS OF THE CIT(A) THAT THE ASSESSING OFFICER HAS ADOPTED SINGLE SALE PRICE FOR A PARTICULAR ITEM TO DETERMINE THE PROBABLE SALE PRICE AND HAS NOT TAKEN THE AVERAGE SALE PRICE ARRIVED AT BY THE ASSESSEE SUBMITTED THAT THE ASSES SING OFFICER IN FACT HAS TAKEN THE AVERAGE SALE PRICE FOR VALUING THE CLOSIN G STOCK. THE LD. D.R. ITA NO.494/VIZ/2010 JUGRAJ PUKHRAJJI, VIJAYAWADA 5 SUBMITTED THAT CONSIDERING THE FACT THAT THE ASSESS EE HAS NOT MAINTAINED ANY STOCK REGISTER AND FAILED TO SUBMIT PURCHASE INVOIC ES, THE VALUATION OF STOCK AS PER THE PHYSICAL INVENTORY TAKEN AT THE TIME OF SURVEY IS CORRECT, MORE SO, WHEN THE ASSESSEE HAS NOT QUESTIONED THE SAME AT TH E TIME OF SURVEY. 6. THE LD. A.R. ON THE OTHER HAND STRONGLY SUPPORTI NG THE ORDER OF THE CIT(A) SUBMITTED THAT THE ASSESSEE HAS NEVER ACCEPT ED THE VALUATION OF PHYSICAL INVENTORY TAKEN AT THE TIME OF SURVEY. IT WAS SUBMITTED THAT THOUGH THE DEPARTMENT HAS PLACED MUCH RELIANCE ON THE REPL Y TO QUESTION NO.5 OF THE STATEMENT RECORDED FROM THE ASSESSEE ON 12.1.2007 B UT THAT CANNOT BE CONSTRUED TO MEAN THAT THE ASSESSEE HAS ACCEPTED TH E VALUATION OF CLOSING STOCK. IT WAS SUBMITTED THAT IMMEDIATELY AFTER THE STATEMENT WAS RECORDED FROM THE ASSESSEE IN THE IMMEDIATELY FOLLOWING WORK ING DAY THE ASSESSEE HAS FILED DETAILED SUBMISSION OBJECTING TO THE VALUATIO N OF PHYSICAL INVENTORY OF STOCK. IN THIS CONTEXT, THE LD. A.R. DREW OUR ATTEN TION TO THE ASSESSEES SUBMISSIONS BEFORE THE ASSESSING OFFICER ON 16.1.20 07 AND 17.1.2007. THE LD. A.R. REFERRING TO STATEMENTS OF VALUATION OF CL OSING STOCK SUBMITTED DURING THE ASSESSMENT PROCEEDINGS CONTENDED THAT THE ASSES SING OFFICER HAS NOT DENIED THE FACT THAT THESE STATEMENTS WERE SUBMITTE D BEFORE HIM. ON THE CONTRARY WITHOUT CONSIDERING THE SAID STATEMENTS, T HE ASSESSING OFFICER HAS PROCEEDED ON THE BASIS OF THE PHYSICAL INVENTORY OF STOCK TAKEN AT THE TIME OF SURVEY IN THE PROCESS TOTALLY IGNORING THE ASSESSEE S CONTENTION. HE THEREFORE CONTENDED THAT THERE IS NO REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A). 7. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. ON GOING THROUGH THE RESPECTI VE ORDERS OF THE ASSESSING OFFICER AS WELL AS CIT(A), WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE ORDER OF THE CIT(A). IT IS VERY MUCH EVIDENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS ADOPTED THE VALUE OF STOC K AT RS.57,57,190/- SOLELY ON THE BASIS OF THE PHYSICAL INVENTORY TAKEN AT THE TIME OF SURVEY OPERATION ON 16.10.2006. HOWEVER, WHILE DOING SO, HE HAS TOT ALLY BRUSHED ASIDE THE CONTENTIONS OF THE ASSESSEE AND OTHER MATERIALS PRO DUCED BEFORE HIM. THE LD. A.R. THROUGH RECONCILIATION STATEMENTS OF VALUA TION OF STOCK, WHICH WERE SUBMITTED BEFORE THE AO AND FORMS PART OF THE PAPER BOOK, DEMONSTRATED ITA NO.494/VIZ/2010 JUGRAJ PUKHRAJJI, VIJAYAWADA 6 BEFORE US THAT IF THE VALUATION METHOD OF THE DEPAR TMENT IS ADOPTED, IT WILL RESULT IN ABNORMAL GROSS PROFIT OF 224.98% AS ON TH E DATE OF SURVEY AND POST THE DATE OF SURVEY TO END OF THE ACCOUNTING PERIOD, THE ASSESSEE WOULD INCUR A LOSS OF 172%. THE LD. A.R. ALSO DEMONSTRATED BEF ORE US THAT EVEN ADOPTING THE COST PRICE OF THE DEPARTMENT AT THE TI ME OF SURVEY VALUATION WOULD BE RS.21,29,476.50 (PAGE 13 TO 15 OF PAPER BO OK). FURTHER, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSES SEE HAS NOT PRODUCED ANY PURCHASE BILLS/ PURCHASE INVOICE ALSO APPEARS TO BE WITHOUT ANY BASIS AS THE CIT(A) HAS CATEGORICALLY OBSERVED THAT THE ASSESSEE HAS PRODUCED BEFORE HIM PURCHASE INVOICES WHICH WERE ALSO PRODUCED BEFORE T HE ASSESSING OFFICER. SAMPLE COPIES OF PURCHASE INVOICES WERE ALSO ENCLOS ED IN PAPER BOOK FOR OUR PERUSAL. THAT BEING THE CASE, THE AO SHOULD NOT HA VE WORKED OUT THE COST PRICE ON THE BASIS OF SALE VALUE OF STOCK QUANTIFIE D AT RS.57,57,190/- BY TAKING INTO ACCOUNT SOME SALE BILLS AND TOTALLY IGN ORING THE FACT THAT SALE PRICE MAY NOT BE THE SAME IN ALL CASES. IN THE AFORESAID FACTS AND CIRCUMSTANCES, THE CIT(A)S OBSERVATION THAT THE VALUE ADOPTED BY THE ASSESSING OFFICER IS ARBITRARY AND UNREASONABLE CANNOT BE FAULTED. IT I S ALSO A FACT BROUGHT TO OUR NOTICE IN COURSE OF HEARING OF APPEAL THAT IN CONSE QUENCE OF THE ORDER OF THE CIT(A), THE ASSESSING OFFICER HAS ALREADY PASSED CO NSEQUENTIAL ORDER RE- COMPUTING THE INCOME OF THE ASSESSEE, WHICH HAS RES ULTED IN A REFUND OF RS.1,33,074/-. CONSIDERING THE TOTALITY OF THE FAC TS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT ORDER PASSED BY THE C IT(A) IS UNASSAILABLE. WE, THEREFORE, DISMISS THE GROUNDS OF THE DEPARTMENT TH EREBY UPHOLDING THE ORDER OF THE CIT(A). 8. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26 TH FEB14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 26 TH FEBRUARY, 2014 ITA NO.494/VIZ/2010 JUGRAJ PUKHRAJJI, VIJAYAWADA 7 COPY TO 1 ITO WARD-2(4), VIJAYAWADA 2 JUGRAJ PUKHRAJJI, PROP: JAIN OPTICALS, 28-13-5, K OMMUVARI ST., ARUNDALPET, VIJAYAWADA. 3 THE CIT, VIJAYAWADA 4 THE CIT(A), VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER (B. VENU GOPAL) SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM