The ITO, Ward-3(1), Surat V. Shri Shashank Devendrakumar Arora, Surat

ITA 505/AHD/2011

• Counselvise Citation: 50520514 RSA 2011
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAY RAJ KUMAR
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI T. K. SHARMA, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO. 505/ AHD/2011 (ASSESSMENT YEAR 2007-08) ITO, WARD 3(1), SURAT VS. SHRI SHASHANK DEVENDRAKUMAR ARORA, B-2/3, JANTA NAGAR, B/H, KAPADIA HEALTH CLUB, NEW CIVIL ROAD, SURAT PAN/GIR NO. : AHXPA9497P (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI JAYRAJ KUMAR, SR. DR RESPONDENT BY: SHRI HARDIK VORA, AR DATE OF HEARING: 07.10.2011 DATE OF PRONOUNCEMENT: 14.10.11 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDE R OF LD. CIT(A) II, SURAT DATED 6.12.2010 FOR THE ASSESSMENT YEAR 2 007-08. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE A.O. WAS N OT JUSTIFIED IN REJECTING THE BOOK RESULTS DISCLOSED BYTE ASSESSEE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE A.O. OF RS.11,06,315/- ON ACCOUNT OF UNDERVALUATION OF CLO SING STOCK. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 4) IT IS, THEREFORE, PRAYED THAT THE ORDER O THE CI T(A) MAY BE SET ASIDE AND THAT OF A.O. MAY BE RESTORED TO THE ABOVE EXTENT. I.T.A.NO.505 /AHD/2011 2 2. THE BRIEF FACTS OF THE CASE TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 2 OF HIS ORDER WHICH IS REPRODUCED B ELOW: THE FACTS RELATING TO THE ADDITIONS MADE TO THE RE TURNED INCOME RE DISCUSSED IN PARA 3 TO 6 OF THE ASSESSMENT ORDER. T HE ASSESSING OFFICER HAS, IN THE ABOVE PARAS OF THE ORDER DISCUS SED THAT THE APPELLANT IS DEALING IN WHOLESALE SAREES AND PURCHA SE OF SYNTHETIC CLOTH AND ALSO MAINTAINING PURCHASE AND SALE REGIST ER AS MENTIONED IN THE AUDIT REPORT. HE ALSO OBSERVED THAT THE APPE LLANT HAS NOT BEEN MAINTAINING STOCK REGISTER DURING THE ACCOUNTING YE AR RELEVANT TO ASSTT. YEAR 2007-08 AND ISSUED A NOTICE U/S 142(1) OF THE ACT, CALLING : OR THE APPELLANT TO PRODUCE STOCK REGISTER MAINTAIN ED, TOTAL PURCHASE OF GREY CLOTH IN THE MONTH OF MARCH, 2007, BILLS FOR THE PURCHASE OF GREY IN THE MONTH OF MARCH, 2007 AND MO NTH-WISE QUANTITATIVE DETAILS OF THE SAREES JOB WORK FOR THE MONTH OF MARCH, 2007. IN PARA 4 OF THE ORDER, THE ASSESSING OFFICER HAS RECORDED THAT THE APPELLANT FAILED TO PRODUCE BOOKS OF A/C. CONFIRMING THAT THE SAME HAD NOT BEEN MAINTAINED, THEREFORE, VALUAT ION OF CLOSING STOCK HAD TO BE DONE, AND, AS PER DETAILS AND CALCU LATION SUBMITTED BY THE APPELLANT, HE FOUND THAT THERE WAS UNDERVALU ATION OF STOCK BY RS.11,06,315/-, AND COMMUNICATED THE SAME TO THE APPELLANT, ALONG WITH A SHOW CAUSE AS TO WHY THE ABOVE AMOUNT SHOULD NOT BE ADDED TO HIS INCOME. THE APPELLANT VIDE LETTER DTD. 24.12.2009 SUBMITTED THAT THE ABOVE FIGURE COMPUTED BY THE ASS ESSING OFFICER DOES NOT TAKE INTO ACCOUNT THAT DURING THE YEAR UND ER CONSIDERATION, THE WHOLE 'EMBROIDERED' OR 'FANCY' HAND WORK CLOTH HAD BEEN DISPATCHED TO THE CUSTOMERS AND STOCK REMAINING WAS ONLY PLAIN FINISHED CLOTH WHICH CAN BE VERIFIED FROM THE DAY T ODAY REGISTER MAINTAINED BY HIM, AND NUMBER OF EMBROIDERED WOR K AND NUMBER OF PIECES SOLD IN THE CONCERNED PERIOD CAN F URTHER BE VERIFIED FROM THE PARTIES OF EMBROIDERY WORK OR FAN CY HAND WORK. THE APPELLANT, THEREFORE, STATED THAT BECAUSE OF TH E ABOVE, THE ASSESSING OFFICER HAS TAKEN VALUATION OF CLOSING ST OCK AT RS. 8.54 PER METER. THE APPELLANT FURTHER SUBMITTED THAT T HE QUANTITY SHOWN IN THE CLOSING STOCK IS INCLUSIVE OF B-GRADE CLOTH \ WHEREAS THE ASSESSING OFFICER HAS CONSIDERED WHOLE FINISHED CLO TH AS FRESH OR A-GRADE CLOTH. IT WAS FURTHER CONTENDED THAT IN THE PROCESS OF DYEING & PRINTING LITTLE QUANTITY TURNED INTO B-GRADE, BECAUSE OF MISMATCH OF COLOUR OR DESIGN DUE TO INFERIOR QUALIT Y OF GREY CLOTH AND FURTHER STATED THAT SUCH TYPE OF B-GRADE CLOTH HAD TO BE SOLD AT REDUCED RATES, AND TO ESTABLISH THIS CLAIM, DETA ILS OF NUMBER OF I.T.A.NO.505 /AHD/2011 3 SUCH TYPE OF B-GRADE CLOTH SOLD AT REDUCED RATE IN THE SUBSEQUENT PERIOD WAS PRESENTED BEFORE THE ASSESSING OFFICER FOR HIS VERIFICATION. THE APPELLANT FURTHER SUBMITTED TH AT THE ADDITION OF RS. 11.06 LAC PROPOSED BY THE ASSESSING OFFICER IS ON THE BASIS THAT AVERAGE RATE OF JOB WORK OF EMBROIDERY TAKEN B Y HIM AT RS. 8.54, WHEREAS AS STATED ABOVE, THE DIFFERENCE IN VA LUATION OF STOCK IS BECAUSE THE VALUE OF D-GRADE CLOTH HAS NOT BEEN TAKEN CORRECTLY. THUS, THE APPELLANT SUBMITTED THAT THE RE IS NO DISCREPANCY IN THE VALUATION OF CLOSING STOCK. THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE SUBMISSION OF THE APPELLANT FOR THE REASONS DISCUSSED IN PARA 6 OF THE ORDER AND, FROM THE INVENTORY OF MONTH-WISE PURCHASES AND SALE OF GREY CLOTH, JOB WO RK ETC. HE FOUND THAT THE TOTAL SAREES JOB WORK' IN THE MONTH OF JANUARY, FEBRUARY AND MARCH WAS 102774 MTR., 71674 MTR., AN D 51234 MTR. RESPECTIVELY AND ACCORDINGLY WORKED OUT THE SAREE J OB WORK PER METER IN THE MONTH OF JANUARY @ RS. 8.10, IN FEBRUA RY AT @ RS. 12.33 AND IN MARCH @ RS. 15.36, AND CONCLUDED THAT THE APPELLANT'S REPLY IS NOT ACCEPTABLE, BECAUSE COST OF JOB WORK S AREES, WHICH IS RS. 8.10, 12.33 AND 15.36 PER METER CANNOT BE UNIFO RMLY SOLD @ RS. 40 PER METER AND MADE AN ADDITION OF RS.11,06,3 50/- ON ACCOUNT OF UNDER VALUATION OF STOCK. 3. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHO HAS DELETED THIS ADDITION AND NOW, THE R EVENUE IS IN APPEAL BEFORE US. 4. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THERE IS NO DISPUTE REGARDING THE QUANTITY OF CLOSING STOCK OF FINISHED GOODS OF 95,679 MTRS. THE DISPUTE IS REGARDING THE VALUATION OF THE SAME. THE A.O. HAS VALUED THE SAME AT RS.29.11 PER MTR BY INCLUDING COST OF GREY CLOTH PER MTR OF 13.32 PER MTR, COST OF PROCES S WORK PER MTR BEING RS.7.25 AND THE COST OF EMBROIDERY WORK @ RS.8.54 P ER MTR THE TOTAL OF WHICH COMES TO RS.29.11 PER MTR. AS PER THE ASSES SEE, THERE WAS NO I.T.A.NO.505 /AHD/2011 4 EMBROIDERED SARI IN CLOSING STOCK AND HENCE THE COS T OF EMBROIDERY WORK OF RS.8.54 PER MTR. CANNOT BE ADDED IN THE COST FOR WORKING OUT THE VALUE OF CLOSING STOCK. AS PER THE WORKING GIVEN BY THE ASSESSEE REGARDING VALUE OF STOCK ON PAGE 2 OF THE PAPER BOOK, THE ASS ESSEE HAS VALUED THE SAME @ RS.19.98 MTR. IN RESPECT OF 48184 MTRS., @ R S.21,39 PER MTR FOR 10888 MTRS, @ RS.12.78 PER MTR FOR 17208 MTRS AND @ RS.13.58 PER MTR FOR 19394 MTRS. THE CASE OF THE ASSESSEE IS THAT F IRST TWO QUANTITIES OF 48184 MTRS. AND 10888 MTRS. ARE REGARDING THE QUANT ITY OF GOOD SARI WHEREAS LATER TWO QUANTITIES ARE FOR 2 ND GRADE SAREES AND THE SAME WAS VALUED AT MARKET PRICE FOR RS.80/- PER SARI AND RS. 85/- PER SARI RESPECTIVELY. CIT(A) HAS GIVEN A FINDING IN PARA 3 .2 OF HIS ORDER THAT THE CLAIM OF THE ASSESSEE THAT THERE IS NO SARI IN CLOS ING STOCK HAVING EMBROIDERY WORK IS VERIFIABLE FROM THE COPY OF STOC K REGISTER AND SALE BILL AND THIS SUBMISSION WAS MADE BY THE ASSESSEE BEFORE THE A.O. ALSO BUT HE HAS NOT CONSIDERED THE SAME. THE ASSESSEE HAS ALSO FURNISHED IN THE PAPER BOOK DETAILS REGARDING EXPENDITURE INCURRED ON EMBR OIDERY WORK WHICH IS AVAILABLE ON PAGE 3 OF THE PAPER BOOK AND AS PER TH E SAME, TOTAL CHARGES OFRS.25,04,391/- WAS INCURRED IN RESPECT OF EMBROID ERY WORK OF 225705.6 MTRS. THIS AMOUNT OF COST INCURRED FOR EMBROIDERY WORK IS TALLYING WITH THE AMOUNT NOTED BY THE A.O. IN PARA 6 OF THE ASSES SMENT ORDER. ON PAGE 4 OF THE PAPER BOOK IS THE DETAILS REGARDING SALE O F SAREES HAVING EMBROIDERY WORK AND AS PER THE SAME, TOTAL SALE OF SAREES HAVING EMBROIDERY WORK WAS 234755.08 MTRS. THERE IS PURCH ASE OF READYMADE SAREES ALSO OF 28413 MTRS. AND HENCE, THIS CLAIM OF THE ASSESSEE IS SUPPORTED BY THIS FACT THAT THERE WAS NO SAREE IN C LOSING STOCK HAVING EMBROIDERY WORK. IF FROM THE VALUE ADOPTED BY THE A.O. FOR VALUING OF CLOSING STOCK, COST REGARDING EMBROIDERY WORK OF RS .8.54 PER MTR. IS EXCLUDED, THE MAJOR AMOUNT OF ADDITION MADE BY THE A.O. GOES AWAY. I.T.A.NO.505 /AHD/2011 5 CONSIDERING THESE FACTS, IN OUR CONSIDERED OPINION, LD. CIT(A) HAS RIGHTLY DECIDED THIS ISSUE AFTER EXAMINING ALL THE FACTS AND HENCE, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A). WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A). 6. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISM ISSED. 7. ORDER PRONOUNCED IN THE OPEN COURT ON OCT., 2011. (T.K. SHARMA) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 10/10 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13/10OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.13/10 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 14/10 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.14/10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14/10/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..