ACIT, New Delhi V. M/s. Trend Setters, New Delhi

ITA 5526/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86848 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 24-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 01-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Keywords: Unexplained investment
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI I.C. SUDHIR, JM ITA NO.5526/DEL/2012 ASSESSMENT YEAR : 2004-05 ACIT, CIRCLE 25(1), NEW DELHI. VS. TREND SETTERS, A-23 & 24, MANGOLPURI INDUSTRIAL AREA, PHASE II, NEW DELHI. PAN: AAAFT1462P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH AGGARWAL, CA DEPARTMENT BY : SHRI J.P. CHANDRAKAR, SR. DR DATE OF HEARING : 24.02.2015 DATE OF PRONOUNCEMENT : .02.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 30.8.2012 IN RELATION TO THE ASSESSME NT YEAR 2004-05. 2. THE FIRST GROUND IS AGAINST THE DELETION OF ADD ITION OF RS.31,85,652/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. BRIEFLY ITA NO.5526/DEL/2012 2 STATED, THE FACTS OF THIS GROUND ARE THAT A SURVEY WAS CONDUCTED U/S 133A ON 5.12.2003 AT THE BUSINESS PREMISES OF THE ASSESS EE. A TRADING ACCOUNT WAS PREPARED ON THE DATE OF SURVEY WHICH DIVULGED T HE FIGURE OF STOCK AT RS.84,54,300/-. PHYSICAL VERIFICATION WAS CARRIED OUT OF THE STOCK AVAILABLE ON THAT DATE WITH THE HELP OF THE ASSESSE ES EMPLOYEES. AS PER SUCH VERIFICATION, THE STOCK OF THE ASSESSEE CAME T O RS.1,16,39,952/-. THIS DISCLOSED EXCESS STOCK TO THE TUNE OF RS.31,85 ,652/-. STATEMENT OF SHRI S.K. VASUDEVAJI, CHIEF GENERAL MANAGER OF THE ASSESSEE-FIRM WAS RECORDED AT THE TIME OF SURVEY, IN WHICH HE WAS AS KED TO EXPLAIN THE DIFFERENCE IN STOCK AMOUNTING TO RS.31.85 LAC. HE HAD NO EXPLANATION TO OFFER IN RESPECT OF THE DISCREPANCY AND, ACCORDINGL Y, AGREED FOR TAXATION OF THE AMOUNT OF EXCESS STOCK TO THE TUNE OF RS.31. 85 LAC. A PARTNER OF THE ASSESSEE-FIRM, NAMELY, SHRI SUDHIR SEKHRI, WHO WAS OUT OF DELHI AT THE TIME OF SURVEY, ATTENDED THE OFFICE OF THE AO ON 12.12.2003. AFTER GOING THROUGH THE STATEMENT OF SHRI VASUDEVAJI AND OTHER RECORDS, HE APPROVED THE CONTENTS OF THE STATEMENT AND AGREED F OR THE SURRENDER OF RS.31.85 LAC. HOWEVER, AT THE TIME OF FILING THE R ETURN, THE ASSESSEE DID NOT INCLUDE THE SURRENDERED AMOUNT IN ITS TOTAL INC OME. ON BEING CALLED ITA NO.5526/DEL/2012 3 UPON TO EXPLAIN AS TO WHY THE AMOUNT SURRENDERED AT THE TIME OF SURVEY WAS NOT OFFERED FOR TAXATION, THE ASSESSEE CAME OUT WITH AN EXPLANATION THAT THERE WAS NO EXCESS STOCK AND THE DIFFERENCE I N THE FIGURES OF STOCK WAS ON ACCOUNT OF RATE DIFFERENCE IN THE VALUE OF S TOCK AS ON THE DATE OF SURVEY. HOWEVER, NO DETAILS/EVIDENCE WAS FURNISHED TO SHOW SUCH ALLEGED RATE DIFFERENCE. THE AO RECORDED IN THE AS SESSMENT ORDER THAT THE ASSESSEE HAD AT NO STAGE DISPUTED THE SO CALLED RATE DIFFERENCE IN VALUE. UNCONVINCED WITH THE ASSESSEES SUBMISSIONS , THE AO MADE ADDITION OF RS.31.85 LAC, WHICH CAME TO BE DELETED BY THE LD. CIT(A) ON THE PREMISE THAT THERE WAS NO DISCREPANCY IN THE NU MBER OF PIECES AND THE DIFFERENCE WAS ONLY IN THE VALUATION AS PER THE SURVEY PARTY AND THE ASSESSEE. THE REVENUE IS IN APPEAL AGAINST THE DELE TION OF ADDITION. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE INCOME- TAX AUTHORITIES MADE OUT INVENTORY OF STOCK AT THE TIME OF SURVEY, WITH THE HELP OF THE ASSESSEES STAFF, GIVING SPECIFIC DESCRIPTION OF T HE ITEM, QUANTITY, RATE AND VALUE. A COPY OF SUCH DETAILED INVENTORY PREPA RED ON 5.12.2003 IS ITA NO.5526/DEL/2012 4 AVAILABLE ON PAGES 26-30 OF THE PAPER BOOK. HOWEVE R, IT IS ONLY LATER ON DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT TH E ASSESSEE CAME OUT WITH A STATEMENT SHOWING DIFFERENCE IN THE RATES, A COPY OF WHICH IS AVAILABLE ON PAGES 31 ONWARDS OF THE PAPER BOOK. W HEN WE CONSIDER THE CONTENTS OF THE ITEMS IN THE STOCK STATEMENT PREPAR ED AT THE TIME OF SURVEY, IT CAN BE SEEN THAT THESE ARE IN THE NATURE OF DRESS MATERIAL, MENS SHIRT, LADIES TOP, GIRLS PANT, BLOUSE, CAPR I WITH BLOUSE, ETC. IT IS OBVIOUS THAT THE PRICES OF SUCH ITEMS VARY DEPENDIN G UPON ITS QUALITY, ETC. A PIECE OF SHIRT MAY BE AVAILABLE FOR RS.100/ - AND ALSO FOR A COUPLE OF THOUSANDS OF RUPEES. THERE CANNOT BE ANY STANDA RD YARDSTICK TO VALUE SUCH ITEMS ON A UNIFORM BASIS. IT CAN BE SEEN FROM THE INVENTORY STATEMENT DRAWN BY THE INCOME-TAX AUTHORITIES ON TH E DATE OF SURVEY THAT THERE ARE SEVERAL ITEMS WITH THE DESCRIPTION LADIE S DRESS WITH DIFFERENT QUANTITIES AND DIFFERENT RATES. SIMILAR IS THE POS ITION WITH MENS SHIRT, LADIES TOP, ETC., ETC. NOW, THE ASSESSEE IS CONTE NDING THAT THE VALUE RECORDED IN THE STATEMENT PREPARED ON 5.12.2003 BY THE AUTHORITIES WITH THE HELP OF THE ASSESSEES EMPLOYEES IS WRONG IN TE RMS OF RATES AND THE STATEMENT MADE BY IT WITH LOWER RATES SHOULD BE ACC EPTED. WE FAIL TO ITA NO.5526/DEL/2012 5 APPRECIATE THE CONTENTION FOR THE OBVIOUS REASON TH AT THE INVENTORY WAS DRAWN BY THE INCOME-TAX AUTHORITIES ON THE DATE OF SURVEY WITH THE HELP OF THE ASSESSEES EMPLOYEES ON 5.12.2003. THE SAME WAS EXAMINED AND VERIFIED BY SHRI S.K. VASUDEVAJI, THE CHIEF GENERAL MANAGER OF THE ASSESSEE-FIRM WHO ACCEPTED THE CORRECTNESS OF THE S TATEMENT SO DRAWN AND OFFERED TO SURRENDER THE EXCESS STOCK TO THE TU NE OF RS.31.85 LAC ON THE BASIS OF SUCH STATEMENT. NOT ONLY THAT, SHRI S UDHIR SEKHRI, A PARTNER IN THE ASSESSEE-FIRM, ATTENDED THE OFFICE OF THE A O AFTER A WEEKS TIME ON 12.12.2003. HE ALSO DID NOT DISPUTE THE VALUATI ON OF STOCK RECORDED IN THE STATEMENT AND APPROVED THE CONTENTS OF THE S TATEMENT MADE BY SHRI S.K. VASUDEVAJI. IT IS BEYOND OUR COMPREHENSI ON AS TO HOW THE VALUATION OF INVENTORY WHICH WAS MADE ON 5.12.2003 WITH THE HELP OF EMPLOYEES OF THE ASSESSEE COMPANY, AS APPROVED FIRS TLY BY ITS CHIEF GENERAL MANAGER ON THE DATE OF SURVEY AND THEN BY A PARTNER AFTER A WEEKS TIME, CAN BE BRANDED AS WRONG AT A LATER DAT E. IT IS MORE SO BECAUSE THERE IS NO CORROBORATION OF THE RATES GIVE N BY THE ASSESSEE IN ITS LATER STATEMENT SHOWING LOWER RATES. THERE IS NO B ASIS FOR CHECKING THE RATES GIVEN BY THE ASSESSEE IN ITS SO-CALLED INVENT ORY DEPICTING DIFFERENCE ITA NO.5526/DEL/2012 6 IN THE RATES OF ITEMS. WHEN THE STOCK STATEMENT PR EPARED BY THE INCOME- TAX AUTHORITIES AT THE TIME OF SURVEY IS PITTED AGA INST A LATER ONE-SIDED STATEMENT WITH LOWER RATES MADE BY THE ASSESSEE, W E PREFER TO GO WITH THE FORMER. THE REASON IS OBVIOUS THAT IT WAS DRAWN ON THE BASIS OF ACTUAL VERIFICATION DONE AND AS PER THE RATES GIVEN BY THE EMPLOYEES OF THE ASSESSEE AND AS AFFIRMED BY THE CHIEF GENERAL MANAG ER AND THEN THE PARTNER OF THE ASSESSEE FIRM. AS SUCH, WE REFUSE TO ACCEPT THE VERACITY OF THE STATEMENT TENDERED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS GIVING LOWER RATES AND GO WITH THE STATEMENT PREPAR ED AT THE TIME OF SURVEY. THE IMPUGNED ORDER IS VACATED ON THIS ISSU E AND THE ADDITION MADE BY THE AO TO THE TUNE OF RS.31.85 LAC IS RESTO RED. THIS GROUND IS ALLOWED. 4. THE SECOND GROUND IS AGAINST THE DELETION OF ADD ITION OF RS.49,76,428/- ON ACCOUNT OF SUPPRESSED GROSS PROFI T. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPON TO GIVE COMPARATIVE GP RATES FOR THE IMMEDIATELY PRECEDING TWO YEARS. VIDE ITS LETTER DATED 28.12.2006, THE ASSESSEE SUBMITTED THA T ITS GROSS PROFIT RATE ITA NO.5526/DEL/2012 7 DECLINED FROM 27.84% FOR THE IMMEDIATELY PRECEDING YEAR TO 11.70% FOR THE YEAR UNDER CONSIDERATION. A DECLINE IN GP RATE WAS STATED TO BE ON ACCOUNT OF 14% REDUCTION IN AVERAGE PER UNIT SALES REALIZATION. HOWEVER, THE ASSESSEE DID NOT FURNISH ANY WORKING O F THE PER UNIT SALES REALIZATION AND NO EVIDENCE WAS MADE AVAILABLE TO S UPPORT ITS CONTENTION. THE AO OBSERVED THAT THE ASSESSEE DID NOT GIVE ANY INFORMATION ABOUT THE TYPE OF GOODS MANUFACTURED DURING THE PRECEDING YEAR AND THE CURRENT YEAR; NUMBER OF VARIOUS GOODS MANUFACTURED DURING THE PRECEDING YEAR AND THE CURRENT YEAR; COST PRICE OF EACH TYPE OF GOODS MANUFACTURED DURING THE YEAR AND THE EARLIER YEAR; AND SALE PRICE OF EACH OF THE GOODS EXPORTED DURING THE IMMEDIATELY PRECED ING YEAR AND YEAR IN QUESTION. THE ASSESSEE TRIED TO JUSTIFY REDUCTION IN THE GROSS PROFIT RATE BY GIVING THE REASONS WHICH HAVE BEEN REPRODUCED ON PAGE 5 OF THE ASSESSMENT ORDER. THE AO DISCUSSED POINT-WISE CONT ENTIONS RAISED BY THE ASSESSEE. IN THE ULTIMATE ANALYSIS, IT WAS FOU ND THAT THE ASSESSEE HAD NOT MAINTAINED ANY QUANTITATIVE DETAILS OF RAW MATE RIAL AND FINISHED GOODS AS WAS APPARENT FROM THE AUDIT REPORT AND THE DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS DID NOT GIVE THE DETAILS OF ITA NO.5526/DEL/2012 8 ACCESSORIES/OTHER RAW MATERIALS; VARIOUS TYPES OF G ARMENTS MANUFACTURED; DETAILS OF SEMI-FINISHED AND FINISHE D GOODS AND WASTAGE, ETC. HE, THEREFORE, REFUSED TO GIVE ANY CREDENCE T O THE QUANTITATIVE STATEMENT GIVEN BY THE ASSESSEE. THE BOOKS OF ACCO UNT WERE REJECTED U/S 145(3). CONSIDERING THE FACT THAT IN THE PRECEDING YEAR, THE GROSS PROFIT RATE WAS 27.84% AS AGAINST SHOWN AT 11.3% FOR THE Y EAR IN QUESTION, THE AO APPLIED GP RATE OF 20%, WHICH RESULTED INTO AN ADDITION OF RS.49.76 LAC. THE LD. CIT(A) CONCURRED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE THAT THE BOOKS WERE PROPERLY MAINTA INED AND WERE NOT LIABLE TO REJECTION. ACCORDINGLY, HE DELETED THE A DDITION. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT RECORD, IT IS OBSERVED THAT THE AO CATEGORICALLY AS KED THE ASSESSEE TO GIVE DETAILS ABOUT THE BREAK-UP OF CLOSING STOCK, W HICH THE ASSESSEE FAILED TO ADDUCE. ONCE THERE IS NO AUTHENTICATION OF THE VALUE OF STOCK AS SHOWN BY THE ASSESSEE, HOW SUCH VALUATION CAN BE AC CEPTED, MORE SO, WHEN THE GROSS PROFIT RATE HAS SHARPLY DECLINED. NO ACCOUNTS CAN BE SAID TO HAVE BEEN PROPERLY MAINTAINED UNLESS THE FIGURES OF OPENING AND ITA NO.5526/DEL/2012 9 CLOSING STOCK ARE SUBJECT TO VERIFICATION. AS THE ASSESSEE MISERABLY FAILED TO CORROBORATE THE VALUE GIVEN FOR CLOSING S TOCK AND, FURTHER, THERE WAS ABSENCE OF DETAILS OF ACCESSORIES/RAW MATERIALS , SEMI-FINISHED AND FINISHED GOODS, WASTAGE, ETC., WE OVERTURN THE IMPU GNED ORDER UPHOLDING THE PROPER MAINTENANCE OF BOOKS OF ACCOUNT. ACCORD INGLY, THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT IS UPHELD. 6. HAVING HELD THAT THE BOOKS OF ACCOUNTS WERE N OT PROPERLY MAINTAINED, THE NEXT QUESTION IS THE ESTIMATION OF INCOME. UNLESS THE FACTS AND CIRCUMSTANCES ARE SHOWN TO HAVE UNDERGONE CHANGE, ORDINARILY, THE GROSS PROFIT OF THE IMMEDIATELY PRECEDING YEAR CONSTITUTES A GOOD GUIDE FOR ADOPTION AND IMPLEMENTATION. WHEN WE ADV ERT TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE AO WAS MORE THA N REASONABLE IN APPLYING GP RATE OF 20% AS AGAINST THE IMMEDIATELY PRECEDING YEARS GP RATE OF 27.84%. THE IMPUGNED ORDER IS VACATED AND THE ADDITION SO DELETED IN THE FIRST APPEAL IS RESTORED. THIS GROU ND IS ALLOWED. 7. THE LAST GROUND IS AGAINST THE DELETION OF DISAL LOWANCE OF RS.4 LAC OUT OF FOREIGN TRAVELLING EXPENSES. THE FACTS APRO POS THIS GROUND ARE ITA NO.5526/DEL/2012 10 THAT THE ASSESSEE CLAIMED FOREIGN TRAVELING EXPENSE S OF RS.11,55,527/-. THE ASSESSEE FURNISHED DETAILS OF FOREIGN TRAVEL EX PENSES. IN THE ABSENCE OF SUPPORTING BILLS/VOUCHERS, THE AO MADE AN AD HOC DISALLOWANCE OF RS.4 LAC OUT OF SUCH FOREIGN TRAVEL EXPENSES. THE LD. CIT(A) DELETED THIS ADDITION. 8. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD, IT IS SEEN THAT THE FOREIGN TRAVEL EXPENSES WERE INCURRED BY THE ASSESSEE ON ITS EMPLOYEES AND NO FOREIGN TRAVEL WAS UNDERTAKEN BY THE PARTNERS. IN SUCH CIRCUMSTANCES, THERE CAN BE NO R EASON FOR MAKING ANY AD HOC DISALLOWANCE. WE, THEREFORE, APPROVE THE IMPUGNED ORDER IN DELETING THIS ADDITION. THIS GROUND IS NOT ALLOWE D. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.02.201 5. SD/- SD/- [I.C. SUDHIR] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 26 TH FEBRUARY, 2015. DK ITA NO.5526/DEL/2012 11 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.