ACIT 20(2), MUMBAI V. NAINESH M NANDU (HUF), MUMBAI

ITA 5564/MUM/2011

• Counselvise Citation: 556419914 RSA 2011
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: DHARMESH SHAHMAYUR MAKADIA
• Keywords: Rejection of books of accounts; Unexplained investment; Non passing of speaking order
• Section: 145; 143(3); 133A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL MUMBAI - B BENCH MUMBAI . . , / !' !' !' !' , ! ! ! ! BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 5564/MUM/2011, # # # # $ $ $ $ / ASSESSMENT YEAR 2006-07 ACIT 20(2), 612, PIRAMAL CHAMBERS, LALBAUG,MUMBAI-400012 VS. NAINESH NANDU (HUF) 502, 2 ND FLOOR, SHANTI NIKETAN, SHIVAJI PARK,MUMBAI-400028 PAN: AACHN4335H ( %& / APPELLANT ) ( '(%& / RESPONDENT) /. ITA NO. 5456/MUM/2011, # # # # $ $ $ $ / ASSESSMENT YEAR 2006-07 NAINESH NANDU (HUF) 502, 2 ND FLOOR, SHANTI NIKETAN, SHIVAJI PARK,MUMBAI-400028 VS. ACIT 20(2), MUMBAI. PAN: AACHN4335H ( %& / APPELLANT ) ( '(%& / RESPONDENT) %& %& %& %& ) )) ) * * * * ! !! ! / ASSESSEE BY :SHRI DHARMESH SHAH/MAYUR MAKADIA '(%& ) * ! / REVENUE BY : SHRI PITAMBAR DAS # # # # ) )) ) +, +, +, +, / DATE OF HEARING : 12 . 02 .201 4 -.$ ) +, / DATE OF PRONOUNCEMENT : 26.02 .201 4 # # # # , 1961 ) )) ) 254 )1( ! !! ! +/+ +/+ +/+ +/+ !0 !0 !0 !0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED 31.05.2011 OF THE CIT(A )-31 MUMBAI,ASSESSING OFFICER(AO) AND THE ASSESSEE HAVE FILED CROSS APPEALS. ITA NO. 5564/MUM/2011 - AO HAS RAISED FOLLOWING GROUNDS OF APPEAL:- I.THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN HOLDING THAT MOST OF THE STOCK LYING IN THE PREMISES OF THE APPELLANT ON CONSIGNMENT BASIS BELONG TO M/S BENZER DESIGN CENTRE, A PROPRIETORY CONCERN OF THE KARTA OF THE HUF ASSESSEE. II.THE LEARNED CIT(A) HAS ERRED IN LAW AND IN THE C IRCUMSTANCES OF THE CASE IN RESTRICTING THE ADDITIO N MADE ON ACCOUNT OF UNACCOUNTED STOCK OF THE APPELLA NT AT RS.25,08,033/-. III.THE LEARNED CIT(A) HAS ERRED IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN MENTIONING THAT THE ASSOCIATE CONCERN I.E. M/S BENZER DESIGN CENTRE HAS DULY DISCLOSED THESE ITEMS IN ITS INVENTORY AND THE SAME IS DULY ACCEPTED AND ASSESSED WHEREAS THE ITO WARD 11(3) PUNE HAS NOT GIVEN CREDIT TO THE UNDISCLOSED STOCK OF RS.1,02,66,433/- IN THE ASSESS MENT MADE IN THE CASE OF M/S BENZER DESIGN CENTER. IV.THE LEARNED CIT(A) HAS ERRED IN LAW AND IN THE C IRCUMSTANCES OF THE CASE IN HOLDING THAT THE STATEMENT OF SHRI NAINESH NANDU, KARTA OF THE APPEL LANT WAS RECORDED AT THE TIME OF SURVEY AND THAT AT THE STAGE OF SURVEY ACTION ITSELF, THE APPELLANT HAD CLARIFIED THAT CERTAIN STOCK WAS BELONGING TO OTHER PARTIES. ACTUALLY THE SURVEY WAS CONDUCTED ON 17.8.2005 AND. ON 17.8.2005 THE STATEMENTS OF SHRI MUKESH RUPAREL (GENERAL MANAGER) AND THAT OF S HRI H.K.POPAT (ACCOUNTANT OF THE APPELLANT) WERE RECORDED IN WHICH NEITHER OF THEM STATED ANYTH ING ABOUT THE STOCK BELONGING TO ANY OTHER PERSON. V.THE LEARNED CIT(A) HAS ERRED IN LAW AND IN THE CI RCUMSTANCES OF THE CASE IN HOLDING THAT THE ACTUAL SALE PRICE IS LOWER THAN THE TAG PRICE. THE PHYSICA L INVENTORY OF THE STOCK FOUND WAS VALUED BY THE SURVEY PARTY NOT ON MRP PRICE BUT SAME WAS VALUED A T TAG PRICE (THE PRICE PRINTED ON THE ITEMS) WHICH IS VERY LOW THAN THE MRP. THE AO ON VERIFICAT ION OF SALES REGISTER NOTICED THAT ONLY THE ITEMS 2 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) SOLD ON CASH BASIS (MOSTLY TO INDIVIDUAL CUSTOMERS) WERE SHOW AS SOLD BELOW THE TAG PRICE. ON THE CONTRARY THE CORPORATE AND OTHER CUSTOMERS WHO HAVE PURCHASED THE FURNITURE BY MAKING PAYMENTS BY CHEQUE HAVE PURCHASED THE SAME ON THE TAG PRICE PRI NTED ON THE ITEMS. VI.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A PPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. VII.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR TO SUBMIT ADDITIONAL NEW GROUND WHICH MAY BE NECESSARY. ITA NO. 5456/MUM/2011- FOLLOWING GROUNDS OF APPEAL WERE FILED BY THE ASSES SEE: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED CIT (APPEALS),ERRED IN UPHOLDING THE ADDITION OF A SUM OF RS.25,08,033/- AS THE UNACCOUN TED STOCK OF THE APPELLANT. 2.WHILE ARRIVING AT THE AMOUNT OF UNACCOUNTED STOCK AT RS. 25,08033/-,ERRED IN ADOPTING THE SELLING PRICE OF THE STOCK FOUND DURING SURVEY AT 70 % OF T HE TAG PRICE INSTEAD OF 48% (APPROX) AS WORKED OUT BY THE APPELLANT. 3.FOR THE PURPOSE OF VALUATION OF CLOSING STOCK, ER RED IN ADOPTING THE GROSS PROFIT RATE AT 42% WHICH WAS THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE AS ON 31.03.2006 INSTEAD OF 50% BEING THE GROSS PROFIT RATE ACTUALLY DERIVED BY THE ASSESSEE UPTO T HE DATE OF SURVEY I.E.17.08.2005. 4.ERRED IN HOLDING THAT THE GOODS WORTH RS.3,85200 (AT MRP VALUE) FOUND AT THE APPELLANTS PREMISES ON THE DATE OF SURVEY, FORM PART OF THE AP PELLANTS STOCK, IN SPITE OF THE FACT THAT SUCH STO CK BELONGED TO AND WAS OWNED BY OTHER PARTIES AND WAS LYING AT THE APPELLANTS PREMISES ON CONSIGNMENT BASIS FOR SALE. 5.ERRED IN TREATING THE DIFFERENCE OF RS.2,26,581/- BETWEEN THE SALES AS PER THE SALES REGISTER AND TH E PROFIT & LOSS ACCOUNT, AS UNDISCLOSED SALES IN SPIT E OF THE FACT THAT THE APPELLANT HAS MAINTAINED PROPER RECORD OF ALL SALES INVOICES WHICH CORRESPON D WITH THE SALES AS SHOWN IN THE PROFIT & LOSS ACCOUNT. 6.APPELLANT RESERVES ITS RIGHT TO ADD, AMEND, ALTER OR DELETE ANY OF THE GROUNDS OF APPEAL. 2.ASSESSEE-HUF ENGAGED IN RETAIL TRADING OF IMPORTE D FURNITURE ITEMS FILED ITS RETURN OF INCOME ON 26.03.2007DECLARING TOTAL INCOME OF RS.13,97,646/-. AO FINALISED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT,ON 26.12.2008,DETERMINING THE TOTAL INCOME AT RS.90,95,370/-.EFFECTIVE GROUND OF APPEAL FILED BY THE AO AND THE ASSESSEE IS ABOUT VALUATION OF STOCK;METHOD OF VALUATION AND VALUE OF THE STOCK;ON THE DAY OF SURVEY. DURING THE COURSE OF HEARING BEFORE US,AUTHORISED R EPRESENTATIVE(AR)DID NOT PRESS GROUND NOS.4 AND 5,HENCE,SAME ARE DISMISSED AS NOT PRESSED. AS PER THE AO,A SURVEY UNDER SECTION 133A OF THE AC T WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE BY THE JT. DIRECTOR OF INCOME TAX (INV .), PUNE ON 17.08.2005,THAT DURING THE COURSE OF SURVEY PROCEEDINGS PHYSICAL INVENTORY OF CASH AND S TOCK WAS TAKEN BY THE SURVEY PARTY,THAT AS PER THE SURVEY REPORT ON THAT DAY PHYSICAL STOCK OF RS. 2,50,33,514/- WAS FOUND,THAT STOCK WAS VALUED ON THE BASIS OF PRICE PRINTED ON THE VARIOUS ITEMS I.E .TAG PRICE,THAT THE COST PRICE OF THE STOCK INVENTORY WAS VALUED AT RS.L,25,16,757/- AFTER DEDU CTING GP MARGIN OF 50% OF THE TAG PRICE,THAT THE ASSESSEE HAD SHOWN STOCK OF RS.42,23,005/-IN IT S BOOKS OF ACCOUNT AS ON THE DATE OF SURVEY. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN THE DI FFERENCE IN THE STOCK FOUND ON PHYSICAL INVENTORY AND THE STOCK SHOWN IN ITS BOOKS OF ACCOUNT AS ON T HE DATE OF SURVEY. IT WAS STATED BY THE ASSESSEE THAT THE DIFFERENCE WAS DUE TO THE VALUATION OF THE STOCK-IN-TRADE WAS MADE BY THE SURVEY PARTY ON MRP VALUE/ TAG PRICE,THAT THE VALUE TAKEN BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNT WAS ON COST PRICE,THAT THE ASSESSEE WAS VALUING ITS STOCK AT C OST OR MARKET VALUE- WHICHEVER WAS LOWER,THAT STOCK VALUED AT THE TAG PRICE OF RS.83,66,425/- FOU ND AT THE BUSINESS PREMISES OF THE ASSESSEE BELONGED TO ITS ASSOCIATE CONCERN I.E.M/S BEAZER DE SIGN CENTRE(BDC)-A PROPRIETARY CONCERN OF SHRI NAINESH M. NANDU AND TWO OTHER PARTIES,THAT THE CL OSING STOCK VALUED AT COST PRICE AS ON THE DATE OF SURVEY WAS OF RS.42,23,005/- AND SAME TALLIED WITH THE STOCK SHOWN IN ITS BOOKS OF ACCOUNT,THAT THE ENTIRE STOCK FOUND AT THE TIME OF SURVEY STAOOD DUL Y EXPLAINED,THAT THERE WAS NO DIFFERENCE BETWEEN THE STOCK FOUND AND STOCK SHOWN IN ITS BOOKS OF ACC OUNT.HOWEVER, THE AO DID NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE.HE HELD THAT THE PHYSIC AL INVENTORY OF STOCK FOUND WAS VALUED BY THE 3 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) SURVEY PARTY NOT ON MRP PRICE BUT ON TAG PRICE PRIN TED ON EACH ITEM DISPLAYED IN THE SHOWROOM WHICH WAS MUCH LOWER THAN THE MRP,THAT THE CLAIM OF THE ASSESSEE THAT STOCK WORTH RS. 83.66 LAKHS FOUND AT THE BUSINESS PREMISES OF THE ASSESSEE BELO NGED TO ITS ASSOCIATE CONCERN WAS NOT ACCEPTABLE, THAT AT THE TIME OF SURVEY PROCEEDINGS STATEMENTS O F SHRI MUKESH RUPAREL,GENERAL MANAGER AND OF SHRI HARENDRA K.POPAT, ACCOUNTANT OF THE ASSESSEE W ERE RECORDED, THAT IN THEIR RESPECTIVE STATEMENTS NEITHER OF THEM POINTED OUT THE FACT THAT THE STOCK OF ANY OTHER PARTY WAS LYING IN THE PREMISES OF THE ASSESSEE,THAT THE STATEMENT NAINESH M. NANDU WA S RECORDED ON 29.08.2008 WHEREIN HE HAD SUBMITTED THAT MOST OF THE STOCK LYING IN THE PREMI SES OF THE ASSESSEE ON CONSIGNMENT BASIS BELONGED TO HIS PROPRIETARY CONCERN BDC THAT STATEM ENT OF THE KARTA OF HUF WAS AN AFTERTHOUGHT.IN VIEW OF THE CLAIM OF THE ASSESSEE THAT MOST OF THE STOCK FOUND PERTAIN TO BDC,IT WAS ASKED BY THE AO TO EXPLAIN AS TO WHY IT WAS LYING IN THE BUSINES S PREMISES OF THE ASSESSEE AND FURTHER HE DIRECTED THE ASESSEE TO PRODUCE THE SUPPORTING EVID ENCES VIZ, TRANSPORTATION RECEIPTS,OCTROI SLIPS ETC . AS THE GODOWN OF BDC WA LOCATED OUTSIDE THE LIMITS OF MUNICIPAL CORPORATION OF PUNE.ON VERIFICA -TION OF THE CHALLANS/INVOICES ISSUED AO HELD THAT THE GOODS CLAIMED TO BELONGING TO BDC WERE PURCHASED BY THE ASSESSEE,THAT SAME WERE NOT LYING WITH THE ASSESSEE ON CONSIGNMENT BASIS,THAT BDC WAS NOT SELLING THE GOODS TO THE MARKET DIRECTL Y AS THE ENTIRE MARKETING IS DONE BY M/S KROME PLANET FURNITURE (KPF) WHO PURCHASED THE GOODS FROM BDC,THAT THE ENTIRE GOODS FOUND BY THE SURVEY PARTY AT THE BUSINESS PREMISES OF THE ASSESS EE BELONGED TO THE ASSESSEE ONLY.AO FINALLY HELD THAT THE CLAIM OF THE ASSESSEE THAT THE GOODS LYING IN ITS PREMISES ARE STOCK OF BDC ON CONSIGNMENT BASIS WAS ONLY A PLOY TO DEFLECT ATTENTION AWAY FRO M THE MAIN ISSUE, I.E.EXCESS STOCK WHICH WAS FOUND AT THE TIME OF PHYSICAL VERIFICATION ON THE D ATE OF SURVEY ON 17.08.2008 AND THE STOCK FOUND AT THE TIME OF SURVEY ACTION BELONGED TO KPF ONLY. 2.A. AO FURTHER OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT ACTUAL SALES HAD TAKEN PLACE AT THE PRICE LOWER THAN THE MRP AND SUBSTANTIAL DISCOUNTS/REBATE S WERE GIVEN TO THE CUSTOMERS ON THE MRP WAS INCORRECT AND MISLEADING,THAT THE GP RATE AS PER IT S FINAL ACCOUNTS WORKED OUT TO 42% AS AGAINST 50%TAKEN BY THE SURVEY PARTY.THEREFORE, ADOPTING TH E GP OF 42%,HE COMPUTED THE EXCESS UNEXPLAI -NED STOCK FOUND AT THE TIME OF SURVEY OF RS.L,02,6 6,433/-( I.E TAG PRICE MINUS 42% OF THE TAG PRICE). VIDE PARA-9,OF THE ASSESSMENT ORDER AO FINALLY CONC LUDED THAT THE SOCK FOUND AT THE ASSESSEES PREMISES AT THE TIME OF SURVEY WAS NOTHING BUT THE ASSESSEES OWN STOCK,THAT THE STOCK REGISTER PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDING S WAS NOT MAINTAINED PROPERLY BY THE ASSESSEE, THAT THE SALE PRICE OF FUTURE ITEMS WAS ACTUALLY TH E TAG PRICE PRINTED ON EACH ITEM AND NOT THE LOWER PRICE VALUE AS CLAIMED BY THE ASSESSEE,THAT THE VAL UE OF STOCK TAKEN BY THE SURVEY PARTY AT THE TAG PRICE(PRINTED ON THE EACH ITEM) REDUCED BY 42% OF T HE GP WAS TAKEN AT RS.1,45,19438/-,THAT THE ASSESSEE HAD SHOWN STOCK AT RS.42,53,005/-,THAT THE DIFFERENCE OF RS.1,02,66,433/- WAS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS ITS UNDISCLO SED STOCK. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).BEFORE HIM ASSESSEE CONTENTED THAT OUT OF THE TOTAL STOCK OF RS. 2,50,33,514/-,STOCK AMOUNTI- NG TO RS.83,66,425/- WAS RECEIVED ON CONSIGNMENT BA SIS AND SAME BELONGED TO THE OTHER PARTIES, THAT SAID FACT WAS BROUGHT TO THE NOTICE OF THE SUR VEY PARTY DURING THE COURSE OF TAKING INVENTORY, THAT EVEN THEN GOODS BELONGING TO OTHERS WERE INCLU DED IN THE TOTAL STOCK INVENTORY PREPARED BY THE SURVEY PARTY,THAT THE SAID STOCK BELONGED TO BDC,M/ S.S.M.MODULAR KITCHEN(P)LTD.(SMMKPL) AND M/S.MADANI ENTERPRISES(ME)THAT BDC WOULD PURCHASES THE STOCK ON WHOLESALE BASIS EITHER FROM THE LOCAL MARKET OR FROM CHINA BY WAY OF IMPORT,THA T SUCH GOODS WERE STORED AT ITS GODOWNS SITUATED ON THE OUTSKIRTS OF PUNE,THAT A FEW OF THO SE ITEMS WERE KEPT IN THE ASSESSEES SHOWROOM IN PUNE ON CONSIGNMENT BASIS FOR DISPLAY AND SALE,THAT AS PER THE UNDERSTANDING THE ASSESSEE USED TO DISPLAYS THE STOCK AT ITS SHOWROOM ALONG WITH ITS O WN STOCK AND AT THE TIME OF SALE OF GOODS BILLS IN RESPECT OF ASSESSEES SALE TO THE PARTY PURCHASING THE GOODS AS WELL AS BACK OFFICE WORK OF BILLING THE GOODS SOLD TO THE ASSESSEE WAS ACCORDINGLY CARR IED OUT ON DAY TO DAY BASIS,THAT MORE THAN 35% OF THE GP WAS SHOWN IN THE CASE OF BDC AND MORE THA N 40% OF THE GP WAS SHOWN ON SUCH SALES IN THE CASE OF THE ASSESSEE, ON YEAR TO YEAR BASIS,THA T SAID MODUS OPERANDI AS WELL AS THE JUSTIFICATION OF STOCK LYING IN THE ASSESSEES SHOWROOM WAS EXPLA INED WITH THE HELP OF A NUMBER OF EVIDENCES BEFORE THE AO,THAT THE SAID EVIDENCES WERE OUT RIGH TLY IGNORED OR REJECTED BY THE AO WITHOUT 4 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) ASSIGNING ANY REASONS WHILE MAKING THE ADDITION,THA T THE STOCK REGISTER PRODUCED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS WAS PROPERLY MAINTAIN ED,THAT THE ASSESSEE WAS DEALING IN MORE THAN 2,000 ITEMS OF FURNITURE, THEREFORE, IT IS QUITE PO SSIBLE THAT A FEW ITEMS WERE NOT MATCHING DUE TO TH E DIFFERENCES IN CATEGORIZATION/CLASSIFICATION OF THE ITEMS,THAT SAME COULD NOT BE THE SOLE REASON TO CONSIDER THAT STOCK REGISTER WAS NOT MAINTAINED PRO PERLY. CHALLENGING THE VALUATION OF STOCK,IT WAS ARGUED TH AT THE ADDITION HAD BEEN MADE BY TAKING THE TAG PRICE AS THE BASE PRICE OR COST PRICE, ALTHOUGH TH E ACTUAL SALE PRICE WAS MUCH LOWER THAN THE TAG PRICE,THAT WHENEVER CUSTOMERS APPROACHED THE ASSESS EE FOR PURCHASE OF ANY ITEM OF FURNITURE THEY WOULD GENERALLY NEGOTIATE THE PRICE AND THE SAID IT EM OF FURNITURE WAS FINALLY SOLD AT A NEGOTIATED PRICE WHICH WAS GENERALLY LOWER THAN THE TAG PRICE BEING THE ACTUAL SALE PRICE,THAT THE AO HAD ADOPTED THE TAG PRICE OF THE ITEMS I.E. RS.2,50,3 3 ,514/-AND THEREAFTER REDUCED THE GROSS PROFIT ESTIMATED AT 42% BASED ON THE GROSS PROFIT RATIO AC TUALLY EARNED BY THE ASSESSEE AT THE END OF THE YEAR TO ARRIVE AT CLOSING STOCK FIGURE OF RS. 1,45, 19,438/-,THAT IF THE TAG PRICE WAS ADOPTED AS THE BASE PRICE FOR VALUATION OF STOCK THE GROSS PROFIT RATE WORKED OUT BASED ON ACTUAL SALE PRICE; COULD NOT BE CONSIDERED,THAT IT WOULD RESULT INTO HIGHER VALUE OF CLOSING STOCK AS ON THE DATE OF SURVEY, THAT THE ENTIRE ADDITION WAS BASED ON THE INCORRECT DETERMINATION OF THE VALUE OF STOCK ITEMS OR INVENTORY AT THE TIME OF SURVEY, RESULTING INTO UNW ARRANTED OR UNCALLED FOR ADDITION IN THE HANDS OF THE ASSESSEE,THAT VALUE OF CLOSING STOCK WAS DETERM INED ON THE BASIS OF TAG PRICE AS THE BASE PRICE INSTEAD OF THE SAME SHOULD HAVE BEEN DETERMINED ON THE BASIS OF ACTUAL SALE PRICE AS THE BASE PRICE, THAT THE ACTUAL SALE PRICE WAS MUCH LOWER THAN THE TAG PRICE,THAT THE SALES SHOWN IN ITS BOOKS OF ACCOUNT ON THIS ACCOUNT WERE ACCEPTED BY THE AO,THA T NO EVIDENCE WAS FOUND TO ESTABLISH ANY SUPPRESSION OR UNACCOUNTED SALES BY THE ASSESSEE. 2.1.A. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER HE HELD THAT THE DIFFERENCE BETWEEN THE STOCK PHYSICALLY FOUND AT TH E TIME OF SURVEY AND THE VALUE OF STOCK SHOWN IN THE BOOKS OF ACCOUNT WAS CONTESTED MAINLY ON ACCOUN T OF TWO FACTORS I.E:A PART OF THE STOCK BELONGED TO OTHER PARTIES; AND INCORRECT VALUATION OF STOCK FOUND AT THE TIME OF SURVEY.IN RESPECT OF THE ARGUMENT THAT THE STOCK BELONGED TO OTHER PARTI ES,HE HELD THAT BDC WOULD PURCHASES THE GOODS ON WHOLESALE BASIS AND STORE THE SAME PARTLY IN ITS OWN GODOWN AND PARTLY IN THE SHOW ROOM OF THE ASSESSEE SENT ON CONSIGNMENT SALE BASIS,THAT BOTH T HE CONCERNS WERE OWNED BY THE SAME INDIVIDUAL PERSON,THAT STOCK BELONGING TO BDC WAS DISPLAYED BY THE ASSESSEE AT ITS SHOWROOM ALONG WITH ITS OWN GOODS OR STOCK,THAT THE AO HAD NO REASONS OR EV IDENCES TO DISBELIEVE THE CLAIM OF THE ASSESSEE THAT THESE GOODS WERE NOT SENT ON CONSIGNMENT SALE BASIS TO THE SHOWROOM OF THE ASSESSEE,THAT ON THE OTHER HAND THE SAID ASSOCIATE CONCERN HAD DULY DISCLOSED THESE ITEMS IN ITS INVENTORY AND THE SAME WAS DULY ACCEPTED AND ASSESSED IN ITS CASE U/S 143(3) OF THE ACT,THAT BOTH THE CONCERNS WERE COVERED IN SURVEY AND THE VALUE OF STOCK PERTAINING TO THE ASSOCIATE CONCERN LYING IN THE SHOWROOM OF ASSESSEE WAS ENTIRELY CONSIDERED IN THE HANDS OF THE ASSOCIATE CONCERN,THAT TILL THE TIME THE CUSTOMER WOULD BUY THE ITEMS OF FURNITURE SAME CONT INUED TO BE THE PROPERTY OF BDC,THAT THE SAID MODUS OPERANDI WAS DULY SUPPORTED BY WAY OF COPIES OF INVOICES/CHALLANS ISSUED BY BDC TO THE ASSESSEE AND BY THE ASSESSEE TO THE ULTIMATE CUSTOM ER,THAT THE ASSESSEE HAD ALSO FILED COPIES OF INVOICES ISSUED BY BCD AS WELL AS BY THE ASSESSEE,T HAT SAID TRANSACTIONS WERE ALSO SUPPORTED BY THE ASSESSEE BY EXTRACT OF THE STOCK REGISTER AS WELL A S BY THE CONSIGNMENT NOTE EXTRACTED FROM THE BOOKS OF ACCOUNT,THAT THE AO HAD NOT REJECTED THE B OOKS OF ACCOUNTS,THAT THOSE DOCUMENTS COULD NOT BE IGNORED,THAT THE EVIDENCES CLEARLY PROVED THAT T HE STOCK LYING AT THE ASSESSEES PREMISES AT THE TIME OF SURVEY HAVING AN AGGREGATE VALUE AT THE TAG PRICE OF RS.79,91,225/- BELONGED TO BDC,THAT THE ASSESSEE HAD ALSO FURNISHED THE DETAILED STATEM ENT OF THE STOCK OF ITEMS LYING ON CONSIGNMENT BASIS SHOWING THE AGGREGATE VALUE OF THE STOCK OF R S.83,66, 425/-,THAT FROM THE PERUSAL OF THE SAID STATEMENT IT WAS SEEN THAT THE ITEMS OF STOCK LYING AT THE PREMISES OF THE ASSESSEE AMOUNTING TO RS. 79,91,225/- WERE PART OF THE STOCK DECLARED BY BDC AT RS.1,5L,0L,L72/- AS EVIDENT FROM THE TRADING ACCOUNT FOR THE PERIOD UPTO 16.8.2005 REFLECTING TH E SAID STOCK VALUE AND THE DETAILED STOCK STATEMENT GIVING BREAK-UP OF THE SAME. HE FURTHER HELD THAT THE STATEMENT OF SHRI NAINESH NANDU, KARTA OF THE ASSESSEE WAS RECORDED ON 29.8.2005,THAT DURING THE COURSE OF RECORDING OF TH E STATEMENT THE ISSUE RELATING TO THE PHYSICAL 5 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) INVENTORY OF STOCK WAS RAISED IN QUESTION NO. 4 OF THE STATEMENT.HE REPRODUCED THE RELEVANT QUESTION AND ANSWER IN THE STATEMENT: Q .4.DURING THE COURSE OF SURVEY AT THE PREMISES AT KROME ON 17.8 .2005, PHYSICAL INVENTORY OF STOCK WAS PREPARED AND CLOSING STOCK VALUATION AT COST PRICE (LISTED ON ITEM 5) AS ARRIVED THAT RS.L,25,16,757/- AFTER DEDUCTING AT G.P.% OF 50%. AS PER THE TRADING A / C. AS ON 16.8.05 (EXTRACT TAKEN FROM YOUR CAMPUS SHOWIN G CLOSING STOCK OF RS.20,96,643/-. PLEASE EXPLAIN THE DIFFERE NCE OF RS. 1,04,20,114/- AND PLEASE EXPLAIN WHY THE DIFFERENCE SHOULD NOT BE TREATED AS EXCESS STOCK? ANS. THE VALUATION OF STOCK TAKEN AT MRP WAS APPROX. 2.50 CR, T HE COSTING OF MY CLOSING STOCK AS ON 31.3.2005 AND THE OPENING STOCK S ON 01.04.2005 CANNOT BE PUT ON RECOR D AT THE MOMENT SINCE WE HAD ACCOUNTING SOFTWARE WHERE BY OUR EXISTING RECORD HAVE TO BE TRAN SFERRED FROM MY EARLIER ACCOUNTING PACKAGE TO THE CURRENT A ACCOUNTING PACKAGE. THEREFORE THE DIFFERENCE AS AC COUNTED BY YOU OF RS. APPROX. 1.25 CRS. IS INCORRECT.SECONDLY, ASSUMING THE MRP VALUE IS 2.5 CR. THERE IS A CERTAIN STOCK LYING IN THE SHOWROOM OF KROME WHICH BELONGS TO OTHER PARTIES. THEREFORE, THESE ITEMS OF STOCK SHOULD NOT BE CONSIDERED AS A PART OF PHYSICAL INVENTORY OF STOCK (KROME). THE TOTAL VALUE OF CONSIGNMENT ITEM S ON MRP BASIS IS APPROX. 85 LAKHS. THE DETAILED LIST IS ATTACHED. THEREFORE, THE ACTUAL PHYSICAL ST OCK ON MRP BASIS AND BELONGING TO KROME IS APPROX. 1.6 CRS. AS PER ACCOUNTING PRINCIPLE,THE STOCKS ARE VALUED A T COST PRICE AND NOT AT MRP.ALSO THE MRP INDICATED ON ITEMS LYING IN STOCK AT SHOWROOM OF KROME ARE PUR ELY INDICATED PRICES. THE ACTUAL SALES TO THE CUSTOMERS NORMALLY TAKE PLACE AT THE LOWER PRICE THAN THE MR P. THEREFORE, RELATING TO DISCOUNTING REBATE, FURNITURE IS A LIFE STYLE PRODUCT AND FASHION TREND CHARGES VERY FRE QUENTLY. THEREFORE, NULLIFYING THE MARKET VALUE OF THE PRODUCT WHEN IS IT NEW, THE OLDER DESIGN OF PRODUCT LOWER THE RETAIL VALUE. AT TIMES DUE TO NON JUDGMENT WE END UP PURCHASING A WRONG PRODUCT WHICH DOES NOT SALES AT ALL. AT TIMES PURCHASES DAMAGES PRIOR TO RECEIVING IN OUR SHOWROOM SUCH PRODUCT HAVE TO BE SOLD AT A RATE OF SCRAP VALUE OR A SMALL PROFIT MARGIN. THEREFORE, THE INVENTORY OF STOCK TAKEN AT OUR SHOWROOM AND AF TER DEDUCTING THE CONSIGNED STOCK VALUE AND EFFECTIVE DISCOUNTS TO BE GIVEN TO CLIENT TO CLOSING STOC K VALUATION OF OUR STOCK AT COST PRICE WILL NOT HAVE ANY VARIOUS BEYOND AS RECORDED IN OUR BOOKS OF ACCOUNTS. 2.1.B. CONSIDERING THE STATEMENT OF THE KARTA OF THE ASSES SEE,FAA HELD THAT THE ASSESSEE HAD CLARIFIED THAT CERTAIN STOCK INCLUDED IN THE VALUAT ION OF THE PHYSICAL INVENTORY IN THE CASE OF THE ASSESSEE WAS BELONGING TO OTHER PARTIES AND THE VAL UE OF SUCH STOCK AT MARKET RATE WAS APPROX. OF RS.85 LAKHS,THAT THAT IN SPITE OF SUCH CATEGORICAL SUBMISSIONS MADE BY THE ASSESSEE THE AO HAD NOT MADE ANY EFFORTS TO EXAMINE WHETHER THE SAID STATEM ENT WAS CORRECT OR NOT,THAT THE EVIDENCES PLACED ON RECORD BY THE ASSESSEE IN THE FORM OF CHALLANS, OCTROI SLIPS, INVOICES ETC., ISSUED BY BDC WERE ON RECORD OF THE AO,THAT THE EVIDENCES HAD BEEN MERELY REJECTED ON THE GROUND THAT THE CLAIM OF THE ASSESSEE WAS ONLY A PLOY TO DEFLECT THE ATTENTION O F THE AO FROM THE MAIN ISSUE,THAT NO CONCRETE EVIDENCES WERE BROUGHT ON RECORD BY THE AO IN SPITE OF SURVEY ACTION TO PROVE THAT THE STOCK WHICH WERE LYING AT THE PREMISES OF THE ASSESSEE AND CLAI MED TO BE BELONGING TO BDC ACTUALLY BELONGED TO THE ASSESSEE.HE FURTHER NOTICED THAT THE ASSESSMENT IN THE CASE OF BDC WAS ALSO CONCLUDED ON 30.12. 2008 BY ITO,WARD 11(3),PUNE,THAT WHILE MAKIN G THE OVERALL ADDITION OF UNEXPLAINED INVESTMENTS AMOUNTING TO RS.6,70,040/-, THE AO HAD GIVEN CREDIT OF THE STOCK LYING AT THE PREMISES OF THE ASSESSEE OF RS. 17, 85,000/- WHICH WAS WORKE D OUT AFTER GIVING EFFECT TO THE ACTUAL SALE PRICE AND GP INVOLVED THEREIN, THAT IT WAS EVIDENT THAT T HE SAID STOCK HAD BEEN ACCEPTED BY THE BDC TO BE ITS OWN STOCK LYING AT THE ASSESSEES PREMISES AND ALSO ACCEPTED BY THE AO WHILE PASSING THE ASSESS -MENT ORDER IN THE CASE OF BDC.HE FINALLY HELD THAT ON ACCOUNT OF THE UNCONTROVERSIAL FACTS IT WAS TO BE HELD THAT THE STOCK TO THE EXTENT OF RS.79,91,22 5/- VALUED ON TAG PRICE OR MRP COULD NOT BE CONSIDERED AS STOCK BELONGING TO THE ASSESSEE AND H ENCE THE SAID STOCK CANNOT BE TREATED AS UNDISCLOSED STOCK OF THE ASSESSEE.HE DIRECTED THE A O TO DELETE THE ADDITION MADE TO THAT EXTENT. 2.1.C. AS REGARDS THE BALANCE STOCK OF RS.3,50,000/- LYING AT THE PREMISES OF THE ASSESSEE AND CLAIMED TO BE BELONGING TO SMKPL AND STOCK OF RS.35 ,200/- OF ME,HE HELD THAT THE CLAIM OF THE ASSESSEE WAS NOT SUBSTANTIATED BY BRINGING ANY COGE NT MATERIAL OR EVIDENCE ON RECORD,THAT THE AO WAS FULLY JUSTIFIED IN CONSIDERING THE ENTIRE STOCK OF RS.3,85,200/-, (I.E. 3,50,000/- + 35,200/-) AS UNACCOUNTED STOCK OF THE ASSESSEE FOUND AS ON THE D ATE OF SURVEY.ADDITION MADE TO THAT EXTENT WAS THEREFORE,CONFIRMED BY HIM. 2.1.D. AS REGARDS,THE BALANCE STOCK OF RS.L,70,42,289/- (I .E. RS.2,50,33,514/-(-) RS.79,91,225/-),THE MAIN PLANK OF THE ASSESSEES SUBMISSION WAS THAT TH E COST OF PHYSICAL STOCK FOUND COULD NOT BE DETERMINED FROM THE TAG PRICE OF THE ITEMS SINCE TH E TAG PRICE WAS MERELY AN INDICATIVE PRICE AND 6 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) NOT THE ACTUAL SALE PRICE.HE REFERRED TO THE DETAIL ED STATEMENT SHOWING THE ANALYSIS OF SALES PRICE, MRP, COST AND THE GP MARGIN ON THE ITEMS SOLD THAT WAS FILED BEFORE HIM.CONSIDERING THE SAID STATEMENT HE HELD THAT THE THERE WAS DIFFERENCE IN THE TAG PRICE AND SALES PRICE IN ALMOST EVERY ITEM OF FURNITURE SOLD,THAT THE LARGE SAMPLE BASE CONSIS TED THE DETAILS FROM MORE THAN 200 BILLS,THAT IT CONSISTED OF MORE THAN 500 ITEMS PREPARED DURING TH E PERIOD FROM APRIL 2005 TO AUGUST 2005,THAT IT SHOWED THAT THE AGGREGATE MRP OF THE ITEMS SOLD WAS RS.1,01,58,318/-WHEREAS THE CORRESPONDING PRICE AT WHICH THE SAME WERE SOLD WAS RS.52,40,014/ -,THAT THE SALE PRICE AS DISCLOSED IN ITS BOOKS OF ACCOUNT WAS ACCEPTED BY THE AO,THAT THERE WAS NO EV IDENCE TO PROVE THAT THE ASSESSEE HAD RECEIVED ON SUCH SALES AND NOT SUCH EVIDENCES WERE FOUND DUR ING SURVEY,THAT THE DIFFERENCE IN THE PRICE BETWEEN TAG PRICE AND THE SALES PRICE RANGED FROM 2 0% TO 50% ON MOST OF THE ITEMS DEALT IN BY THE ASSESSEE AS PER THE CHART FURNISHED BY IT. IN LIGHT OF THE ABOVE DISCUSSION,HE HELD THAT THE A CTUAL SALES NEVER TAKE PLACE AT THE TAG PRICE OR MRP IN THE CASE OF THE ASSESSEE WHICH WAS PROVED BY THE ACTUAL SALES BILLS OR INVOICES RECORDED IN ITS BOOKS OF ACCOUNT,THAT SAME WERE NOT FOUND INCOR RECT OR FALSE,THAT THE ITEMS DEALT WITH BY THE ASSESSEE WERE BASICALLY FASHION DRIVEN ITEMS WHICH WERE PRONE TO FREQUENT CHANGES IN ONGOING TRENDS AND TASTES OF CUSTOMERS,THAT INVARIABLY A RE TAILER WAS FACED WITH DEAD STOCK WHICH NEEDED TO BE DISPOSED OFF AT SUBSTANTIALLY LOWER PRICE,-SOMET IMES LESSER THAN THE COST PRICE ITSELF,THAT THE ST ATE -MENT FURNISHED BEFORE HIM SHOWED THAT SOME OF THE ITEMS WERE ACTUALLY SOLD AT SUBSTANTIALLY LOW PRICE AND ALSO AT LOSS,THAT THE SALES OF GOODS WERE ALSO MADE DURING THE SALE-PERIOD WHEREBY THE ASSESSEE HAD TO OFFER HEFTY DISCOUNTS AND SELL THE GOODS AT VERY LOW PRICE TO BOOST ITS OVERALL SALES, THAT THE ANALYSIS OF THE STATEMENT OF THE COMPARATI VE SALE PRICES SHOWED THAT THE DIFFERENCE BETWEEN THE TAG PRICE AND THE SALES PRICE WAS RANGING TO AL MOST 20% TO 50% OF THE TAG PRICE,THAT FROM THE ANALYSIS OF THE FACTUAL DATABASE IT WAS CLEAR THAT IF THE TAG PRICE WAS CONSIDERED AS THE BASE PRICE I T WOULD GIVE AN ABSURD TRADING RESULT LEADING TO EXCE SS VALUATION OF STOCK,THAT BY APPLYING GP RATE OF 42% BASED ON ACTUAL SALES MADE AT THE END OF THE YE AR THE COST OF PHYSICAL STOCK COULD NOT BE CORRECTLY DETERMINED,THAT THE ACTION OF THE AO IN D ETERMINING THE COST OF THE PHYSICAL INVENTORY BASED ON THE TAG PRICE WAS NOT JUSTIFIED,THAT THERE WAS WIDE VARIATION BETWEEN THE TAG PRICE OR MRP AND THE ACTUAL SALE PRICE,THAT THERE WAS WI DE VARIATION BETWEEN THE ACTUAL SALE PRICE AND THE COST PRICE,,THAT ALTHOUGH SOME OF THE ITEMS WER E SOLD AT OR NEAR ABOUT THE TAG PRICE/MRP ,THAT NUMBER OF SUCH INSTANCES WERE VERY LESS AND HENCE T HE SAME COULD NOT BE CONSIDERED AS THE BASIS FOR TAKING ANY ADVERSE VIEW,THAT IN A SHOWROOM, ALL THE ITEMS COULD NOT BE SOLD BY CASH /CHEQUE,THAT THE ACTUAL SALE PRICE DEPENDED UPON THE BARGAINING CAPACITY OF THE BUYER,THAT THE AVERAGE OF THE SAMPLE SALES MADE DURING THE PERIOD FROM APRIL 2005 TO AUGUST 2005 SHOWED THAT THE AGGREGATE SALES PRICE OF THE ITEMS WAS RS.52.40 LAKHS AS AGAI NST THE MRP OF RS.1.01 CRORES,THAT THE SAID FIGURES TOOK INTO ACCOUNT THE SALES MADE TO CORPORA TE ENTITIES AS WELL AS TO THE INDIVIDUAL PARTIES AN D SALES MADE BY CHEQUE AS WELL AS BY CASH,THAT IN SPI TE OF THE SALES MADE TO CORPORATE ENTITIES AT THE TAG PRICE SAID FIGURES OF SALES SHOWED THAT THE DIF FERENCE BETWEEN THE TAG PRICE AND THE SALES PRICE WAS TOO LARGE, THAT NOTHING WAS FOUND IN SURVEY TO ESTABLISH THAT THE SALES WERE EITHER SUPPRESSED OR NOT ACCOUNTED FOR IN ITS BOOKS OF ACCOUNT,THAT THER E WAS NO EVIDENCES TO PROVE THAT ACTUAL SALES PRICE DISCLOSED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE W ERE INCORRECT OR FALSE OR SUPPRESSED. HE FURTHER HELD THAT BECAUSE THE SALES WERE MADE BY CASH COULD NOT BE A REASON TO HOLD THAT THE SAME WERE NOT GENUINE, MORE PARTICULARLY IN THE CASE OF THE ASSES SEE, BEING A RETAILER,WHERE FREQUENCY OF CASH SALES WAS HUGE AS COMPARED TO THE SALES MADE BY CHEQUE,TH AT THE AO HAD NOT BROUGHT ANY DEFECT OR DISCREPANCY IN THE SALES MADE WITH THE BUYERS OR BR OUGHT ANY EVIDENCE TO PROVE THAT THE CASH SALES WERE NOT GENUINE,THAT HE HAD NOT DOUBTED THE CORREC TNESS OF THE BOOKS OF ACCOUNTS MAINTAINED AND HAD NOT REJECTED THE SAME U/S. 145 OF THE ACT,THAT THE FINDINGS OF THE AO WERE ALSO NOT CORROBORATED BY ANY CONCRETE EVIDENCES FOUND DURING THE SURVEY,T HAT IN SPITE OF SURVEY U/S.L33A OF THE ACT THE AO HAD NOT BEEN ABLE TO FIND ANY DISCREPANCY IN THE SALES MADE TILL THE DATE OF SURVEY,THAT THE SURVEY PARTY HAD ALSO NOT REPORTED ANY BOGUS SALES DETECTED IN THE SURVEY,THAT IN CASE OF SALES MADE BY SHOWROOM, OFTEN CUSTOMERS WOULD COME WITH READY CASH WITH THE EXPECTATION OF GETTING GENEROUS DISCOUNTS,THAT SUCH SALES COULD NOT BE DIS PUTED MERELY BECAUSE THEY WERE MADE IN CASH, THAT THE COMPARATIVE GP FOR THE LAST 5 YEARS SHOWED THAT THE ASSESSEE HAD BEEN SHOWING AVERAGE GP OF 40% TO 50% IN EACH YEAR,THAT THE TRADING RESULTS IN THESE PAST ASSESSMENT YEARS HAD BEEN ACCEPTED BY THE AO,THAT THE FINDING OF THE AO DISPU TING THE GENUINENESS OF CASH SALE WAS DEVOID OF 7 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) ANY MERITS. WITH REGARD TO THE STOCK,FAA MENTIONED THAT THE ASS ESSEE HAD SUBMITTED A COMPARATIVE CHART WHEREIN GOOD SOLD BY THE ASSESSEE WERE SHOWN UNDER THE HEADS DESCRIPTION AS PER THE AO AND DESCRIPTION AS PER THE ASSESSEE,THAT THE LIST SHO WED THAT BUT FOR THE DIFFERENCE IN THE NAME OF THE ITEMS THE STOCK PHYSICALLY FOUND WAS DULY RECORDED BY THE ASSESSEE,THAT ON PERUSAL OF THE STOCK STATEMENT PREPARED DURING THE SURVEY SHOWED THAT TH ERE WERE NUMBER OF SUCH OTHER ITEMS WHICH WERE NOT MATCHING WITH THE ITEMS IN THE STOCK REGIS TER,THAT THE CONTENTIONS OF THE ASSESSEE THAT ALL THE ITEMS WERE ACCOUNTED AND THAT THERE WAS NO UNAC COUNTED STOCK COULD NOT BE ENTIRELY ACCEPTED,THAT THE POSSIBILITY OF UNACCOUNTED STOCK FOUND AT THE TIME OF SURVEY, AS HELD BY THE AO, COULD NOT BE COMPLETELY RULED OUT,THAT THE SAMPLE S ALES MADE DURING THE PERIOD OF APRIL TO AUGUST 2005 SHOWED THE SALE OF ITEMS AT RS.52,40,014/- HAV ING MRP AT RS.L,0L,58,318/-,THAT THE DIFFERENCE BETWEEN THE TAG PRICE AND SALES PRICE WAS ALMOST 20 % TO 50% IN VARIOUS ITEMS DEALT IN BY THE ASSESSEE,THAT ASSESSEE HAD EXPRESSED INABILITY TO CORRELATE THE COST OR PURCHASE PRICE OF EACH ITEM FOUND DURING THE SURVEY IN THE ABSENCE OF CODE NO., BATCH NO. AND PART NO. ETC OF EACH ITEMS RECORDED IN THE INVENTORY PREPARED DURING THE SURVE Y.CONSIDERING THE VOLUME OF SAMPLE BASE, NATURE OF BUYERS, NATURE OF ITEMS SOLD,HE HELD THAT THE IF SAID DIFFERENCE WAS ESTIMATED AT 30% OF THE TAG PRICE IT WOULD MEET THE END OF JUSTICE,THAT IT WAS APPROPRIATE TO ESTIMATE THE SALES VALUE OF THE STOCK FOUND DURING THE SURVEY TO BE LOWER BY 30% OF THE TAG PRICE RECORDED BY THE SURVEY PARTY. FINALLY,HE CALCULATED THE SALE PRICE OF THE STOCK P HYSICAL FOUND DURING THE SURVEY AT RS.1,16,56, 962/- (I.E 70% OF RS. 1,66,57,089/- BEING THE DIFFE RENCE BETWEEN RS.1,70,42,289/-(-) RS.3,85,200/-), THAT THE AO HAD APPLIED 42% GP AS PER THE PROFIT AN D LOSS A/C. FOR THE YEAR ENDING 31.03.2006, WHICH APPEARED TO BE REASONABLE AND CORRECT.HE COM PUTED THAT THE COST OF THE STOCK FOUND DURING THE SURVEY AS UNDER : ESTIMATED SALES VALUE RS. 1,16,56,962 G P RATE 42% G P AMOUNT RS. 48,95,924 COST OF THE STOCK (SALES VALUE-GP) RS. 67,61,038 AS PER THE FAA,THE ASSESSEE HAD SHOWN THE STOCK OF RS. 42,53,005/-,THAT THE SAID FIGURE WAS NOT DISPUTED BY THE AO,THAT THE BALANCE STOCK NOT ACCOU NTED FOR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS TO BE COMPUTED AT RS.25,08,033/-(I.E RS.67,61,0 38-RS.42,53,005). HENCE, THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED STOCK OF THE ASSESSEE WAS DE TERMINED AT RS.25,08,033/- AS AGAINST RS. 1,02, 66,433/-DETERMINED BY THE AO. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT ,THAT THE STOCK BELONGED TO BDC WAS INTIMATED TO OFFICERS OF THE DEPARTMENT AT THE TIME WHEN THE 1 ST STATEMENT OF THE ASSESSEE WAS RECORDED ON 29.08.2005,THAT VIDE LETTER DATED 29.08 .2005,FILED BEFORE THE DDIT (INV.) ASSESSEE HAD EXPLAINED THE FACT THAT THE STOCK TO THE TUNE OF RS .79,91,225/- BELONGED TO BDC, THAT SAID FACT WAS ALSO RECORDED AT PARA 5.3 ON PAGE 3 OF THE ASSESSME NT ORDER,THAT THE STOCK TRANSFER CHALLANS, CONSIGNMENT NOTE, ETC. ALSO SUPPORTED THE FACT THAT THE ASSESSEE WAS RECEIVING AND HOLDING THE STOCK BELONGING TO BDC ON CONSIGNMENT BASIS,THAT THE STOC K HELD BY THE ASSESSEE ON CONSIGNMENT BASIS WERE NOT TREATED AS SALES BY BDC,THAT THE STOCK FOU ND AT THE TIME OF SURVEY HAD DIFFERENT NOMENCLATURE AS COMPARED TO WHAT WAS SHOWN IN THE S TOCK REGISTER,THAT AO HAD ALSO NOT REJECTED THE BOOKS OF ACCOUNTS,THAT THE FURNITURE ITEMS WERE NEVER SOLD AT THE TAG PRICE,THAT THE ASSESSEE HAD FURNISHED THE COMPLETE DETAILS OF THE STOCK VALUED BY THE DEPARTMENT AND THE CORRESPONDING COST RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE,T HAT THE FACT THAT MOST OF THE ITEMS WERE SOLD BELOW TAG PRICE WAS EVIDENT FROM THE SAMPLE ANALYSI S OF THE STOCK ITEMS BETWEEN 01.04.2005 AND 17.8.2005 WHICH SHOWED THAT AS AGAINST THE TAG PRIC E OF THE ITEMS AGGREGATING TO RS.1,01,57,318/- THE ACTUAL SALE PRICE WAS ONLY TO RS.52,40,014/-,TH AT THE SAMPLE ANALYSIS SHOWED THAT THE THERE WAS A DIFFERENCE OF ALMOST 48% BETWEEN THE TAG PRICE AND THE ACTUAL SALE PRICE,THAT THE AFORESAID POSITION HAD BEEN ACCEPTED BY THE AO WHILE ASSESSING THE INC OME SINCE NO DISPUTE HAD BEEN RAISED ON THE DECLARED PROFITS,THAT THE ITEMS SOLD TO CORPORATE E NTITIES WERE AT THE TAG PRICE COULD NOT BE SAID TO BE CORRECT FACT IN RESPECT OF ALL THE CASES,THAT MOST OF THE ITEMS EVEN TO THE CORPORATE ENTITIES WERE SO LD MUCH BELOW THE TAG PRICE,THAT TO OTHERS, THE STOCK HAD ALSO BEEN SOLD, AT TIMES, AT LOSS. HE REFERRED TO PAGE NOS.9-24,25, 79,145-176 OF THE PAPER BOOK-( PB).HE RELIED UPON THE CASE OF NEW PALACE 8 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) STORE(201TAXMAN 308)WHEREIN IT HAS BEEN HELD THAT T HE TAG PRICE OF THE PRODUCTS CANNOT BE TREATED AS THE PRICE FOR DETERMINING THE VALUE OF STOCK WHE N THE ASSESSEE WAS OFFERING HUGE DISCOUNT,THAT FAA HAD WRONGLY APPLIED DIFFERENCE OF 30% OF TAG PR ICE FOR PARTIALLY SUSTAINING THE ADDITION,IT WAS NOT KNOWN AS WHAT WAS THE BASIS FOR ADOPTING SAID P ERCENTAGE,THAT RELYING ON SALE PRICE FOR ARRIVING AT STOCK POSITION WAS FAULTY,THAT HE HAD ADOPTED TH E SELLING PRICE OF THE STOCK FOUND DURING SURVEY AT 70 % OF THE TAG PRICE INSTEAD OF 48% AS SHOWN BY TH E ASESSEE AND HE HAD NOT GIVEN ANY REASON FOR ADOPTING THAT PERCENTAGE,THAT GP RATE WAS DISTURBED BY THE FAA WITHOUT ANY BASE.DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT SURVEY PARTY HAD MADE INQUIRIES ABOUT GOODS BELONGING TO OTHERS BUT LYING AT BUSINESS PREMISES OF THE ASSESS EE,THAT STATEMENTS OF TWO OF THE RESPONSIBLE EMPLOYEES WERE RECORDED,THAT GOODS WERE SOLD AT TAG PRICE,THAT ORDER OF THE AO WAS BASED ON FACTS AND SAME SHOULD BE UPHELD. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO IS AGGRIEVED BY THE REDUCTION MADE BY THE FAA IN THE A LLEGED UNACCOUNTED STOCK FOUND DURING THE SURVEY ACTION,WHEREAS ASSESSEE-HUF HAS CHALLENGED T HE ADDITION SUSTAINED BY HIM.AS STATED EARLIER THERE ARE TWO ISSUE INVOLVED IN THE APPEALS -CLAIM MADE BY THE ASSESSEE THAT GOODS BELONGING TO BDC WERE LYING AT THE BUSINESS PREMISES OF THE A SSESSEE AND THE METHOD OF VALUATION OF STOCK.FIRST WE WOULD LIKE TO TAKE THE CLAIM MADE BY THE ASSESSEE ABOUT THE STOCK OWNED BY BDC AND LYING WITH IT ON 17/08/2005.WE FIND THAT SURVEY PARTY DID NOT ASK ANY QUESTION IN THIS REGARD BEFORE STARTING THE SURVEY ACTION.GENERALLY,BEFORE INITIATING ACTION U/S.133 OF THE ACT AND BEFORE PREPARING PHYSICAL INVENTORY OF STOCK AND CASH QUES TIONS ARE ALWAYS ASKED TO THE ASSESSEE AS TO WHETHER STOCK/ CASH BELONGING TO OTHERS IS LYING W ITH IT OR CASH/STOCK BELONGING TO IT IS LYING WITH SOME ONE ELSE. SIMILAR QUESTION IS ASKED ABOUT THE BOOKS OF ACCOUNTS ALSO.THESE QUESTIONS ARE ASKED SO THAT LATER ON ASSESSEE CANNOT CLAIM THAT D IFFERENCE OF STOCK/CASH WAS BECAUSE OF THE REASONS THAT CASH/STOCK OF OTHERS WAS LYING WITH IT OR THAT IT HAD KEPT STOCK /CASH SOMEWHERE ELSE.IN THE CASE BEFORE US,SURPRISINGLY SUCH QUESTION WERE NOT ASKED BEFORE THE SURVEY PROCEEDINGS.DURING THE COURSE OF HEARING BEFORE US,DR FAIRLY ADMITTED THAT BEFORE TAKING PHYSICAL INVENTORY OF STOCK, MEMBERS OF SURVEY PARTY DID NOT ASK THE QUESTION AS WHETHER STOCK/CASH BELONGING TO OTHERS WAS LYING AT THE BUSINESS PREMISES OF THE ASSESSEE OR N OT.WE FIND THAT N THE FIRST AVAILABLE OCCASION,ON 29.06.2005,IT WAS EXPLAINED BY THE ASSESSEE THAT ST OCK OF BDC WAS LYING WITH IT(ANSWER TO QUESTION NO.4-PG.5 OF OUR ORDER).NOT ONLY THIS,ASSE SSEE HAD PRODUCED ALL THE NECESSARY DOCUMENTARY EVIDENCES IN THIS REGARD.FAA HAS GIVEN FINDINGS OF FACTS IN THIS REGARD THAT HAVE BEEN NARRATED AT PARAGRAPH NOS. 2.1.A. AND 2.1.B. OF OUR ORDER.WE FIND THAT STOCK BELONGING TO BDC WAS CLAIMED BY IT IN THE RETURN FILED BY IT AND SAME WA S ASSESSED IN ITS HANDS.IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION THAT THERE IS NO REASON TO HOLD THAT STOCK BELONGING TO BDC WAS NOT LYING AT THE BUSINESS PREMISES OF THE ASSESSEE.DR COULD NOT CONT ROVERT THE FINDINGS GIVEN BY THE FAA.IT IS A FACT THAT AO HAD MADE NO INQUIRY ABOUT THE CLAIM MA DE BY THE ASSESSEE ,THOUGH DOCUMENTARY EVIDENCES WERE PRODUCED BY THE ASSESSEE IN THIS REG ARD.HENCE,IN OUR OPINION ORDER OF THE FAA DOES NOT SUFFER FROM ANY FACTUAL OR LEGAL INFIRMITY .HE HAD DELETED THE ADDITION MADE BY THE AO AFTER CONSIDERING ALL THE EVIDENCES. THEREFORE,CONF IRMING HIS ORDER WE DECIDE FIRST LIMB OF THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. 2.3.A. NOW,WE WOULD LIKE TO DISCUSS THE SECOND LIMB OF THE EFFECTIVE GROUND AND THAT IS VALUATION OF STOCK.AO WAS OF THE OPINION THAT STOCK WAS TO BE VA LUED BY REDUCING GP FROM THE SALE PRICE OF THE STOCK AND THAT THE SALE PRICE OF FUTURE ITEMS WAS A CTUALLY THE TAG PRICE(MRP)PRINTED ON EACH ITEM. ON THE OTHER HAND ASSESSEE HAS ARGUED THAT SALE WAS NOT AT THE MRP AND THAT CALCULATION MADE BY THE AO ABOUT THE ALLEGED DIFFERENCE WAS BASED ON WR ONG NOTION.AS FAR AS ISSUE OF SALE PRICE TO BE TAKEN AT MRP,IT IS CLEAR FROM THE ORDER OF THE FAA THAT AT MOST OF THE TIMES PIECES OF FURNITURE WERE NOT SOLD AT MRP.HE HAS ANALYSED THE COMPARATI VE CHART PRODUCED BEFORE HIM,FOR THE PERIOD OF APRIL TO AUG.20005,AND HAS GIVEN A CATEGORICAL F INDING OF FACT THAT GOODS WERE SOLD AT LOWER RATE AS COMPARED TO TAG PRICE OR SOMETIMES SAME WER E SOLD AT LOSS ALSO.HE HAD TAKEN IN TO CONSIDERATION VARIOUS FACTORS FOR ARRIVING AT THE C ONCLUSION THAT GOODS WERE NOT SOLD AT TAG PRICE.IT IS A KNOWN FACT THAT ASSESSEES HAS TO OFFER HEAVY D ISCOUNT IN CASE HE DEALS IN THING THAT HAVE SHORTER SHELF LIFE I.E. WHERE FASHION AND TASTE OF PEOPLE C HANGE RAPIDLY.THE FACT THAT GOODS HAVING TAG PRICE 9 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) OF 1.01 CRORES WERE SOLD FOR RS.52.4 LAKHS CLEARLY SHOWS THAT ASSESSEE WAS OFFERING HEFTY DISCOUNT TO THE CUSTOMERS.FAA HAS HELD THAT ADOPTING THE TAG PRICE AS BASE PRICE FOR CALCULATING THE VALUE OF STOCK ON 17.08.2005 WAS NOT PROPER AS IT WOULD GIVE ABSURD RESULTS.IN OUR OPINION,NO FAULT CAN BE FOUND IN HIS OBSERVATIONS.AO IS SUPPOSED TO DETERMI NE THE DUE LIABILITY OF TAXES AND FOR THAT HE IS SUPPOSED TO BASE HIS ORDER ON CORRECT APPRECIATION OF FACTS.WHILE FINALISING THE ASSESSMENT AO COMPLETELY IGNORED THESE VITAL AND IMPORTANT FACTS THAT WERE CONSIDERED BY THE FAA.WE ARE ALSO OF THE OPINION THAT CASH SALES DO NOT PROVE THAT TRANS ACTIONS ENTERED IN TO BY THE ASSESSEE WERE NOT GENUINE.FAA HAS FOUND THAT IN THE CASE UNDER CONSID ERATION CASH SALES WERE MORE THAN THE CHEQUE- SALES.WE FIND THAT AO HAS ACCEPTED THE BOOK RESULTS OF THE ASSESSEE AND HAS NOT INVOKED THE PROVISIONS OF SECTION 145 OF THE ACT.THEREFORE,IN O UR OPINION,GENUINENESS OF THE CASH SALES HAS RIGHTLY BEEN ACCEPTED BY THE FAA.CONSIDERING THE AB OVE WE ARE OF OPINION THAT FAA HAD COMMITTED NO MISTAKE IN ACCEPTING THE SUBMISSION OF THE ASSESSEE THAT TAG PRICE COULD NOT BE TAKEN AS BASE PRICE FOR ARRIVING AT DIFFERENCE IN STOCK.W E DECIDE SECOND LIMB OF THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. 2.3.B. NEXT ISSUE IS ABOUT ADDITION,AMOUNTING TO RS.25.09 LAKHS,SUSTAINED BY THE FAA.IN HIS ORDER HE HAS HELD THAT POSSIBILITY OF UNACCOUNTED STOCK C OULD NOT BE COMPLETELY RULED OUT.WE FIND THAT FOR SUSTAINING THE PARTIAL ADDITION,HE HAS HELD THAT T O ESTIMATE THE SALES VALUE OF THE STOCK FOUND DURIN G THE SURVEY TO BE LOWER BY 30% OF THE TAG PRICE RECO RDED BY THE SURVEY PARTY, WAS APPROPRIATE. BUT, WHY IT WAS NOT APPROPRIATE IS NOT MENTIONED ANYWHER E-IT IS TOTALLY NON SPEAKING ORDER WHERE REASONS FOR ARRIVING AT A CONCLUSION ARE NOT GIVEN. WE FIND THAT EXPECT FOR THIS PORTION OF HIS ORDER REST OF THE ORDER IS BASED ON SOUND REASONING.HERE A GUESS WORK HAS BEEN DONE BY HIM BUT BASIS OF THE GUESS WORK IS MISSING.RESULTS OF BOOKS OF ACCOU NTS OF THE ASSESSEE WERE ACCEPTED BY THE AO,SO FOR REJECTING THEM THERE HAS TO BE RELIABLE EVIDENC E WHICH CAN CONCLUSIVELY PROVE THAT BOOKS OF ACCOUNTS CANNOT BE BELIEVED.WE KNOW IN CERTAIN CASE S SOME GUESS WORK IS PERMISSIBLE AND THE FAA HAS ALL THE POWERS THAT AN AO HAS.BUT,FOR PROPO SED GUESS WORK AND TAKING A DECISION THAT CAN ADVERSELY AFFECT THE ASSESSEE,FAA HAS TO FOLLOW THE SAME RULES WHICH AN AO IS SUPPOSED TO FOLLOW.WE FIND THAT ADDITION HAS BEEN SUSTAINED,THO UGH PARTIALLY,BY MAKING GENERAL OBSERVATIONS. HE ADOPTED GP@50%,AS AGAINST THE 42% SHOWN BY THE A SESSEE FOR COMPUTING THE DIFFERENCE,BUT BASIS FOR REJECTING THE GROSS PROFIT RATE OF THE IS MISSING IN HIS ORDER.IN SHORT;FOR ADOPTING THE SEL LING PRICE OF THE STOCK,FOUND DURING SURVEY,AT 70 % OF T HE TAG PRICE OF AND 50% OF GP;FAA HAS NOT GIVEN ANY REASONS.IN OUR OPINION,IF HE HAD EVIDENCE OF EXCESS STOCK,HE SHOULD HAVE CONFRONTED THE ASESSEE WITH SUCH EVIDENCES.COSNSIDERING THE PECULI AR FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION, WE ARE UNABLE TO ENDORSE THE VIEW OF THE FAA TO THAT EXTENT.THEREFORE,REVERSING HIS ORDER TO THAT EXTENT,WE DECIDE GROUND NOS.2 AND 3 I N FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE AO IS REJECTED AND THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. 1+2 #3+ , 4 5 # 6 ) + 78 9 #3+ ) 0+2 6 ) + 78. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2014. !0 ) -.$ ! ; 26 1, , 2014 . ) / . SD/- SD/- ( . . . B.R.MITTAL) ( !' !' !' !' / RAJENDRA) / JUDICIAL MEMBER ! ! ! ! /ACCOUNTANT MEMBER / MUMBAI, <# /DATE: 26.02.2014 SK !0 !0 !0 !0 ) )) ) '+= '+= '+= '+= >!=$+ >!=$+ >!=$+ >!=$+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT(A)/ ? @ , 4. THE CONCERNED CIT / ? @ 5. DR B BENCH, ITAT, MUMBAI / =A/ '+# CH CHCH CH , . . . 10 ITA NOS. 5456 & 5564/MUM/2011 NAINESH NANDU (HUF) 6. GUARD FILE/ / 1 . (=+ '+ //TRUE COPY// !0# / BY ORDER, B / 7 DY./ASST. REGISTRAR , /ITAT, MUMBAI.