M/s Srinivasa Medical &General stores, Hyderabad V. ITO, Hyderabad

ITA 616/HYD/2009

• Counselvise Citation: 61622514 RSA 2009
• Duration Of Justice: 6 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y SESHA SRINIVAS
• Assessee Lawyers: C P RAMASWAMY
• Section: 5(2); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC) : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO.616/HYD/2009 ASSESSMENT YEAR 2005-2006 M/S. SRINIVASA MEDICAL AND GENERAL STORES, HYDERABAD 500 195. PAN AAJFS-7585-B VS. THE INCOME TAX OFFICER WARD 5(2) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. C.P. RAMASWAMY FOR REVENUE : MR. Y. SESHA SRINIVAS DATE OF HEARING : 27.08.2015 DATE OF PRONOUNCEMENT : 27 .08.2015 ORDER THIS APPEAL FILED AT THE INSTANCE OF THE ASSESSEE FIRM AND IT PERTAINS TO A.Y. 2005-2006. TH OUGH SEVERAL GROUNDS ARE URGED BEFORE THE TRIBUNAL, ONLY TWO ISSUES ARE INVOLVED IN THIS APPEAL I.E., (A) WHETHE R THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ADDITION OF RS.6,81,057, AS DIFFERENCE IN CLOSING STOCK, WITHOU T APPRECIATING THE FACT THAT THE ASSESSEE MAINTAINED PHYSICAL INVENTORY OF STOCK, AND THE DISCLOSED FIGU RE IN THE RETURN OF INCOME WAS IN CONFORMITY WITH SUCH INVENT ORY. IT WAS ALSO SUBMITTED THAT ASSESSEE FILED COPY OF PHYS ICAL INVENTORY DURING THE COURSE OF ASSESSMENT PROCEEDIN GS AND WITHOUT POINTING OUT ANY ERROR IN THAT A.O. WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. ( B) THE A.O./CIT(A) ERRED IN MAKING ADHOC DISALLOWANCE OF 2 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. RS.60,000 OUT OF EXPENDITURE INCURRED UNDER VARIOUS HEADS PURELY ON SURMISES. 2. THE FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. THE ASSESSEE FIRM ENGAG ED IN THE BUSINESS OF WHOLESALE DISTRIBUTION OF PHARMACEU TICALS. FOR THE YEAR UNDER CONSIDERATION, IT DECLARED TOTAL INCOME OF RS.1,75,820. AUDIT REPORT WAS ALSO OBTAINED UNDE R SECTION 44AB OF THE ACT. 2.1. A SURVEY OPERATION UNDER SECTION 133A OF THE ACT, WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 07.02.2006 WHEREIN A STATEMENT WAS RECORDED FROM ONE OF THE PARTNERS OF THE FIRM WHICH HAS A BEARING ON THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION CONSEQUENT THERETO, THE CASE WAS SELE CTED FOR SCRUTINY. DURING THE COURSE OF SURVEY PROCEEDIN GS THE ASSESSEE OFFERED SOME ADDITIONAL INCOME TO TAX IN T HE YEAR 2006-2007 AND THE SAME WAS ACCEPTED BY THE A.O. HOWEVER SINCE THE STATEMENT HAS A BEARING ON THE ASSESSMENT YEAR 2005-2006, THE CASE WAS SELECTED FO R SCRUTINY. ACCORDING TO THE A.O. THERE WAS A DIFFERE NCE IN COMPANY-WISE COST PRICE AT RS.60,15,747 AND THE CLO SING STOCK SHOWN IN THE TRADING ACCOUNT OF RS.53,34,690 AS ON 31.03.2005. IN RESPONSE THERETO, THE ASSESSEE SUBMI TTED THAT THOUGH THE ACTUAL COST PRICE VALUE, FROM THE STATEMENT, IS RS.60,15,747 THE CLOSING STOCK VALUE AS ARRIVED AT ON PHYSICAL INVENTORY HAS BEEN ADOPTED I N PROPORTION OF FINAL ACCOUNTS AND ACCORDINGLY THE SA ME HAS 3 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. BEEN SUBMITTED ALONG WITH THE RETURN OF INCOME. IT WAS ALSO SUBMITTED THAT SUM OF RS. 10 LAKHS TOWARDS THE DIFFERENCE IN STOCK AS ON THE DATE OF SURVEY WAS OF FERED AND HENCE IT IS NOT A FIT CASE FOR MAKING ANY ADDIT ION IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 2.2. THE A.O. REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE FIRM DID NOT FURNIS H ANY EVIDENCE IN SUPPORT OF ITS CONTENTION OF PROPORTION ATE STOCK INVENTORY ON THE BASIS OF PHYSICAL VERIFICATI ON AT THE YEAR END. HE THEREFORE, CONCLUDED THAT THE ASSESSEE HAD NOT DISCLOSED THE ACTUAL VALUE OF CLOSING STOCK IN ITS RETURN OF INCOME. WITH THESE OBSERVATIONS, HE ADDED A SUM OF RS.6,81,057 TOWARDS DIFFERENCE IN VALUE OF C LOSING STOCK (RS.60,15,747 RS.53,34,690). 4. DURING THE ASSESSMENT PROCEEDINGS, WHILE VERIFYING THE EXPENSES CLAIMED BY THE ASSESSEE UNDE R THE CONVEYANCE, VEHICLE MAINTENANCE, TRAVELLING, TELEPH ONES, SHOP MAINTENANCE AND MISCELLANEOUS EXPENSES, THE A. O. FOUND THAT SOME OF THESE EXPENDITURES ARE SUPPORTED BY SELF-MADE BILLS/VOUCHERS AND ALSO PART OF EXPENDITU RE RELATES TO PERSONAL USAGE OF THE PARTNERS, WHICH AR E NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WHEN THESE DISCREPANCIES WERE BROUGHT TO THE NOTICE OF THE ASSESSE AUTHORIZED REPRESENTATIVE, TH E ASSESSEES A.R. ADMITTED THE ABOVE DEFICIENCIES. KE EPING IN VIEW OF THIS, THE A.O. HAD DISALLOWED AN ADHOC S UM OF 4 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. RS.60,000 OUT OF SUCH EXPENDITURES AND ADDED TO THE RETURNED INCOME. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) AND CHALLENGED THE ADDITIONS. THE LD. CIT(A) AFTER CONS IDERING THE SUBMISSIONS MADE BY THE ASSESSEE, HAS CONFIRMED BOTH THE ADDITIONS MADE BY THE A.O. I.E., DIFFERENC E IN CLOSING STOCK VALUE AT RS.6,81,057 AND ADHOC DISALLOWANCE OF EXPENDITURE OF RS.60,000 AND DISMIS SED THE APPEAL FILED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US . 6. THE LEARNED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT A SURVEY OPERATION UNDER SECTION 133 A OF THE INCOME TAX ACT WAS CONDUCTED ON 07.02.2006 AND CONSEQUENT TO SURVEY, IT HAS DECLARED ADDITIONAL IN COME OF RS.10 LAKHS TOWARDS VARIATION IN THE CLOSING STOCK FOUND AS ON THE DATE OF SURVEY FOR THE A.Y. 2006-2007 AND PAID THE TAXES ACCORDINGLY. IT WAS FURTHER SUBMITTED THA T IT IS THE ASSESSEES GENERAL PRACTICE THAT IT WILL TAKE T HE PHYSICAL VALUE OF INVENTORY AT THE END OF EACH YEAR TO ARRIVE AT THE CLOSING STOCK. IT WAS STATED THAT IN THE PREVIOUS YEAR ENDING ON 31.03.2005, THE ASSESSEE HA S TAKEN THE PHYSICAL INVENTORY OF CLOSING STOCK AND V ALUED THE STOCK ON COST OR MARKET PRICE WHICHEVER IS LESS AND ARRIVED AT A VALUATION OF RS. 53,34,690/-. THE AR F URTHER SUBMITTED THAT THIS METHOD IS FOLLOWED CONSISTENTLY , AS CONFIRMED BY THE AUDITOR IN THE CERTIFICATE ISSUED UNDER 5 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. SECTION 44AB OF THE INCOME TAX ACT 1961. THE LEARNE D A.R. FURTHER SUBMITTED THAT ASSESSEE HAS SUBMITTED THE DETAILS OF VALUATION OF CLOSING STOCK DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, IN RESPONSE TO A QUESTIONNA IRE ISSUED BY THE A.O. DATED 12.03.2007 VIDE ITS REPLY DATED 16.03.2007. BUT THE A.O. WHILE COMPLETING THE ASSESSMENT IGNORED THE DETAILS FURNISHED BY THE ASS ESSEE AND MADE THE ADDITION OF RS.6,81,057 ON THE BASIS O F COMPUTER GENERATED STOCK STATEMENT FOUND DURING THE COURSE OF SURVEY. THEREFORE, LD. A.R. CONTENDED THA T THE ADDITION MADE BY A.O. IS NOT IN ACCORDANCE WITH LAW . 7. ON THE OTHER HAND, THE LEARNED D.R. SUBMI TTED THAT DURING THE COURSE OF SURVEY, THE A.O. FOUND A STOCK STATEMENT WHICH CONTAINS COMPANY-WISE COST PRICE OF THE INVENTORY OF THE STOCK AS ON 31.03.2005, AND AS PER THAT STATEMENT THE VALUE OF CLOSING STOCK IS AT RS.60,15 ,747. HOWEVER, THE ASSESSEE HAS ADOPTED THE VALUE OF RS.53,34,690. THUS, THE A.O. WAS JUSTIFIED IN ADDIN G THE DIFFERENCE OF RS.6,81,057. HE FURTHER SUBMITTED THA T THE ADDITION IS BASED ON A STATEMENT FOUND DURING THE C OURSE OF SURVEY AND THEREFORE, REQUESTED TO CONFIRM THE A DDITION MADE BY THE ASSESSING OFFICER AND UPHELD THE ORDER OF CIT(A). 8. I HAVE HEARD BOTH THE PARTIES AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS THE DI FFERENCE IN VALUATION OF CLOSING STOCK, OF RS.6,81,057 THE A O MADE THE ADDITION BASED ON COMPUTER GENERATED STOCK 6 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. STATEMENT FOUND DURING THE COURSE OF SURVEY. THE LD . CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HAS FAILED TO FURNISH THE EVIDENCE IN SUPPORT OF ITS CONTENTION B EFORE THE A.O. TO JUSTIFY THE VALUE OF CLOSING STOCK OF RS.53,34,690 SHOWN IN THE RETURN. THEREFORE, THE LD . CIT(A) HAVE CONFIRMED THE ADDITION MADE BY THE A.O. BASED ON STOCK STATEMENT FOUND DURING THE COURSE OF SURVEY. THE ASSESSEES CONTENTION IS THAT IT HAS CONSISTENTLY FOLLOWED THE METHOD OF ARRIVING AT CLO SING STOCK BASED ON PHYSICAL VERIFICATION OF INVENTORY A T THE YEAR END AND VALUED AT COST OR MARKET PRICE, WHICHE VER IS LESS. IT WAS ALSO SUBMITTED THAT ASSESSEE HAD ALREA DY OFFERED ADDITIONAL INCOME OF RS.10 LAKHS TOWARDS DIFFERENCE IN VALUE OF CLOSING STOCK AS ON THE DATE OF SURVEY WHICH INCLUDES DIFFERENCE OF RS.6,81,057 AND HENCE, SEPARATE ADDITION FOR A.Y. 2005-2006 IS NOT CALLED FOR, BASED ON SAME INFORMATION. 9. I FIND FORCE IN THE ARGUMENT OF THE ASSESSEE, SINCE ASSESSEE FIRM HAD ALREADY ADMITTED ADDITIONAL INCOME OF RS.10 LAKHS REFERABLE TO VARIATION IN STO CK, AND PAID THE TAXES IN THE ASSESSMENT YEAR 2006-2007, TH ERE CANNOT BE DOUBLE ADDITION ON THE SAME GROUND IN THE EARLIER YEAR ALSO. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE METHOD OF COST OR MARKET PRICE WHICHEVER IS LESS, FOR VALUING THE CLOSING STOCK IN THE EARLIER YEARS AND THE SAME METHOD WAS ADOPTED TO AR RIVE AT THE CLOSING STOCK FOR THE F.Y. 2005-2006. IN FAC T, THE ASSESSEE HAS FURNISHED A DETAILED STOCK STATEMENT 7 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. INDICATING QUANTITY AND VALUE AS ON 31.03.2005 WHIC H IS AVAILABLE BEFORE THE A.O. HOWEVER, THE A.O. HAS IGN ORED THE EVIDENCE FURNISHED BY THE ASSESSEE AND MADE ADD ITION BASED ON THE STOCK STATEMENT FOUND DURING THE COURS E OF SURVEY. THE ASSESSE IS FOLLOWING A PARTICULAR METHO D FOR VALUATION OF CLOSING STOCK, WHICH WAS FOLLOWED CONS ISTENTLY AND ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS AND HENCE IT CANNOT BE DISTURBED DURING THE YEAR UNDER CONSIDERATION. IT ALSO DESERVES TO BE NOTED THAT ON A QUESTION OF VALUATION OF THE CLOSING STOCK, ANY ALL EGED DIFFERENCE OR DISCREPANCY TENDS TO BALANCE ITSELF O UT OVER A PERIOD OF YEARS IF THE SAME METHOD IS CONSISTENTLY FOLLOWED. THIS IS BECAUSE THE CLOSING STOCK OF ONE YEAR BECOMES THE OPENING STOCK OF THE SUCCEEDING YEAR AN D ANY ADDITION MADE TO THE VALUATION OF THE CLOSING S TOCK, TO INCREASE THE PROFITS FOR THAT YEAR, AUTOMATICALLY G ETS NEUTRALISED WHEN THE SAME FIGURE OF CLOSING STOCK I S TAKEN AS THE OPENING STOCK OF THE SUCCEEDING YEAR. THEREF ORE, WHAT IS IMPORTANT TO BE SEEN IS WHETHER THE SAME ME THOD OF VALUATION OF STOCK IS FOLLOWED CONSISTENTLY BY T HE ASSESSEE SO THAT THERE IS NO DISTORTION OF PROFIT. THERE IS ALSO NO FINDING TO THE EFFECT THAT THE TRUE PROFITS OF THE BUSINESS CANNOT BE DETERMINED HAVING REGARD TO THE METHOD OF VALUATION OF STOCK EMPLOYED BY THE ASSESS E THEREFORE, I AM OF THE OPINION THAT THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE, BEING ONE OF THE PRESCRIBED METHODS OF VALUATION OF CLOSING STOCK, A S PER THE ACCOUNTING STANDARD ISSUED BY THE ICAI AND ALSO ACCOUNTING STANDARD NOTIFIED BY THE GOVERNMENT FOR 8 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. VALUATION OF STOCK IN TRADE, IT CANNOT BE DISTURBED . FURTHER, THE VALUATION IS SUPPORTED BY DETAILED STO CK STATEMENT, WHICH WAS MADE AVAILABLE BEFORE THE AO A S WELL AS CIT(A). THEREFORE, FOR THE REASONS STATED A BOVE, I DELETE THE IMPUGNED ADDITION OF RS.6,81,057 TOWARDS DIFFERENCE IN STOCK VALUE MADE BY THE A.O AND ACCOR DINGLY THE GROUND OF THE ASSESSE IS ALLOWED. 9. THE NEXT ISSUE, AS PER GROUND NO.5, RELATES TO ADHOC DISALLOWANCE OF RS.60,000 TOWARDS VARIOUS EXPENDITURE. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE MAINTAINED BOO KS OF ACCOUNTS, ALONG WITH VOUCHERS AND BILLS, AND PRODUC ED BEFORE THE A.O. FOR HIS VERIFICATION. THE A.O. DID NOT POINT OUT ANY LAPSES; IN THE BOOKS OF ACCOUNTS FOR THE EX PENSES DISALLOWED INSTEAD HE MADE ADHOC DISALLOWANCE WITHO UT ANY BASIS. HE FURTHER SUBMITTED THAT COMPARED TO ASSESSEES VOLUME OF BUSINESS AND THE EXPENDITURE CLAIMED, THESE EXPENSES ARE VERY MINIMUM AND HENCE, THE ADDITION IS NOT CALLED FOR. IN SUPPORT OF HIS C ONTENTION, THE LEARNED A.R. RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD., VS. CIT (1954) 26 ITR 775 (S.C.). 10. THE LEARNED D.R. ON THE OTHER HAND, STRONG LY SUPPORTED THE ORDER OF THE LD. CIT(A). HE FURTHER A RGUED THAT THE ASSESSEE HAS ACCEPTED THE OMISSIONS AND AG REED FOR THE ADDITIONS BEFORE THE A.O. AND ASSESSEE FIRM IS PRECLUDED FROM RE-AGITATING THE ISSUE AT A LATER ST AGE. 9 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. THEREFORE, HE URGED TO UPHOLD THE ADDITIONS MADE BY THE A.O. 11. I HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE A.O. DISALLOW ED THE EXPENDITURE UNDER VARIOUS HEADS SUCH AS CONVEYANCE, VEHICLE MAINTENANCE, TRAVELLING EXPENDITURE, TELEPH ONES, SHOP MAINTENANCE AND MISCELLANEOUS EXPENDITURE FOR THE REASON THAT THESE EXPENDITURES ARE MERELY SUPPORTED BY SELF-MADE VOUCHERS. BUT, ON THE OTHER HAND, THE ASS ESSEE CONTENDED THAT COMPARED TO ITS VOLUME OF BUSINESS, THE EXPENDITURE CLAIMED UNDER THESE HEADS ARE MINIMUM; THEREFORE, DISALLOWANCE OF RS.60,000 IS EXCESSIVE. 12. IT IS A FACT THAT THE ASSESSEE HAS FURNISHED T HE BOOKS OF ACCOUNTS ALONG WITH THE BILLS AND VOUCHERS . IT IS NOT A CASE, WHERE THE AO POINTS OUT SPECIFIC MISTAK ES IN THESE EXPENDITURES. THE A.O. DISALLOWED THE EXPENDI TURE ON ADHOC BASIS BY HOLDING THAT THESE EXPENDITURES A RE SUPPORTED BY SELF-MADE VOUCHERS AND SOME PORTION OF IT NOT INCURRED EXCLUSIVELY FOR THE BUSINESS OF THE AS SESSEE. I AM OF THE VIEW THAT CONSIDERING THE VOLUME OF BUS INESS AND AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE, DISALLOWANCE OF RS.60,000 IS ON A HIGHER SIDE. HENC E, TO MEET THE ENDS OF JUSTICE, I DIRECT THE A.O. TO DISA LLOW 15% OUT OF THE TOTAL EXPENDITURE INCURRED UNDER THESE EXPENSES. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. 10 ITA.NO.616/HYD/2009M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. ORDER PRONOUNCED IN THE OPEN COURT ON 27.08.2015 . SD/- (D.MANMOHAN) VICE PRESIDENT DATED 27 TH AUGUST, 2015 VBP/- COPY TO 1. M/S. SRINIVASA MEDICAL & GENERAL STORES, HYDERABAD. C/O. DR. C.P. RAMASWAMI, ADVOCATE, FLAT NO.303, GITANJALI APARTMENTS, PLOT NO.108, SRINAGAR COLONY, HYDERABAD 500 072. 2. THE INCOME TAX OFFICER,WARD - 5(2), HYDERABAD. 3. CIT(A) - V, HYDE RABAD. 4. CIT - IV, HYDERABAD. 5. D.R. ITAT B (SMC) BENCH, HYDERABAD. 6. GUARD FILE