The ACIT, Anand Circle, Anand V. Sarvoday hardware Pvt.Ltd., Anand

ITA 676/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7721 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-06-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 03-03-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C O NO AHD
• Keywords: Gross profit estimation; Unexplained investment; Set aside
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING : 16.06.09 DRAFTED ON: 23.06.0 9 1. ITA NO.676/AHD/2005 (BY REVENUE) 2. CO NO.119/AHD/2005 (BY ASSESSEE) [ ARISING OUT OF ITA NO.676/AHD/2005 ] ASSESSMENT YEAR : 2001-02 1. THE ACIT ANAND CIRCLE ANAND 2. SARVODAYA HARDWARE P.LTD ANAND VS. 1. SARVODAYA HARDWARE PVT.LTD. STATION ROAD ANAND 2. THE ACIT ANAND CIRCLE, ANAND PAN/GIR NO. : AAHCS 6525 Q (APPELLANTS) .. (RESPONDENTS) ASSESSEE BY : SHRI M.G. PATEL REVENUE BY : SHRI JAYANT JHAVERI, SR.DR O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-II, BARODA DATED 23 RD DECEMBER-2004 ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 2 - PASSED FOR ASSESSMENT YEAR 2001-02 AND CROSS OBJECT ION IS BY THE ASSESSEE THEREOF. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN ITS APPEAL:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED LD. CIT(APPEAL)-II ERRED I) IN HOLDING THAT THE ADDITION OF RS.38,24,666/- MADE IN THE ASSESSMENT ORDER INVOKING PROVISION OF SECTION 69 OF THE ACT WAS NOT JUSTIFIED IN SPITE OF FACT THAT THE ADDITION MADE WAS BASED ON EXCESS STOCK DECLARED BY THE ASSESSEE ON THE BASIS OF MONTHLY STOCK STATEMENT SUBMITTED TO THE BANK IN QUANTITY AND VALUE. II) IN OBSERVING THAT ADDITION HAS BEEN MADE COMPARING STOCK AS PER BOOKS AS ON 31.03.2001 WITH STOCK STATEMENT SUBMITTED TO THE BANK AS ON 30.06.2000, THOUGH DURING THE COURSE OF APPELLATE PROCEEDINGS IT WAS POINTED OUT THAT DIFFERENCE IN STOCK DEALT WITH IN THE ASSESSMENT ORDER WAS ONLY IN RESPECT OF POSITION AS ON 31.03.2001 AND NOT AS ON 30.06.2000. III) IN OBSERVING THAT THERE IS NO DIFFERENCE IN AGGREGATE VALUE OF STOCK AND STOCK AS PER BOOKS IN SPITE OF THE FACT THAT AS PER ASSESSEES OWN SUBMISSION MADE DURING THE APPELLATE ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 3 - PROCEEDINGS VIDE ITS LETTER DATED 11.10.2004 STOCK AS DECLARED TO THE BANK AND AS PER THE BOOKS AS ON 31.03.2001 SHOWED DIFFERING QUANTITY AND IN VALUE IN RESPECT OF VARIOUS SPECIFIC ITEMS OF STEEL, PAINTS, CEMENT, ETC. IV) IN NOT CONSIDERING THE AUDITORS REPORT IN SCHEDULE-VI OF THE BALANCE SHEET WHEREIN ENTIRE STOCK AS ON 31.03.2001 OF RS.1,19,60,830/- WAS SHOWN AS STOCK OF STEEL ONLY WHICH DID NOT INCLUDE STOCK OF CEMENT, PAINTS, HARDWARE, ETC. AND IN SPITE OF SUCH DECLARATION MADE BY THE STATUTORY AUDITORS, THE LD. CIT(A) HAS OBSERVED THAT NO IRREGULARITIES IN THE BOOKS HAS BEEN FOUND BY THE AO. V) IN RESTRICTING THE ADDITION TO ONLY RS.2 LACS ON THE GROUND OF LOW GP AND DIFFERENCE IN VALUATION OF STOCK, THEREBY ACCEPTING IN PRINCIPLE THE FINDING OF THE AO THAT THE BOOKS OF ACCOUNT WERE UNRELIABLE AND WERE REQUIRED TO BE REJECTED AND THEREFORE, FURTHER ERRED IN NOT CONSIDERING THE STOCK STATEMENT AS FURNISHED TO THE BANK AS BASIS IN WORKING OUT THE UNEXPLAINED INVESTMENT IN EXCESS STOCK DECLARED. VI) IN NOT CONSIDERING THE DECISION OF THE JURISDICTIONAL ITAT, AHMEDABAD A-BENCH, IN THE CASE OF ACIT VS. VIKAS AGENCY REPORTED IN 85 ITD 536. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 4 - 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN ITS CROSS OBJECTION:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, BARODA, HAS ERRED IN LAW AS WELL AS ON FACTS BY CONFIRMING THE ADDITION TO THE EXTENT OF RS.2,00,000/- ON THE GROUND OF LOW GROSS PROFIT RATE AFTER HOLDING THAT THE ADDITION OF RS.38,24,666/- MADE BY THE LEARNED ASSESSING OFFICER ON THE GROUND OF UNEXPLAINED INVESTMENT IN CLOSING STOCK U/S.69 OF THE INCOME TAX ACT, 1961 IS NOT JUSTIFIED. 2. THE RESPONDENT, THEREFORE, PRAYS THAT THE ADDITION CONFIRMED BY THE LEARNED CIT(A) TO THE EXTENT OF RS.2,00,000/- ON THE GROUND OF LOW GROSS PROFIT RATE AS WELL AS THE ADDITION OF RS.38,24,666 /- MADE BY THE LEARNED ASSESSING OFFICER ON THE GROUND OF UNEXPLAINED INVESTMENT IN CLOSING STOCK U/S.69 OF THE INCOME TAX ACT, 1961, MAY KINDLY BE DELETED. ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 5 - 3. THE RESPONDENT RESERVES THE RIGHT TO ADD, ALTER, AMEND AND/OR WITHDRAW ANY OF THE ABOVE GROUNDS OF CROSS OBJECTIONS. 4. SINCE THE FACTS AND ISSUES INVOLVED IN REVENUES APPEAL AND THE CROSS OBJECTION OF THE ASSESSEE ARE COMMON, THEY ARE DISPOSED OF TOGETHER FOR THE SAKE OF CONVENIENCE. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER HAS MADE THE FOLLOWING ADDITIONS: (I) THE STOCK OF PAINTS RS.28,75,730, COLOUR RS.74,449, CEMENT RS.8,74,487 AND HARDWARE ITEMS RS.7,67,564, AGGREGATING TO RS.38,24,666 WAS SUBMITTED TO BANK WHEREAS, AS PER BOOKS THE SAME AGGREGATED TO RS.11,20,088. THEREFORE THE DIFFERENCE OF RS.27,04,578 IN RESPECT OF CEMENT, COLOUR/PAINTS, HARDWARE HAS BEEN TREATED AS UNEXPLAINED WHILE MAKING ADDITION OF RS.27,04,578. ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 6 - (II) THE VALUE OF STOCK AS SHOWN IN FINAL ACCOUNTS (AS PER REQUIREMENTS OF SCHEDULE-VI OF COMPANIES ACT 1956) AMOUNTING TO RS.1,19,60,830 WHICH AS PER THE AO REPRESENTED THE STOCK VALUE OF STEEL ONLY. THUS THE DIFFERENCE OF RS.11,20,088 (1,19,60,830 STOCK OF STEEL AS PER BOOKS RS.1,08,40,472) IS CONSIDERED AS UNEXPLAINED INVESTMENT TOWARDS STOCK OF STEEL AND MADE ADDITION OF RS.11,20,088. THUS, TOTAL ADDITION MADE IS RS.27,04,578 PLUS RS.11,20,088 AGGREGATING TO RS.38,24,666. 6. IN APPEAL, THE LD. CIT(APPEALS) RESTRICTED THE ADDITION TO RS.2 LACS IN PLACE OF RS.38,24,666 /- MADE BY THE ASSESSING OFFICER UNDER SECTION 69 OF THE INCOM E TAX ACT, 1961 ON ACCOUNT OF UNDISCLOSED INVESTMENT IN S TOCK FOR THE FOLLOWING REASONS:- (I) IN THE CASE OF APPELLANT NO QUANTITY HAS BEEN MENTIONED AGAINST SUCH ITEMS STATED IN THE STOCK STATEMENT SUBMITTED TO BANK AND FURTHER ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 7 - IT IS NOTICED THAT THE STOCK STATEMENT SUBMITTED TO BANK WERE NOT PREPARED FROM THE STOCK REGISTER SINCE SAME HAS NOT BEEN MAINTAINED FOR SUCH ITEMS. (II) THERE IS NO MATERIAL ON RECORD TO ESTABLISH THAT IN FACT THE APPELLANT WAS IN POSSESSION OF STOCK IN EXCESS OF WHAT IS SHOWN IN THE FINAL ACCOUNTS. (III) NO UNACCOUNTED SALES/PURCHASE HAVE BEEN FOUND BY THE AO SO AS TO JUSTIFY SUCH ADDITION. (IV) THE STOCK IS NOT PLEDGED BUT HYPOTHECATED. (V) THE ADDITION HAS BEEN MADE BY THE AO COMPARING THE STOCK AS PER BOOKS AS ON 31 ST MARCH 2001 WITH THE STOCK STATEMENT SUBMITTED TO BANK AS ON 30.6.2000 AND NOT WITH THE STOCK STATEMENT OF 31 ST MARCH-2001. (VI) THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT EXCEPT THE STOCK DIFFERENCE AND SUCH A REASON CANNOT BE A VALID GROUND TO REJECT THE BOOKS. ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 8 - (VII) THERE IS NO DIFFERENCE IN AGGREGATE VALUE OF STOCK SUBMITTED TO BANK AND AS PER BOOKS (I.E. AT BOTH THE PLACES THE SAME IS RS.1,19,60,830). 7. HOWEVER, THE LD. CIT(APPEALS) ALSO NOTICED THAT THERE IS MINOR FALL IN GP (GP OF 2.28% THIS YEAR A GAINST 2.48 LAST YEAR) FOR WHICH EXPLANATION SUBMITTED BY THE APPELLANT IS NOT FOUND SATISFACTORY. THEREFORE, IT WAS HELD THAT IT WOULD BE JUST AND PROPER TO MAKE AN ADDITIO N OF RS.2,00,000 TO COVER UP DISCREPANCIES OF GP LEAKAG E AS WELL STOCK DIFFERENCE DUE TO RATE/QUANTITY. THE A SSESSING OFFICER WAS, THEREFORE, DIRECTED TO RESTRICT THE AD DITION TO RS.2,00,000/- AND DELETE THE BALANCE ADDITION OF RS.36,24,666/-. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIA LS AVAILABLE ON RECORD. THE LD. AUTHORISED REPRESENT ATIVE OF THE ASSESSEE, AT THE TIME OF HEARING, SUBMITTED THAT THE ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 9 - ASSESSING OFFICER IN HIS REMAND REPORT DATED 10/11/ 2004 FORWARDED TO THE LD. CIT(APPEALS) STATED THAT IN TH E AUDITED ACCOUNTS QUANTITY MENTIONED WAS 755524KGS. OF STEEL AND VALUE SHOWN AGAINST THE SAME WAS RS.1,19,60,830/- WHICH AS PER THE ASSESSEE IS THE PRINCIPAL ITEM. THE ASSESSING OFFICER STATED THAT THE VALUE OF CEMENT RS.8,74,487/-, PAINTS RS.28,74,487/- AND HAR DWARE ITEMS RS.74,498/- DECLARED IN THE BANK STATEMENT HA VE NOT BEEN REFLECTED IN THE BOOKS OF ACCOUNT. THE L D. AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT FIGURES OF CLOSING STOCK APPEARING IN THE FINAL ACC OUNTS ARE OF STEEL AND INCLUSIVE OF OTHER ITEMS. HE S UBMITTED THAT THERE WAS A MISTAKE COMMITTED IN THE AUDITED ACCOUNTS BY THE AUDITOR, WHILE REFLECTING THE CLOS ING STOCK OF THE ASSESSEE AS STEEL ITEMS ONLY. HE SUBM ITTED THAT THE CLOSING STOCK OF RS.1,19,60,830/- INCLUDED STOCK OF STEEL AND OTHER ITEMS. IN SUPPORT OF THE SAME, HE FILED A ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 10 - CERTIFICATE FORM THE AUDITOR DATED 28/03/2009, WHI CH READS AS FOLLOWS:- N V DESHPANDE & CO. CHARTERED ACCOUNTANTS 2ND FLOOR, CHANCHALBA BHUVAN NEAR STATE BANK OF INDIA ANAND 388 001 PHONE : [phone] CERTIFICATE I HAVE RE-VERIFIED THE INFORMATION, PURSUANT TO THE PROVISIONS OF PARAGRAPH 4C AND 4D OF PARA II OF SCHEDULE-IV TO TH E COMPANIES ACT, 1956, CONTAINED IN PARAGRAPH 'K' OF SCHEDULE 12 TO THE AUDITED ACCOUNTS FOR THE YEAR ENDED ON 31ST MARCH 2001. OF SARVODAY HARDWARE PVT LTD., ANAND AND I CERTIFY THAT IN SUB- ITEM (A) I.E. TURNOVER, SUB-ITEM (B) I.E. COST OF GOODS SOLD AND SUB-ITEM (C) I.E. CLOSING STOCK, THE QUANTITY OF GOODS IN RESPECT OF TURNOVER, COST OF GOODS SOLD AND CLOSING STOCK HAS BEEN SHOWN OF ONE ITEM VIZ. OF STEEL ONLY WHICH ACCOUNTED FOR MORE THAN 10% OF TURNOVER, WHILE AMOUNT IN RUPEES THERE AGAINST SHOWN IN TURNOVER, COST OF GOO DS SOLD AS WELL AS CLOSING STOCK ARE IN RESPECT OF ALL THE ITEMS DEALT IN BY THE COMPANY I.E. STEEL, HARDWARE, CEMENT AND COLOURS. THE DETAILED B REAK UP OF THE SAME IN RUPEES IS AS UNDER. SR NO. ITEM TURNOVER RS. COST OF GOODS GOODS SOLD RS. CLOSING STOCK RS. 1. STEEL 96777582 91402364 10840742 2. HARDWARE 1226825 1032966 297400 ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 11 - 3. CEMENT 3793754 3519374 50100 4. COLOUR 7713573 8167804 772588 TOTAL 109511734 104122508 11960830 ADD: OCTROI AND TRANSPORT 2334305 LABOUR CHARGES 552770 --------------- TOTAL 107009583 DATE : 28/03/2009 FOR, N V DESHPANDE & CO. CHARTERED ACCOUNTANTS PLACE : ANAND SD/- N V DESHPANDE (PROPRIETOR) MEM NO. 042609 9. IT WAS, THEREFORE, SUBMITTED THAT THE ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE ABOVE CERTIFICATE ISSUED BY THE AUDITOR WITH THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO AGREED WITH THE SUBMISSIONS OF THE ASSESSEE. AS REGARDS THE ADDITI ON OF RS.2 LAKHS SUSTAINED BY THE LD. CIT(APPEALS) IN APP EAL, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS ISSUE SHOULD ALSO RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION AS THE SAME IS CONNECTED WI TH ADDITION MADE ON ACCOUNT OF DIFFERENCE IN CLOSING S TOCK. ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 12 - THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE D ID NOT OBJECT TO THE SAID SUBMISSION OF THE LD. DEPARTMENT AL REPRESENTATIVE. IN THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE ISSUES BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION OF THE ISS UES AS PER LAW IN THE LIGHT OF THE OBSERVATIONS MADE HEREINABO VE, AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE BOTH ARE ALLOWED FO R STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION OF THE ASSESSEE BOTH ARE ALLOWED FO R STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 24/07/2009. ITA NO. 676/AHD/2005 & CO NO.119/AHD/2005(BY ASSESSEE) ACIT VS. SARVODAY HARDWARE P.LTD. ASST.YEAR 2001-02 - 13 - SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED 24/07/2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II, BARODA 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD