I.T.O. Ward 2(2) Nasik, Nashik V. M/s. Pawar Shoes, Sarda Sankul, Nashik

ITA 708/PUN/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3256 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 23-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJU AJWANI
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER I.T.A. NO. 708/PN/2008: A.Y. 2004-05 I.T.O. WARD 2(2) NASIK APPELLANT VS. M/S. PAWAR SHOES, SARDA SANKUL, M.G. ROAD, NASIK PAN AAFFP 6063 R RESPONDENT C.O. NO. 2/PN/2010 ARISING OUT OF I.T.A. NO. 708/PN/2008: A.Y. 2004- 05 M/S. PAWAR SHOES, SARDA SANKUL, M.G. ROAD, NASIK PAN AAFFP 6063 R CROSS OBJECTOR VS. I.T.O. WARD 2(2) NASIK APPELLANT IN APPEAL DEPARTMENT BY: SMT. MANJU AJWANI ASSESSEE BY: NONE ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 1 4-3-2008 PAGE 2 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 OF CIT(A) FOR A.Y. 2004-05. THESE ARE BEING DISPOSE D OFF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIEN CE. 2. AT THE TIME OF HEARING OF THE APPEAL, NO ONE APP EARED ON BEHALF OF THE ASSESSEE TO DEFEND ITS CASE THOUGH ON THE LAST DATE OF HEARING ON 9-9-2010 THE HEARING OF THE CASE HAD BEEN ADJOURNED TO 13-10-2010 AT THE REQUEST OF THE ASSES SEE. THE PERUSAL OF RECORD ALSO SHOWS THAT THE APPEAL HAD BE EN ADJOURNED ON SEVERAL OCCASIONS IN THE PAST AT THE R EQUEST OF THE ASSESSEE. THIS TIME NEITHER SOME ONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT APPLICAT ION HAS BEEN RECEIVED. WE, THEREFORE, PROCEED TO DECIDE TH E APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AF TER HEARING THE LEARNED DR WHO SUPPORTED THE ORDER OF THE A.O. 3. THE MAIN DISPUTE IN THE APPEAL AS WELL AS THE CR OSS OBJECTION IS REGARDING ADDITION ON ACCOUNT OF THE D IFFERENCE OF CLOSING STOCK. A SURVEY U/S 133A OF THE ACT HAD BEEN CONDUCTED IN THIS CASE ON 10-4-2003, DURING THE COU RSE OF WHICH, THE ASSESSEE HAD CONSENTED FOR DISCLOSURE OF ADDITIONAL INCOME OF RS. 19,00,080/- ON ACCOUNT OF EXCESS PAGE 3 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 STOCK OF RS. 18,85,172/-, IN RESPONSE TO QUESTION NO. 24 RAISED AT HE TIME OF SURVEY. HOWEVER, IN THE RETUR N OF INCOME, THE ASSESSEE DID NOT DISCLOSE ANY SUCH ADDI TIONAL INCOME. SUBSEQUENT TO SURVEY THE ASSESSEE, ON 30-4- 2003 HAD FILED AN AFFIDAVIT IN WHICH IT WAS CLAIMED THAT OB SOLETE STOCK OF RS. 15,00,000/- AND DISCOUNT OF 30% HAD NOT BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF EXCESS STOCK AND AFTER TAKING INTO ACCOUNT THIS, THERE WAS NO EXCESS STOCK . THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS FILED RE VISED WORKING OF EXCESS STOCK. THE ASSESSEE IN THE SAID WORKING POINTED OUT THAT THE STOCK VALUATION AS PER PAGES 6 AND 7 OF THE SURVEY PARTY RECORD WAS RS. 18,72,605/- WHEREAS THE ACTUAL VALUATION SUPPORTED BY THE PURCHASE INVOICES WAS RS. 8,47,805/- WHICH WAS ONLY 45% OF THE VALUE TAKEN BY THE DEPARTMENT. ADOPTING THE SAME RATIO TO THE VALUATI ON MADE BY THE SURVEY PARTY OF RS. 41,21,744/-, THE ASSESSE E COMPUTED THE ACTUAL VALUE OF STOCK AT RS. 18,66,082/- IN PLA CE OF STOCK FOUND AT RS. 14,84,658/-. THE ASSESSEE ACCORDINGLY SUBMITTED THAT THE DIFFERENCE WAS ONLY OF RS. 3,81,424/-. TH E ASSESSEE AGREED TO THE SAID ADDITION SUBJECT TO NON-INITIATI ON OF PENALTY PROCEEDINGS. THE A.O DID NOT ACCEPT THE CL AIM OF THE PAGE 4 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 ASSESSEE. THE A.O MADE THE ADDITION ON THE BASIS O F DECLARATION MADE AT THE TIME OF SURVEY AMOUNTING TO RS. 19,00,000/-. 4. IN APPEAL, THE ASSESSEE REITERATED THE SUBMISSI ONS MADE BEFORE THE A.O AND POINTED OUT THAT THE ADDITI ON COULD BE MADE ONLY ON THE BASIS OF MATERIAL FOUND DURING THE SURVEY AND NOT ON THE BASIS OF STATEMENT IN VIEW OF THE C IRCULAR NO. F.NO. 286/2/2003-IT (INV) DATED 10-3-2003 OF CBDT. THE CIT(A) THEREAFTER REMANDED THE MATTER TO THE A.O DI RECTING HIM TO WORK OUT THE CORRECT VALUE OF EXCESS STOCK AFTE R MAKING NECESSARY INQUIRIES AND AFTER CONSIDERING TH E DOCUMENTS, PURCHASE INVOICES AND OTHER BOOKS FOUND AT THE TIME OF SURVEY. THE A.O IN THE REMAND REPORT DATED 25-2-2008 MENTIONED THAT THERE AS NO FIXED SYSTEM OF FINDING OUT THE OBSOLETE STOCK AND THAT IN HIS OPINION THE VALUATIO N OF STOCK OTHER THAN THE OBSOLETE STOCK MAY BE CONSIDERED AT RS. 5,00,000/- IN ADDITION TO RS. 3,81,424/- OFFERE D BY THE ASSESSEE. THEREAFTER THE A.O SENT ANOTHER REPORT D ATED 10-3-2008 IN WHICH IT WAS MENTIONED THAT THE CLAIM OF OBSOLETE STOCK WAS NOT VERIFIABLE AND THE ASSESSEE COULD NOT PAGE 5 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 PROVE BEYOND DOUBT ITS CLAIM OF OBSOLETE STOCK AND DISCOUNT. ACCORDINGLY, THE A.O FURTHER MENTIONED IN HIS REPOR T THAT THE CLAIM OF THE ASSESSEE MAY BE REJECTED. THE CIT(A) AFTER CONSIDERING TWO REPORTS OF THE A.O OBSERVED THAT T HE A.O HAD BEEN SPECIFICALLY DIRECTED TO MAKE INQUIRIES BASED ON BOOKS OF ACCOUNT AND OTHER DOCUMENTS FOUND DURING THE COU RSE OF SURVEY TO WORK OUT THE ACTUAL EXCESS STOCK IN VIEW OF THE BOARDS INSTRUCTION NO. F.286/2/2003-IT (INV) DATED 10-3-2003. THE A.O MADE NO INQUIRY AND HAD SIMPLY RELIED ON TH E STATEMENT GIVEN AT THE TIME OF SURVEY. EVEN THOUGH THE CLAIM S OF OBSOLETE STOCK OR DISCOUNT WERE NOT MADE AT TH E TIME OF SURVEY, THE SAME WERE DULY MADE DURING THE ASSESSMENT PROCEEDINGS AND THE A.O WAS DUTY BOUND T O EXAMINE THE SAME WHICH WAS NOT DONE. THE CIT(A) AL SO OBSERVED THAT THE A.O HAD ARRIVED AT THE EXCESS STO CK BY APPLYING G.P RATE OF 18% AS AGAINST G.P RATE OF 22. 01% SHOWN IN THE RETURN OF INCOME FOR A.Y. 2004-05. THE G.P RATE WORKED OUT ON RANDOM BASIS BY THE ASSESSEE IN THE SUBMISSI ONS DATED 10-2-2006 WAS 54.73%. THE CIT(A) THEREFORE, CONCLUDED THAT THE ACTUAL VALUE OF THE EXCESS STOCK LAY SOMEWHERE IN BETWEEN THESE TWO FIGURES AND ACCORDIN GLY PAGE 6 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 ESTIMATED THE EXCESS STOCK AT RS. 9,00,000/-. THE CIT(A) THUS DIRECTED THE A.O TO ADOPT THE VALUE OF EXCESS STOCK AT RS. 9,00,000/- AND GAVE RELIEF OF RS. 9,85,172/-. AGGRIEVED BY THE SAID DECISION, BOTH THE PARTIES ARE IN APPEAL. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATERIAL CAREFULLY. THE DISPUTE IS REGARDING THE A DDITION ON ACCOUNT OF EXCESS STOCK FOUND AT THE TIME OF SURVEY . THE A.O HAS DETERMINED THE EXCESS STOCK AT RS. 18,85,172/- AND MADE ADDITION OF RS. 19 LAKHS ON THIS ACCOUNT ON THE BAS IS OF DISCLOSURE OF ADDITIONAL INCOME OF RS. 19,00,000/- MADE BY THE ASSESSEE. SUBSEQUENTLY, THE ASSESSEE FILED AN A FFIDAVIT IN WHICH IT WAS MENTIONED THAT THERE WAS NO EXCESS STO CK CONSIDERING THE OBSOLETE STOCK OF RS. 15 LAKHS AND DISCOUNT OF 30% NOT CONSIDERED IN SURVEY REPORT. THE ASSESSE E ALSO GAVE FRESH COMPUTATION OF EXCESS STOCK DURING THE ASSESSMENT PROCEEDINGS BASED ON ANALYSES OF STOCK S HOWN AT PAGES 6 AND 7 OF THE SURVEY PARTY INVENTORY, IN WHICH THE VALUATION OF STOCK WAS SHOWN AT RS. 18,72,605/- BUT THE ASSESSEE, WITH THE HELP OF ACTUAL PURCHASE INVOICES , SHOWED THAT THE VALUE WAS ONLY RS. 8,47,405/-. ON THIS BA SIS, THE PAGE 7 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 DIFFERENCE WAS CALCULATED ONLY AT RS. 3,81,424/-. THE CIT(A) REMANDED THE MATTER TO THE A.O TO MAKE EXAMINATION OF THE CLAIM OF THE ASSESSEE AFTER GOING THROUGH THE BOOKS OF ACCOUNTS AND ALL THE DOCUMENTS FOUND. THE A.O IN H IS INITIAL REPORT AGREED THAT THE CLAIM OF OBSOLETE STOCK WAS CORRECT TO SOME EXTENT AND GAVE REPORT THAT EXCESS STOCK COULD BE TO THE TUNE OF RS. 8,81,424/-. HOWEVER, SUBSEQUENTLY, HE RETRACTED FROM THIS POSITION AND SENT A REPORT THAT STOCK AS PER VALUATION MADE AT THE TIME OF SURVEY SHOULD BE ACCEPTED. THE CIT(A) HAS POINTED OUT THAT THE A.O AT THE TIME OF SURVEY, HAD COMPUTED THE STOCK DIFFERENCE BY ADOPTING G.P O F 18% WHEREAS G.P FOR THE IMMEDIATELY PRECEDING YEAR WAS 22.01% AND THE ASSESSEE ALSO SUBMITTED WORKING OF G.P RATE DURING THE APPELLATE PROCEEDINGS, IN WHICH, IT WAS CONTEND ED THAT THE G.P RATE IN SOME CASES WAS 54.73%. THE CIT(A) THEREFORE, CAME TO THE CONCLUSION THAT THE ACTUAL V ALUE OF EXCESS STOCK MAY BE SOMEWHERE IN BETWEEN THESE TWO FIGURES AND ACCORDINGLY HAS ESTIMATED THE SAME AT R S. 9,00,000/-. IN OUR VIEW, THE ESTIMATE MADE BY THE A.O APPEARS TO BE REASONABLE AND HAS TO BE ACCEPTED. T HE ASSESSEE IS IN BUSINESS OF RETAILER OF FOOTWEAR IN WHICH PAGE 8 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 POSSIBILITY OF OBSOLETE STOCK CANNOT BE RULED OUT. THE DISCOUNT IS ALSO A COMMON FEATURE IN THIS LINE OF B USINESS WHICH COULD HAVE BEEN EASILY VERIFIED BY THE A.O FR OM THE CASH MEMOS WHICH HAD NOT BEEN DONE THOUGH THE CASE HAD BEEN REMANDED TO HIM BY CIT(A). THE G.P RATE ADOPT ED FOR COMPUTATION OF EXCESS STOCK BY THE A.O WAS ALSO ON LOWER SIDE. THEREFORE, IN OUR VIEW, THE EXCESS STOCK EST IMATED BY THE CIT(A) IS REASONABLE AND THE SAME IS UPHELD. G ROUNDS RAISED BY BOTH THE PARTIES ON THIS ISSUE ARE THEREF ORE, DISMISSED. 6. THE SECOND DISPUTE RAISED IN THE APPEAL BY THE R EVENUE IS REGARDING DISALLOWANCE OF SHOP RENT OF RS. 60,00 0/-. THE SHOP RENT HAS BEEN PAID TO A PARTNER. THE A.O DISA LLOWED THE CLAIM ON THE GROUND THAT THE GODOWN IN RESPECT OF W HICH THE SHOP RENT WAS CLAIMED BELONGED TO THE ASSESSEE. HO WEVER, DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE FILE D INCOME- TAX STATEMENT OF THE PARTNER FOR A.Y. 2004-05 IN WH ICH THE SHOP RENT HAS BEEN DULY SHOWN. THE CIT(A) THEREFOR E, ACCEPTED THE CLAIM AND DELETED THE ADDITION. PAGE 9 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 7. WE HAVE HEARD THE LEARNED DR AND CONSIDERED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSEE HAD PAID SHOP RENT TO THE PARTNER WHO HAD ALSO DECLARED SHOP RENT IN H IS RETURN OF INCOME. THE CLAIM OF THE A.O THAT THE SHOP WAS OWNED BY THE ASSESSEE IS NOT SUPPORTED BY ANY EVIDENCE. ON THE CONTRARY, THERE IS EVIDENCE OF RENT PAYMENT TO THE PARTNER WHO HAS DISCLOSED THE SAME IN HIS INCOME. WE THERE FORE, SEE NO INFIRMITY IN THE ORDER OF THE CIT(A) ALLOWING TH E CLAIM OF THE ASSESSEE AND THE SAME IS UPHELD. 8. IN THE CROSS OBJECTION, IN ADDITION TO THE DISPU TE ON STOCK, THE ASSESSEE HAS ALSO RAISED GROUNDS REGARDI NG DISALLOWANCE OF RS. 33,115/- ON ACCOUNT OF DIFFEREN CE IN CREDITORS, DISALLOWANCE OF RS. 5,000/- BEING DONATI ON AND DISALLOWANCE OF RS. 20,000/- OUT OF VEHICLE, SHOP A ND TRAVELING EXPENSES. HOWEVER, WE FIND THAT NO SUCH GROUNDS HAD BEEN RAISED BEFORE THE CIT(A) NOR THESE GROUNDS ARISE OUT OF ORDER OF THE CIT(A). WE THEREFORE, DISMISS THES E GROUNDS AS THESE ARE NOT PURELY LEGAL ISSUES AND REQUIRE FR ESH FACTUAL FINDINGS. PAGE 10 OF 10 ITA NO. 708/PN/2008 PAWAR SHOES, A.Y. 2004-05 9. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN ON THE 15 TH DAY OF OCTOBER 2010. SD/- SD/- ( I.C. SUDHIR) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER PUNE DATED THE 15 TH OCTOBER 2010 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)- II NASIK 4. THE CIT- II NASIK 5. THE D.R, B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE