ITO, UDAIPUR V. M/s. Hansa Palace Art Furniture, UDAIPUR

ITA 8/JODH/2009

• Counselvise Citation: 823314 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-12-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 133A; 263

Judgement Text

1 ITA 08-09 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 08/JODH/2009 ASSTT. YEAR : 2002-03. THE INCOME-TAX OFFICER, VS. M/S. HANSA PALACE AR T WARD 1(2), FURNITURE, 7, NAKODA UDAIPUR. COMPLEX, SECTOR-4, HIRAM MAGRI, UDAPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHESH KUMAR RESPONDENT BY : SHRI AMIT KOTHARI DATE OF HEARING : 02.12.2011. DATE OF PRONOUNCEMENT : 15.12.2011 ORDER DATED : 15/12/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2002-03. 2. THERE ARE FIVE GROUNDS OF APPEAL IN THE APPEAL O F THE DEPARTMENT. REGARDING GROUND NOS. 2 TO 5, THE LD. D/R HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 3. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE HAS PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 4. REGARDING FIRST GROUND, THE LD. D/R STATED THAT LD. CIT (A) HAS NOT CONSIDERED THE ORDER OF ASSESSING OFFICER IN RIGHT PERSPECTIVE AND THE ASSESSMENT ORDER HAS BEEN PASSED BY ASSESSING OFFICER AFTER APPRECIATING ALL THE FAC TS AND STATEMENT OF THE ASSESSEE. PART OF 2 THE ORDER OF ASSESSING OFFICER WAS READ ALSO. ATTE NTION OF THE BENCH WAS DRAWN AT PAGES 56, 64 AND 65 OF THE PAPER BOOK. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE FIRSTLY PLACED RELIANCE ON THE ORDER OF LD. CIT (A) AND IT WAS FURTHER SUBMITTED T HAT A TRADING ACCOUNT AT THE TIME OF SURVEY ITSELF WAS PREPARED AND WHATEVER THE STOCK D IFFERENCE WAS THERE, IT WAS EXPLAINED. ATTENTION OF THE BENCH WAS DRAWN AT PAGES 64, 92 AN D 142 OF THE PAPER BOOK. IF ALL THESE PAGES ARE TAKEN INTO CONSIDERATION, THEN THERE REMA INS NO DIFFERENCE WHICH THE LD. CIT (A) HAS TAKEN INTO CONSIDERATION. THEREFORE, LD. CIT ( A) WAS JUSTIFIED IN DELETING THIS ADDITION ALSO. 6. NOW THE APPEAL OF THE DEPARTMENT IS BEING DISPOS ED OFF IN THE FOLLOWING MANNER. 7. FIRST GROUND IS AGAINST DELETING ADDITION OF RS. 13,44,722/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDERSTATED CLOSING STOCK. THE BRIEF FACTS OF THE CASE DISCUSSED IN THE ORDER OF LD. CIT (A) IN PARA 3 AND 4 ARE AS UNDER :- 3. THE FACTS OF THE CASE ARE THAT THE RETURN OF INCOME AT RS.NIL WAS FILED ON 26-10-2002. NOTICE U/S 143 (2) WAS SERVED TO THE ASSESSEE ON 9-12-2002. AFTER THAT THE CASE WAS GONE UNDER THE SYSTEM INSPECTION AND THE CIT HAS OBSERVED THAT THE AO'S O RDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST TO THE REVENUE, DUE TO THE FACTS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO WORKED OUT THE CLOSING STOCK AT THE END OF THE YEAR AT RS.46,33,912/-, AS AGAINST THE STOCK OF RS. 32,89,190/- SHOWN IN THE BOOKS AND HELD THAT THE EXCESS STOCK W ORKED OUT HAD BEEN SOLD OUT OF BOOKS. AS THE CLOSING STOCK AT THE END OF THE YEAR WORKED OUT TO RS.46,33,912/- AS AGAINST THE STOCK SHOWN IN THE BO OKS RS.32,89,190. THEREFORE THE ASSESSEE HAS UNDERSTATED THE STOCK AT THE END OF THE FINANCIAL YEAR TO THE EXTENT OF 13,44,722/-IN ADDITION TO RS. 4,37,438/- THE PROFIT ON SALE OF THE STOCK . ACCORDINGLY A SHOW CAUSE WAS IS SUED TO THE ASSESSEE BY THE CIT, UDAIPUR AND PASSED ORDER U/S 263 OF THE AC T ON 13-4-2006 AND SET ASIDE THE ORDER OF THE AO. 3 A SURVEY U/S 133A OF THE ACT WAS CONDUCTED IN THE B USINESS PREMISES OF THE ASSESSEE AS WELL AS THE BUSINESS PREMISES OF SISTER CONCERN M/S HANSA UDHYOG, A SEPARATE PARTNERSHIP FI RM ON 12-2-2002. THE AO ASKED THE ASSESSEE TO EXPLAIN THE DISCREPANC Y. IN RESPONSE TO WHICH THE ASSESSEE FURNISHED THAT PHYSICAL VERIFICA TION OF STOCK WAS CONDUCTED AT BOTH PLACES. ON THE DATE OF SURVEY STO CKS OF HANSA UDHYOG, SHOWROOM TOWN HALL WAS PLACED AT THE SHOW ROOM OF HANSA PALACE ART FURNITURE BECAUSE THERE WAS REPAIRS AND RENOVATION/CONSTRUCTION ACTIVITIES IN PROCESS. SO THE STOCK OF HANSA UDHYOG SHOWROOM. TOWN HALL WAS KEPT AT SISTER CONCERN. AT THE TIME OF PH YSICAL VERIFICATION THIS FACT WAS NOTED DOWN BY THE SURVEY PARTIES AT BOTH PLACES AND BOTH OF THEIR HAVE CONDUCTED PHYSICAL VERIFICATION OF AVAILABLE S TOCK AT BUSINESS PREMISES ONLY. NONE OF THE SURVEY PARTY HAVE COMPUTED THE POSITION OF AVAILABILITY OF STOCK BELONGING TO ASSESSEE FIRM OR OF ITS SISTER CONCERN IN ORDER TO COMPARE THE STOCK WITH POSITION OF STOCK A S PER BOOKS. AT THE TIME OF SURVEY MEMORANDUM ACCOUNT WAS FURNISHED BY THE P ARTNER OF THE ASSESSEE TO THE SURVEY PARTY. ACCORDING TO SUCH ME MORANDUM ACCOUNT, THE STOCK OF SISTER CONCERN WAS REFLECTED CLEARLY. THE MEMORANDUM ACCOUNT FURNISHED WAS REPRODUCED BY THE AC AS UNDER :- PARTICULARS AMOUNT PARTICULARS AMOUNT TO OPENING STOCK 2,263,000 BY SALES 8,698,257 TO PURCHASE 8,008,690 BY SALES THROUGH CHALLAN 2,11,165 TO PURCHASE FROM SSP (CHALLAN) 53,250 BY CLOSING STOCK 5,040,487 TO GOODS RECEIVED FROM HANSA UDHYOG MIP CONSIDERED ON PURCHASE 201,650 TO GOODS RECEIVED FROM HANSA UDHYOG TOWN HALL TRANSFER 955,703 TO PURCHASE EXP. 240,260 TO GROSS PROFIT 2,227,356 13,949,909 13,949,909 ACCORDING TO THE ABOVE MEMORANDUM ACCOUNT TOTAL AVA ILABLE STOCK AT BUSINESS, REMISES OF M/S HANSA PALACE ART FURNITURE INCLUDING THE STOCK OF SISTER CONCERN WAS FOUND ABOUT RS.50,40,487/-. THE CORRECT CALCULATION OF CLOSING STOCK WHICH SHOULD HAVE BEEN DECLARED ACCORDING TO THE BOOKS OF ACCOUNTS ON THE DATE OF SURVEY, IF CALCULATED ON THE BASIS OF ABOVE 4 MEMORANDUM ACCOUNT, IN CORRECT SENSE AND ACCOUNTING PRINCIPLE WAS WORKED OUT AS UNDER:- CLOSING STOCK AS PER ABOVE MEMORANDUM A/C RS. 5 0,40,487/- ADD : SALES THROUGH CHALLAN RS. 2,11,165/- LESS: (I) GOODS RECEIVED FROM CHALLAN (SSP) RS. 53,250/- (II) -DO- (H.UDYOG, MIA) RS.2,01,650/- (III) GOODS BELONGING TO H. UDYOG SHOW ROOM RS.9,55,703/- RS.12,10,603/- ------------------ STOCK BELONGING TO THE ASSESSEE FIRM RS.40,41,049 /- ------------------ THE CLOSING STOCK SHOULD HAVE BEEN TAKEN AT RS.40,41,049/- BY APPLICATION OF ESTIMATED G.P. RATE OF 25.6% FOR COMPARISON OF STOCK PHYSICALLY FOUND V.S STOCK AS PER BOOKS DECLARED BY THE ASSESSEE. 4. THE AO CONSIDERED THE EXPLANATION OF THE ASSESSEE A ND FOUND THE EXPLANATION AS NOT TENABLE ON THE GROUND THAT THE ASSESSEE NEVER OBJECTED THE FIGURE OF SALES AND PURCHASES ADOPTED BY THE THEN AO. FURTHER THE THEN AO ADOPTED THE FIGURES OF SALES AND PURCHASES FOR THE PERIOD 13-2- 2002 TO 31-3- 2002 ON THE BASIS OF FIGURE SUBMITTED BY THE ASSESSEE. AT THE TIME OF SURVEY, THE PARTNER OF THE ASSESSEE SUBMITT ED A COPY OF TRADING ACCOUNT IN WHICH SALES HAS BEEN DECLARED AT RS.86,98,257 /- AND CLOSING STOCK WAS DECLARED AT RS.50,40,487/-. THE TRADING ACCOUNT SUBMITTED DURI NG THE COURSE OF SURVEY WAS PREPARED IN THE PRESENCE OF SURVEY PARTY AND THE SAME WAS CERTIFIED BY ONE OF THE PARTNERS. FURTHER THE ASSESSEE NEVER CLAIMED THAT THE TRADING ACCOUNT PRE PARED DURING THE SURVEY PROCEEDINGS WAS WRONG. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, IT WAS HELD THAT THE THEN AO WAS CORRECTLY WORKED OUT THE CLOSING STOCK AT THE END OF THE YEAR AT RS.46,33,912/- AS AGAINST THE STOCK OF RS,2,89,190/- SHOWN IN THE BOOKS, THUS THE EXCESS STOCK WORKED OUT AT RS.13,44,722/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8. DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE L D. CIT (A) WHICH ARE DISCUSSED BY LD. CIT (A) AT PAGES 4 TO 6 ARE AS UNDER :- DURING THE COURSE OF APPELLATE PROCEEDINGS THE LD. A/R SUBMITTED THAT - 5 THE ADJUSTMENTS OF FOLLOWING TRANSACTIONS WERE MAD E BY THE APPELLANT IN THE BOOKS OF ACCOUNTS DURING THE PRE SURVEY PERIOD: I) OUT OF CLOSING STOCK OF RS.46,33,912/- AS CALCUL ATED BY THE AO, THE AMOUNT OF STOCK OF RS.11,57,353/- BELONGS TO 141/S HANSA UDHYOG AND NOT WITH TARE APPELLANT. II) THE STOCK OF RS.11,57,353/- WAS RECEIVED BY THE APPELLANT THROUGH CHALLAN (COPY ENCLOSED) ON ACCOUNT OF RENOVATION OF THEIR SHOW ROOM. III) THE AO HAS WRONGLY INCLUDED THE SAME IN THE CL OSING STOCK OF THE APPELLANT SHOWN IN THE MEMORANDUM TRADING ACCOUNT. IV) THE PURCHASE BILLS FOR RS. 4,18,431/- WERE PEND ING FOR ADJUSTMENT ON THE DATE OF SURVEY (COPIES OF BILLS E NCLOSED). V) THE TRANSACTIONS OF SALES, SALES RETURN AND INT ERNAL TRANSFERS TO GROUP CONCERNS FOR RS.6,72,196/- WERE PENDING FOR ADJUSTMENT ON THE DATE OF SURVEY (COPIES OF DOCUMENTS ARE ENCLOSED). VI) SIMILARLY, SOME OF THE DIRECT EXPENSES HAVE BEE N TRANSFERRED TO INDIRECT EXPENSES ON ACCOUNT OF INCORRECT ACCOUNTIN G OF THEM. THE ABOVE ADJUSTMENTS OF EXPENSES (STATEMENT OF EXPENSES ENCL OSED) WERE ALSO PENDING FOR ADJUSTMENT HAVING AN IMPACT OF CLOSING STOCK. THE APPELLANT COMPLETED ITS BOOKS OF ACCOUNTS AFTER MAKING THE ADJUSTMENTS OF PENDING TRANSACTIONS OF SALES, PURCHASES AND EXPENS ES SUPPORTED WITH THE DOCUMENTARY EVIDENCES AND ARRIVED AT THE CLOSING ST OCK OF RS.32,89,190/- AT THE END OF THE YEAR. THEREAFTER, AN INDEPENDENT QUALIFI ED AUDITOR AUDITED THE BOOKS OF ACCOUNT OF THE APPELLANT AND HE HAS REPORTED NO QUA LIFICATION IN HIS REPORT. IN THE RESULT, THE CLOSING STOCK OF RS.46,33,912/- HAS COM E DOWN TO RS.32,89,190/- HAVING THE CUMULATIVE IMPACT AND/OR EFFECT OF THE A BOVE TRANSACTIONS IN THE AUDITED BOOKS OF ACCOUNTS OF THE APPELLANT. THUS TH ERE WAS NEITHER EXCESS NOR SHORTAGE OF STOCK WITH THE APPELLANT DURING THE YEA R. THE CLOSING STOCK OF RS.32,89,190/- SHOWN BY THE APPELLANT IN ITS AUDITE D BOOKS OF ACCOUNTS AT THE END OF THE YEAR (I.E. AS ON 31-3-2002) IS PERFECTLY COR RECT IN CONFIRMATION TO THE FACTS ON RECORDS. THE RESULTANT POSITION OF CLOSING STOCK CAN BE SUMMARIZED AS FOLLOWS:- 6 THE APPELLANT HAS PRODUCED THE AUDITED BOOKS OF ACC OUNTS BEFORE THE AO FOR HIS EXAMINATION AND SCRUTINY OF VARIOUS TRANSAC TIONS DURING THE COURSE OF ASSESSMENT. THE AO HAS CALCULATED THE STOCK OF RS.4 6,33,912/- AT THE END OF THE YEAR WITHOUT CONSIDERING THE ACTUAL TRANSACTIONS OF SALES, PURCHASE AND EXPENSES AND STOCK OF SISTER CONCERNS (SUPPORTED WITH DOCUME NTARY EVIDENCES) TAKEN PLACE DURING THE PRE SURVEY PERIOD' IN VIEW OF THE ABOVE SUBMISSION, THE A/R SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN TAKING THE EXCESS STOCK AS PER RE-CAST ED TRADING ACCOUNT WITHOUT CONSIDERING THE RECONCILED POSITION OF STOCK OF BOT H THE CONCERNS. FURTHER THERE IS NO EXCESS OR SHORT OF CLOSING STOCK AS ON THE DATE OF SURVEY AS WELL AS ON THE CLOSE OF THE PREVIOUS YEAR, WHICH IS EVIDENT FROM THE DIS CUSSION AND THE MATERIAL FURNISHED ABOVE AND THESE WERE FURNISHED TO THE AO ALSO BUT NOT CONSIDERED. THEREFORE, THE ADDITION MADE ON ACCOUNT OF ALLEGED EXCESS CLOSING STOCK DESERVES TO BE DELETED. 9. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) DELETED THE ADDITION BY GIVING THE FOLLOWING FI NDING RECORDED IN PARA 6 & 7 OF HIS ORDER :- 6. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISS ION OF THE LD. A/R. THE FACTS OF THE CASE ARE THAT THE RETURN OF INCOME AT RS.NIL WAS FILED ON 26-10-2002. NOTICE U/S 143(2) WAS SERVED TO THE ASSESSEE ON 9-1 12-2002. A SURVEY U/S I33A OF THE ACT WAS CONDUCTED IN THIS CASE ON 12-2-2002. STOCK OF RS.71,51,825/- (AT TAG PRICE) WAS FOUND ON PHYSICAL VERIFICATION AS PE R TRADING ACCOUNT PREPARED S.NO. PARTICULARS AMOUNT (RS.) AMOUNT (RS.) 1. CLOSING STOCK AS CALCULATED BY THE AO AS PER MEMORANDUM TRADING ACCOUNT AS ON 31-3-2002. 4,633,912 -- 2. LESS: THE STOCK BELONGING TO SISTER CONCERNS IN CLUDED IN THE3 ABOVE STOCK AS ON 31-3-2002 1,157,353 3,476,559 3. ADD: INCREASE IN STOCK ON ACCOUNT OF PURCHASES NOT CONSIDERED BY THE AO ON THE DATE OF SURVEY. 418,431 -- 4. INCREASE IN STOCK NOT CONSIDERED BY THE AO ON A CCOUNT OF GROSS PROFIT ON THE DATE OF SURVEY. 124,931 5,43,362 5. BALANCE STOCK AS ON THE DATE OF SURVEY 4,019,921 6. LESS: DECREASE IN STOCK ON TRANSFER OF DIRECT P URCHASES EXPENSES FROM INDIRECT EXPENSES NOT CONSIDERED BY A O ON THE DATE OF SURVEY 672,196 -- 7. LESS: DECREASE IN STOCK ON TRANSFER OF DIRECT P URCHASES EXPENSES FROM INDIRECT EXPENSES NOT CONSIDERED BY A O ON THE DATE OF SURVEY. 58,536 730,732 8. BALANCE CLOSING STOCK SHOWN IN THE BOOKS OF ACC OUNTS AS ON 31-3-2003 3,289,189 7 DURING SURVEY. THE STOCK AS PER BOOKS WAS WORKED OU T TO RS. 50,40,487/- (AT COST). THE AO HAD PREPARED TRADING ACCOUNT FOR THE PERIOD FROM 13-2-2002 TO 31-3-2002 AS UNDER:- TO OPENING STOCK (STOCK AS PER TRADING A/C PREPARED DURING SURVEY) 5,040,487 BY SALES 1,472,560 TO PURCHASE 704,472 BY CLOSING STOCK (BALANCING FIGURE) 4,633,912 TO MFG. & OTHER EXPENSES -- TO GROSS PROFIT (24.55%) 361,513 6,106,472 6,106,472 AS PER THIS TRADING ACCOUNT THE CLOSING STOCK WAS A T RS.46,33,912/-. IN THIS TRADING ACCOUNT, MANUFACTURING AND OTHER EXPENSES W AS TAKEN AT RS.NIL AND THE GROSS PROFIT RATE WAS 24.55%. THE AO HAD ALSO WORKED OUT THE DIFFERENCE FOUND IN THE BOOKS OF ACCOUNT AT THE TIME OF SURVEY AND AS PER AUDITED BO OKS AS UNDER:- FOR THE PERIOD FROM 1-4-2001 TO 12-2-2002 AS PER BOOKS FOUND DURING SURVEY AS PER AUDITED BOOKS DIFFERENCE SALES (INCLUDING SALES THROUGH CHALLAN) 8,909,422 9,581,618 -672,196 PURCHASES (INCLUDING PURCHASES THROUGH CHALLAN) 9,219,293 8,480,371 738,922 DIRECT EXPENSES 240,260 181,724 58,536 THE AO, THEREFORE, INVOKED THE PROVISIONS OF SECTIO N 145(3) OF THE ACT AND REJECTED THE BOOKS OF ACCOUNT AND WORKED OUT THE SH ORTAGE OF STOCK OF RS.13 44,722/- AS ON 31-3-2002. THE ASSESSMENT ORDER PASSED U/S 143(3 ) ON 25-2-2005 ON INCOME OF RS. 6,15,100 /- MAKING ADDITION ON ACCOUNT OF GROSS PRO FIT ON SALE OUT OF BOOKS RS 4,37,438/-, CASH INTRODUCING IN PARTNER CAPITAL ACCOUNT RS.1,08 ,000/-, BOGUS AGRICULTURE INCOME INTRODUCING RS.61,000/- AND DISALLOWANCE OF EXCESS DEPRECIATION ON VEHICLE RS.12,765/-. THE ASSTT. ORDER OF THE ACT WAS SET ASIDE BY THE CI T, UDAIPUR ON 13-4-2006 DIRECTING THE AO TO PASS AN ORDER TAKING INTO CONSIDERATION THE A MOUNT OF EXCESS STOCKS OF RS. 13,44,722/` THE ORDER WAS SET ASIDE TO THE LIMITED EXTENT AS ABOVE. 7. THE ITAT, JODHPUR BENCH ALSO UPHELD THE IMPUGNE D ORDER OF THE CIT, UDAIPUR AND DISMISSED THE APPELLANT'S APPEAL ON THE GROUND THAT THERE WAS EXCESS STOCK FOUND WHICH WAS INADVERTENTLY TAKEN BY THE AO AS SHORTAGE IN STOCK. THE REVISED ORDER HAS BEEN PASSED U/S 143(3) OF THE ACT ON 27-11-2007. THE AO HAS COMPUTED THE INCOME AS UNDER:- INCOME ASSESSED AS PER ORDER DATED 25-2-2005 RS. 6,15,100/- ADDITION ON ACCOUNT OF UNDER STATED CLOSING STOCK RS. 13,44,722/- THE AO HAS MADE A MISTAKE HERE IN TAKING THE ASSESS ED INCOME AS AT RS.6,15,100/- AS PER ORIGINAL ORDER. IT IS TO BE NOTED HERE THAT WHEN TH E ORIGINAL ORDER WAS SET ASIDE BY THE CI T , UDAIPUR. DIRECTING THE AO TO PASS A FRESH ORDER TAKING INTO CONSIDERATION THE EXCESS STOCK OF S.13. 44.722/-. THE ORIGINAL ORDER HAS NOW MERGED INTO THE REVISED ORDER. THE AO COULD NOT TAKE THE ASSESSED INCOME AS 8 PER ORIGINAL ORDER IN THE REVISED ASSESSMENT ORDER. IF AT ALL HE WANTED TO ADD/INCLUDE THE ASSESSED INCOME AS PER ORIGINAL ORD ER HE COULD HAVE DISCUSSED ALL THESE FOUR ISSUES IN THE REVISED ORDE R AND ARRIVED AT A CONCLUSION WHETHER TO ADD OR NOT. TO THIS EXTENT THE ADDITION BY THE AO I S NOT JUSTIFIED. ON GOING THROUGH THE ABOVE FACTS AND SUBMISSION IT IS FOUND THAT THE STOCK OF THE APPELLANT AS PER INVENTORY ,PREPARED AT THE TIME OF SURVEY ON 1'2-211-2002 WAS RS. 71,51,825/- AT THE TAG PRICE. RS.L1,57,353/ BELONGED TO M/S HA NSA UDHYAG. A SEPARATE FIRM. DUE TO RENOVATION BEING CARRIED OUT IN THE BUSINESS PREMISES OF M/S. HANSA UDHYOG, THE STOCK WAS KEPT AT THE BUSINESS PREMISES OF THE APPELLANT M/S HANSA PALACE ART FURNITURE. THIS FACT WAS ALSO EXPLAINED BY THE A/R DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. BUT IT WAS NOT CONSIDERED AT ALL. THE TRADING ACCOUNT PREPARED BY THE AO AT THE TIME OF ORIGINAL ASSESSMENT FOT THE PERIOD 13-2-2002 TO 31-3-2002 HAD TAKEN MANUFACTURI NG AND OTHER EXPENSES AT RS. NIL AND THE G.P. RATE TAKEN BY THE AO WAS ALSO OF T HE CURRENT ASSESSMENT YEAR. THE STOCK OF RS.50,40,487/- PREPARED BY THE APPELLA NT WAS AT THE COST PRICE IN RESPECT OF PHYSICAL STOCK AVAILABLE AT THE TIME OF SURVEY. THE PURCHASE BILLS OF RS.4,18,431/- WERE PENDING FOR ADJUSTMENT ON THE DA TE OF SURVEY. THE TRANSACTIONS OF SALES RETURN AND INTERNAL TRANSFER TO GROUP CONCERNS OF RS.6,72.196/- WERE ALSO PENDING FOR ADJUSTMENT ON T HE DATE OF SURVEY. FURTHER, SOME OF THE DIRECT EXPENSES WERE TRANSFERRED TO IND IRECT EXPENSES ON ACCOUNT OF INCORRECT ACCOUNTING. THE ABOVE ADJUSTMENTS OF EXPE NSES WERE ALSO PENDING HAVING IMPACT ON CLOSING STOCK. THE FINAL POSITION OF CLOSING STOCK HAS BEEN ARRIVED AT RS.32,89,189/- AS PER WORKING GIVEN IN T HE ABOVE PARA NO.6. AFTER CONSIDERING THE TRANSFER OF GOODS THROUGH CHALLAN B Y SISTER CONCERN, PURCHASE AND SALES OF GOODS NOT ENTERED AT THE TIME OF SURVEY, D IRECT EXPENSES NOT CONSIDERED AND THE EXPENSES DEBITED UNDER ANOTHER HEAD, APPLIC ATION OF G.P. RATE BY THE AO ON THE BASIS OF CURRENT YEAR ETC. THERE IS NO EXCES S OR SHORT CLOSING STOCK. FURTHER THE APPELLANT HAS SUBMITTED COMPLETE DETAILS IN RES PECT OF ABOVE ASPECTS WITH EVIDENCES IN THE FORM OF BILLS, VOUCHERS ETC. WHICH WERE AVAILABLE WITH AO EVEN AT THE TIME OF ORIGINAL ASSESSMENT BUT NOT CONSIDERED. THESE FACTS ARE VERIFIABLE FROM THE BASIC RECORDS SUCH AS PURCHASE REGISTER, GOODS RECEIPTS REGISTER, SALES REGISTER, GOODS DISPATCH REGISTER, INWARD-OUTWARD CHALLANS ET C. ON THE BASIS OF WHICH THE ENTRIES ARE BEING MADE IN THE BOOKS OF ACCOUNT. THU S, THERE IS NO REASON TO REJECT THE BOOKS OF ACCOUNT AND REACHING TO A CONCLUSION O N THE BASIS OF RE-CASTED TO REJECT THE BOOKS OF ACCOUNT AND REACHING TO A CONCL USION AT THE TIME OF SURVEY AND NOT CONSIDERING THE CORRECT FINAL POSITION OF ACCOU NT. THEREFORE, HOLD THAT THE CONCLUSION ARRIVED BY THE AO IS ON WRONG FOOTING AN D THE ACTION CANNOT BE SUSTAINED. THE ADDITION IS DELETED. 10. AFTER CONSIDERING THE SUBMISSIONS OF LD. D/R TA BULATED SOMEWHERE ABOVE AND SUBMISSIONS OF LD. COUNSEL OF THE ASSESSEE, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE LD. CIT (A) HAS CONSIDERED RECONCILIATION STATEMENT AND TRADING ACCOUNT PREPARED AT THE TIME OF SURVEY AND FOUND THAT IN FA CT THERE IS NO DIFFERENCE AT ALL. SOME STOCK RELATING TO SISTER CONCERN M/S. HANSA UDYOG W AS LYING WITH THE ASSESSEE AND THAT 9 WAS OF RS. 11 LACS OR ODD. FURTHER, IT IS SEEN THA T THE VALUATION HAS BEEN MADE ON THE BASIS OF TAG PRICE. THERE IS A DIFFERENCE IN TAG P RICE AND SALE PRICE. IT IS FURTHER SEEN THAT TRADING ACCOUNT OF M/S. HANSA PALACE ART FURNITURE WAS ALSO PREPARED ON THE DATE OF SURVEY AND AS PER THIS TRADING ACCOUNT OF M/S. HANS A PALACE ART FURNITURE AND AT THE PREMISES OF M/S. HANSA PALACE ART FURNITURE, THE ST OCK WAS FOUND OF RS. 11 LACS OR ODD. THIS FACT COULD NOT BE BROUGHT TO THE NOTICE OF SUR VEY PARTY AT THE TIME OF SURVEY IN CASE OF ASSESSEE. HOWEVER, THIS TRADING ACCOUNT WAS PRE PARED AT THE TIME OF SURVEY ONLY. THE LD. CIT (A) HAS TAKEN INTO CONSIDERATION THIS ASPEC T AND THEREAFTER RECONCILIATION STATEMENT PREPARED BY ASSESSEE AND FOUND THAT THERE WAS NO DIFFERENCE IN VALUATION OF STOCK. ALL THE BOOKS OF ACCOUNT WERE AUDITED AND M AINTAINED IN DUE COURSE OF TIME. ALL PURCHASES AND SALE VOUCHERS ARE VOUCHED. NOT A SING LE ITEM WAS FOUND WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNT. THEREFORE, IN OU R VIEW, IF DURING THE COURSE OF SURVEY THE RECONCILIATION STATEMENT COULD NOT BE PREPARED AND IT WAS PREPARED ON A LATER STAGE WHICH WAS SUPPORTED BY PROPER VOUCHERS AND BOOKS OF ACCOUNT, THEN IN OUR CONSIDERED VIEW, IT SHOULD HAVE BEEN ACCEPTED BY ASSESSING OFF ICER HIMSELF. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED AND MADE TRADING ADDITION ON ACCOUNT OF EXCESS STOCK AND ALSO ON ACCOUNT OF GP RATE. THE LD. CIT (A) HAS APPRECI ATED ALL THE FACTS IN DETAIL. FINDING OF LD. CIT (A) HAS BEEN TABULATED SOMEWHERE ABOVE IN T HIS ORDER WHICH REMAINED UNCONTROVERTED. THEREFORE, IN OUR CONSIDERED VIEW, THE ORDER OF LD. CIT (A) IS LIABLE TO BE CONFIRMED ON THIS ASPECT AND ACCORDINGLY WE CONFIRM THE SAME. 11. SECOND GROUND RELATES TO DELETING ADDITION OF R S. 4,37,438/- ON ACCOUNT OF GROSS PROFIT ON SALE OUT OF BOOKS. 10 12. THIS IS A CONSEQUENTIAL GROUND TO THE FIRST GRO UND OF THE DEPARTMENT. THE LD. CIT (A) DELETED THIS ADDITION ALSO BY OBSERVING THAT TH ERE WAS NO DIFFERENCE IN CLOSING STOCK AND THERE WAS NO SALE OUT OF BOOKS OF ACCOUNT. WE HAVE ALREADY CONFIRMED THE FINDING OF LD. CIT (A) IN RESPECT TO EXCESS STOCK. THEREFORE, NO DIFFERENCE REMAINS IN SALES AND ACCORDINGLY GP ADDITION MADE ON ACCOUNT OF UNRECORD ED SALES WAS ALSO LIABLE TO BE DELETED AND LD. CIT (A) WAS RIGHT IN DELETING THE S AME. ACCORDINGLY, WE CONFIRM THE FINDING OF LD. CIT (A) ON THIS ISSUE ALSO. 13. NEXT ISSUE RELATES TO DELETING THE ADDITION OF RS. 1,08,000/- CASH INTRODUCED IN PARTNERS CAPITAL ACCOUNT. 14. DURING THE YEAR, THE PARTNERS OF THE ASSESSEE F IRM INTRODUCED CASH IN THEIR CAPITAL ACCOUNT. THE ASSESSEE WAS REQUIRED TO PROVE THE SO URCE OF SOURCE INTRODUCED IN THE CAPITAL ACCOUNT. THE SOURCE OF CASH INTRODUCED IN THE CAPITAL ACCOUNT WAS EXPLAINED. HOWEVER, ASSESSING OFFICER WAS NOT SATISFIED. THERE FORE, HE MADE ADDITION OF RS. 1,08,000/-. IT WAS EXPLAINED THAT ONE OF THE PARTN ERS SHRI K.L. TAK HAS RECEIVED THE ANNUAL INCOME OF RS. 1,86,151/- FROM AGRICULTURAL A CTIVITY. HE IS A REGULAR INCOME-TAX PAYEE AND DECLARED HIS AGRICULTURAL INCOME IN HIS R ETURN AND OUT OF THIS AMOUNT, THE PARTNER HAS INTRODUCED A SUM OF RS. 50,000/- IN THE PARTNERSHIP CONCERN. SIMILARLY, SHRI C.P. TAK AND SHRI R.K. TAK, WHO HAVE ANNUAL INCOME OF RS. 1,40,000/- AND RS. 1,41,000/- RESPECTIVELY AND OUT OF THESE INCOME, TH EY INTRODUCED RS. 33,000/- AND RS. 25,000/- RESPECTIVELY IN THE PARTNERSHIP FIRM. THE Y ARE ASSESSED TO TAX AND THEIR DETAILS OF WITHDRAWAL AND SAVINGS FOR LAST SO MANY YEARS WERE ALSO FILED. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, TH E LD. CIT (A) NOTED THAT ASSESSEE HAS SUCCESSFULLY EXPLAINED THE SOURCE OF CASH INTRODUCE D BY THE PARTNER, THEREFORE, THERE WAS 11 NO JUSTIFICATION AT THE END OF THE ASSESSING OFFICE R TO MAKE THIS ADDITION. ACCORDINGLY, HE DELETED THE IMPUGNED ADDITION. 15. AFTER CONSIDERING THE ORDERS OF ASSESSING OFFIC ER AND LD. CIT (A), WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) WHO HAS ASC ERTAINED THE FACTUAL ASPECT THAT THERE WAS A CASH AVAILABILITY WITH THE PARTNERS FROM THEI R DISCLOSED SOURCES AND THE SAME HAS BEEN DEPOSITED IN THE PARTNERSHIP FIRM. ACCORDINGL Y WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE ALSO. 16. NEXT ISSUE RELATES TO DELETING ADDITION OF RS. 61,000/- ON ACCOUNT OF BOGUS AGRICULTURAL INCOME INTRODUCED. 17. THE ASSESSING OFFICER NOTICED THAT SHRI K.L. TA K AND SHRI R.K. TAK HAVE INTRODUCED RS. 51,000/- AND RS. 10,000/- RESPECTIVE LY IN THEIR CAPITAL ACCOUNT. IT WAS EXPLAINED THAT THE SAME WAS OUT OF AGRICULTURAL INC OME EARNED BY THE PARTNERS. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONTENTION AND A DDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. DETAILS OF AGRICULTURAL LAND HOLDING IN SHAPE OF KHATONI AND KHASRA WERE FILED BEFORE LD. CIT (A) AND IT WAS SUBMITTED THAT THEY D ECLARED AGRICULTURAL INCOME IN THEIR RESPECTIVE RETURN. 18. AFTER CONSIDERING THE SUBMISSIONS, AGAIN LD. CI T (A) FOUND THAT PARTNERS HAVE INTRODUCED THEIR CASH AMOUNT FROM THEIR DISCLOSED S OURCES AND, THEREFORE, ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION IN THE FIRM. 19. AGAIN WE FIND NO INFIRMITY IN THE FINDING OF LD . CIT (A). ACCORDINGLY, WE CONFIRM THIS ISSUE ALSO. 20. REMAINING ISSUE IS AGAINST DELETING THE ADDITIO N OF RS. 12,765/- ON ACCOUNT OF EXCESS DEPRECIATION. 12 21. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HA S CLAIMED 40% DEPRECIATION ON VIKRAM AUTO. AS PER INCOME-TAX RULES, THE DEPRECIA TION WAS FOUND ALLOWABLE @ 20%, THEREFORE, EXCESS DEPRECIATION WAS DISALLOWED. 22. IT WAS SUBMITTED BEFORE LD. CIT (A) THAT INCOME FROM HIRE HAS BEEN CLUBBED WITH THE TRANSPORT EXPENSES AND THE NET AMOUNT OF TRANSP ORT EXPENSES HAS BEEN SHOWN IN THE DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT. THUS TH E ASSESSEE HAS SHOWN THE HIGHER INCOME IN BOOKS OF ACCOUNT AND FINDING GIVEN BY THE ASSESS ING OFFICER THAT NO HIRE INCOME HAS BEEN SHOWN IN THE BOOKS OF ACCOUNT ARE TOTALLY INCO RRECT. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR HIGHER DEPRECIATION. 23. THE LD. CIT (A) AFTER ASCERTAINING THIS FACT AL LOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 24. AFTER CONTAINING THE ORDERS OF THE ASSESSING OF FICER AND LD. CIT (A), AGAIN WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) WHO HAS ASCERTAINED THE FACTUAL ASPECT THAT ASSESSEE HAS CREDITED THE HIRE RECEIPT OF RS. 32,21 8/- AND DEBITED EXPENSES OF RS. 47,782/- INCLUDING DEPRECIATION. THEREFORE, IT WAS WRONG ON THE PART OF THE ASSESSING OFFICER TO OBSERVE THAT ASSESSEE IS USING THE VEHICLE FOR BUSI NESS PURPOSES AND NOT FOR HIRING. THIS FINDING REMAINED UNCONTROVERTED. THEREFORE, WE CONF IRM THE ORDER OF LD. CIT (A) ON THIS ISSUE ALSO. 25. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 26. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 .12.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JODHPUR, 13 COPY FORWARDED TO :- THE ITO, WARD 1(2), UDAIPUR. M/S. HANSA PALACE ART FURNITURE, UDAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 08/JODH/2009) BY ORDER, AR ITAT JODHPUR.