M/s. Hi-Tech Sweet Water Technology Pvt.Ltd., V. The ACIT.,Cent.Circle-4, Surat

ITA 980/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5686 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 14-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: KK SHAH
• Keywords: Business income
• Section: 133A

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AT SURAT CAMP BEFORE S/SHRI T.K.SHARMA, JM AND D.C.AGRAWAL, AM HI-TECH SWEET WATER TECHNOLOGY (P) LTD., 4, GOPALNAGAR, NANDEDA CHAR RASTA, BARDOLI, DIST. SURAT. VS. ASSTT. CIT, CEN. CIR.4, SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI K. K. SHAH, AR REVENUE BY:- SMT. JYOTI LAXMI, SR. D.R. O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (1) THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING ADDITION IN RESPECT OF SHORTAGE OF STOCK OF RS.16,20,850/- AS FOUND IN THE SURVEY PROCEEDINGS AS PER PARA 4 OF THE APPEAL ORDER. (2) THE LD. CIT(A) FURTHER ERRED IN CONFIRMING ADDITION OF RS.1,19,995/- ON ACCOUNT OF NEGATIVE CASH BALANCE T HOUGH THE SAME WAS COVERED AGAINST UNDISCLOSED INCOME OF RS.3 ,00,000/- AS DISCLOSED IN THE RETURN OF INCOME AS PER PARA 10 OF THE APPEAL ORDER. (3) THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING ADDITION OF RS.45,000/- ON ACCOUNT OF UNACCOUNTED SALES AS PER PARA 13 OF THE APPEAL ORDER. ITA NO.980AHD/2008 ASST. YEAR :2004-05 2 (4) THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING ADDITION OF RS.7,31,600/- ON ACCOUNT OF UNACCOUNTED SERVICE CHA RGES AS PER PARA 13 OF THE APPEAL ORDER. (5) THE LD. CIT(A) FURTHER ERRED IN CONFIRMING ADDITION OF RS.50,000/- ON ACCOUNT OF UNACCOUNTED AMC AS PER PA RA 13 OF THE APPEAL ORDER. 2. THE LD. AR DID NOT PRESS GROUND NOS.3 & 5 AND HE NCE THEY ARE REJECTED AS NOT PRESSED. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF SALES, REPAIRING AND MAINTENANCE OF R.O. WATER PURIFIER PLANTS. THE SURVEY OPERATION UNDER SECTION 133A WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 10.3.2004. DURING THE C OURSE OF SURVEY IT WAS FOUND THAT THERE WAS A NEGATIVE CASH BALANCE OF RS. 4,69,955/- AND SHORTAGE OF STOCK OF RS.16,20,850/-. DURING THE SUR VEY PROCEEDINGS CERTAIN RECORDS WERE IMPOUNDED. THE ASSESSEE COMPAN Y MADE A DISCLOSURE OF RS.25 LACS IN THE PROFIT AND LOSS ACC OUNT. THE AO MADE ADDITION IN THE TOTAL INCOME IN RESPECT OF SHORTAGE OF STOCK, NEGATIVE CASH BALANCE, UNACCOUNTED SALES, ON ACCOUNT OF UNACCOUNT ED SERVICE CHARGES AND ON ACCOUNT OF UNACCOUNTED RECEIPTS FROM ANNUAL MAINTENANCE CONTRACTS (AMCS). 4. BEFORE US, ONLY THREE ISSUES SURVIVE WHICH ARE R ELATED TO ADDITION ON ACCOUNT OF SHORTAGE OF STOCK, ON ACCOUNT OF NEGA TIVE CASH BALANCE AND ON ACCOUNT OF UNACCOUNTED SERVICE CHARGES. THEY ARE DISPOSED OF AS UNDER:- SHORTAGE OF STOCK 5. DURING THE COURSE OF SURVEY PROCEEDINGS STOCK OF THE ASSESSEE WAS COUNTED AND VALUED WHICH WAS WORKED OUT AT RS.15,88 ,660/- AS AGAINST 3 VALUE OF STOCK DECLARED AT RS.32,09,510/- IN THE BO OKS OF ACCOUNT. THUS A SHORTAGE OF STOCK OF RS.16,20,850/- WAS FOUND. IT W AS EXPLAINED TO THE AO THAT THE PROFIT THEREON AT 20% MAY BE TAKEN AS I NCOME. THE REASONS FOR SHORTAGE WAS EXPLAINED ON THE BASIS THAT WHILE VALUING PHYSICAL INVENTORY MARKET RATE HAS BEEN ADOPTED AS AGAINST C OST PRICE RECORDED IN THE BOOKS. SECONDLY THE STOCK AS PER BOOKS WAS WORK ED OUT BY ASSUMING 39% OF DIRECT EXPENSES. ACCORDINGLY THE ASSESSEE AT HIS OWN DECLARED AN ADDITIONAL INCOME OF RS.3,00,000/- IN PROFIT AND LO SS ACCOUNT ON ACCOUNT OF PROFIT ON SHORTAGE OF STOCK PRESUMED TO HAVE BEE N SOLD. THE AO, HOWEVER, DID NOT AGREE AND PROPOSED ENTIRE ADDITION OF RS.16,20,850/-. THE ENTIRE AMOUNT WAS TREATED AS SALES AND WAS ADDE D IN THE TRADING ACCOUNT RESULTING IN THE ADDITION TO PROFITS TO THA T EXTENT. 6. LD. CIT(A) CONFIRMED THE ACTION OF THE AO ON THE GROUND THAT PURCHASES RELATING TO THESE SALES ARE ALREADY RECOR DED IN THE BOOKS. 7. AGAINST THIS, LD. AR SUBMITTED THAT ONLY PROFIT ON SUCH DEFICIENCY IN STOCK SHOULD BE CONSIDERED AS INCOME AND NOT ENT IRE SHORTAGE OF STOCK AS INCOME. 8. ON THE OTHER HAND, LD. DR SUBMITTED THAT IF TRAD ING IS RECAST THEN, THE DEFICIENCY IN STOCK IF SOLD CAN ONLY BE CONSIDE RED IN THE SALES AND ACCORDINGLY PROFIT TO THE EXTENT OF ENTIRE SHORTAGE WILL INCREASE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW WHEN ASSESSEE IS FOUND TO HAVE SHORTAGE IN STOCK AND WHICH ARE TREATED AS SALES OU TSIDE THE BOOKS THEN THE BOOKS CANNOT BE RELIED UPON AND CAN BE REJECTED AND PROFIT CAN BE ESTIMATED UNDER SECTION 145(3). IN VIEW OF THIS, TO TAL SALES OF THE ASSESSEE 4 SHOULD BE WORKED OUT AND PROFIT THEREON SHOULD BE E STIMATED. THE SHORTAGE IN STOCK WOULD ADD TO THE SALES AND REASON ABLE GP RATE SHOULD BE APPLIED TO WORK OUT THE PROFITS. THE ASSESSEE HAS S HOWN A GP RATE OF 23%. CONSIDERING THE FACT THAT ACCOUNTS ARE NOT RELIABLE WE DIRECT THE AO TO APPLY THE GP OF 25% ON TOTAL SALES DURING THIS YEAR AND WORK OUT THE ADDITION ACCORDINGLY. THIS ADDITION SHOULD BE TELES COPED TO THE SUM OF RS.3 LACS ALREADY DECLARED BY THE ASSESSEE IN THE P ROFIT AND LOSS ACCOUNT. THE DIFFERENCE ALONE SHOULD BE ADDED UNDER THIS HEA D. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 10. THE SECOND ADDITION RELATES TO ADDITION ON ACCO UNT OF SHORTAGE OF CASH. 11. THE LD. AO HAD MADE THE ADDITION OF RS.1,19,995 /- ON ACCOUNT OF SHORTAGE OF CASH WHICH HAS BEEN CONFIRMED BY LD. CI T(A). 12. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. IN OUR CONSIDERED VIEW NO ADDITION ON ACCOUNT OF SHORT AGE OF CASH CAN BE MADE. THE LD. DR COULD NOT BRING OUT ANY AUTHORITY IN SUPPORT OF THE PROPOSITION THAT SHORTAGE OF CASH CAN BE TREATED AS INCOME OF THE ASSESSEE. ACCORDINGLY THIS ADDITION IS DELETED. THIS GROUND I S ALLOWED. UNACCOUNTED SERVICE CHARGES 13. THE AO FOUND A NOTE BOOK AS PER SL. NO.3 OF ANN EXURE-A IMPOUNDED BY THE OFFICER WHICH CONTAINED DETAILS OF SERVICE CHARGES ON R.O. INSTRUMENT RECEIVED BY THE ASSESSEE DURING THE PERIOD 1.1.2004 TO 9.3.2004. THIS WAS WORKED OUT AT RS.1,43,320/-. THI S WAS EXTRA POLATED FOR ENTIRE YEAR AND TOTAL UNACCOUNTED SERVICE CHARG ES RECEIVED BY THE ASSESSEE WAS ESTIMATED AT RS.7,31,600/-. THE LD. CI T(A) CONFIRMED THE 5 ADDITION ON THE GROUND THAT ABOVE RECEIPTS REPRESEN TED UNACCOUNTED SERVICE CHARGES AND MAINTENANCE CONTRACT INCOME WHI CH IS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. 14. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE TO INTERFERE I N THE ORDER OF LD. CIT(A). THE REASONS ARE THAT THESE ARE ADMITTEDLY S ERVICE/MAINTENANCE CHARGES RECEIVED BY THE ASSESSEE, WHICH ARE NOT ACC OUNTED FOR. THE SURVEY OFFICERS HAD FOUND EVIDENCE FOR PART OF THE MONTH. THEY HAVE ESTIMATED SUCH INCOME FOR WHOLE OF THE YEAR. IN OUR CONSIDERE D VIEW THE ESTIMATE MADE BY THE OFFICERS ARE REASONABLE AND, THEREFORE, CONFIRMED. THUS THIS GROUND OF THE ASSESSEE IS DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 02/07/2010 SD/- SD/- (T.K. SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 02/07/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD