Vasu Pharma Distributors, Hyderabad V. Asst. Commissioner of Income Tax, Circle-4(1), Hyderabad

MA 27/Hyd/2019

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4772 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 24-05-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 13-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V RAJITHA
• Keywords: Reopening of assessment; Principle of natural justice
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER S. NO. M.A. NO. AY APPELLANT RESPONDENT 1 27/H/19 (IN ITA NO. 16 22 /H/17 ) 20 10 - 11 VASU PHARMA DISTRIBUTORS, HYDERABAD. PAN AACFV3660M ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 4(1), HYDERABAD 2 28/H/19 (IN ITA NO. 16 23 /H/17 ) 2010 - 11 VASU AGENCIES, HYDERABAD. PAN AABFV3596M - DO - 3 29/H/19 (IN ITA NO. 16 24 /H/17 ) 2010 - 11 VENKATA SAI AGENCIES, HYDERABAD PAN AACFV0668B - DO - ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : S MT. V. RAJITHA DATE OF HEARING : 0 3 / 05 /201 9 DATE OF PRONOUNCEMENT : 31 / 05 / 201 9 O R D E R PER S. RIFAUR RAHMAN, A.M : TH E S E MISCELLANEOUS APPLICATION S ARE FILED BY THE ASSESSEE U/S 254(2) OF THE INCOME TAX ACT SEEKING RECTIFICATION/MODIFICATION OF T HE O RDER OF THE TRIBUNAL DATED 29 / 11 /201 8 IN ITA NO S . 1622 TO 1624/HYD/2017. 2. IN THE MAS, THE ASSESSEE STATED AS UNDER: 1. THE GROUNDS PERTAINING TO REOPENING, EVEN THOUGH, ARGUED ARE NOT ADJUDICATED. 2 . WHILE ACCEPTING THAT THE ISSUES REALLY PERTAINS TO AY 2009 - 10 AT THE TIME OF HEARING, THE ITAT HAS ERRONEOUSLY TOOK UP A NEW ISSUE WITHOUT GIVING AN OPPORTUNITY TO APPELLANT WHILE DISM ISSING THE APPEAL OF THE ASSESSEE . 2.1 THE ASSESSEE STATED THAT I N THE INTEREST OF JUSTICE AND FAIR PLAY, T THESE ARE MISTAKES APPARENT FROM RECORD IN THE ORDER OF THE TRIBUNAL 2 M.A. NOS. 27 TO 29 /HYD/1 9 VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. AND THE HON'BLE TRIBUNAL MAY PASS SUCH ORDERS WHICH IT MAY DEEM FIT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES NARRATED ABOVE. IN VIEW OF THE SAME, IT IS REQUESTED THAT THE IMPUGNED ORDER MAY BE RECALLED AND REHEARD IN THE INTEREST OF JUSTICE. 3. REFERRING TO THE PARA 6.1 OF THE TRIBUNAL ORDER ( 6.1. AS REGARDS GROUND NOS. 2 TO 5 REGARDING REOPENING OF ASSESSMENT U/S 147, THE LD. AR OF THE ASSESSEE HAS NOT ARGUED ON THESE GROUNDS AND, ACCORDINGLY, THE SAME ARE DISMISSED. ) , THE LD. AR. O F THE ASSESSEE SUBMIT TED THAT WHILE PROVIDING THE DATA SHEET IN REL ATION TO THE FACTS OF THE CASE, THE GROUNDS RELATING TO THE REOPENING OF ASSESSMENT WERE DISCLOSED AND ALSO PRESENTED THE FACTS RELATING TO THE ISSUE OF NOTICE U/ S 148, DATE OF COMPLETION OF ORIGINAL ASSESSMENT, REASONS FOR REOPENING, OBJECTIONS TO REOPEN ING OF ASSESSMENT, CLOSING STOCK AS ON 31/03/2009 AND OPENING STOCK AS ON 01/04/2009 WERE TABULATED AND FILED. 3.1 FURTHER, HE SUBMIT TED THAT THE AUTHORIZED REPRESENTATIVE DID MAKE A SUBMISSION THAT THE REOPENING OF ASSESSMENT U/ S 147 WAS NOT VALID, AS THE TRADING AND PROFIT & LOSS ACCOUNT AS DISCLOSED WAS ACCEPTED IN AN ASSESSMENT U/ S 143(3). HOWEVER, THE HON'BLE TRIBUNAL INADVERTENTLY HAS STATED THAT THE APPELLANT DID NOT PRESS THE GROUNDS RELATING TO REOPENING OF ASSESSMENT. THIS NEEDS MODIFICATION A ND ADJUDICATION OF GROUNDS. 3.2 THE LD. AR REFERRED PARAS 7 AND 7.1 OF ORDER, WHICH ARE AS UNDER: 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT ASSESSEE HAS DECLARED RS. 35 LAKHS AS ADDITIONAL INCOME IN THE AY 2 009 - 10 IN CONSEQUENCE OF SURVEY PROCEEDINGS. THIS ADDITIONAL INCOME WAS OFFERED BY ADDING IN THE CLOSING STOCK AT RS. 1,56,03,922/ - . THE SAME WAS ACCEPTED BY THE DEPARTMENT. ACCORDINGLY, THE ASSESSMENT WAS COMPLETED. ASSESSEE ACCORDINGLY CARRIED FORWARD TH E STOCK AT RS. 1,56,03,922/ - AS OPENING STOCK FOR THE CURRENT AY 2010 - 11. ASSESSEE SUBMITTED BEFORE THE AO THAT AS 3 M.A. NOS. 27 TO 29 /HYD/1 9 VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. PER ACCOUNTING PROCEDURE, IT HAS TO CARRY FORWARD THE STOCK AS PER EARLIER FINANCIAL STATEMENT. THIS IS AS PER REGULAR NORMS. AO OBSERVED THA T ASSESSEE IS SETTING OFF THE PROFIT DISCLOSED IN THE EARLIER YEAR AND HENCE HE DISALLOWED THE STOCK VALUE TO THE EXTENT OF RS. 35 LAKHS. 7.1 THE QUESTION BEFORE US IS, WHETHER THE ADDITIONAL INCOME DISCLOSED IN THE EARLIER AY IN THE STOCK WILL HAVE IMPA CT IN THE CURRENT AY I.E. 2010 - 11. WE CONSIDERED THE SUBMISSIONS AND IN OUR VIEW, THE ASSESSEE HAS INFLATED THE CLOSING STOCK BY RS. 35 LAKHS AND DECLARED THE ADDITIONAL INCOME IN AY 2009 - 10. NORMALLY, THE ADDITIONAL INCOME WILL BE DECLARED BY INCREASING THE GROSS REVENUE, BUT, IN THE GIVEN CASE, ASSESSEE CHOSE TO INCREASE THE CLOSING STOCK. IT IS FINE FOR THE AY 2009 - 10. BUT, WHEN IT COMES TO AY 2010 - 11, THE ASSESSEE CARRIED FORWARD THE STOCK AND RECORDS THE SAME AS OPENING STOCK. IT INCLUDES THE INFLATED VALUE OF RS. 35 LAKHS. WHEN THE P&L ACCOUNT IS DRAWN FOR THE CURRENT AY, THE ASSESSEE WILL RECORD ACTUAL STOCK WITHOUT ANY ARTIFICIAL VALUE IN THE CLOSING STOCK. IN THE RESULT, THE ARTIFICIAL VALUE INFLATED IN THE OPENING STOCK WILL BECOME FICTITIOUS EXPE NDITURE FOR THE CURRENT AY TO THE EXTENT OF RS. 35 LAKHS. THIS EXPENDITURE IS NOT REAL BUT NOT RELEVANT FOR THE CURRENT AY I.E. 2010 - 11. THEREFORE, IN OUR CONSIDERED VIEW, THE ARTIFICIAL INCREASE IN THE OPENING STOCK WILL INCREASE THE EXPENDITURE OF THE CU RRENT AY AND WILL HAVE IMPACT ON THE ACTUAL PROFITABILITY AND TAXABLE INCOME OF THE ASSESSEE. THIS IS BECAUSE, THE VALUE INCLUDED IN OPENING STOCK HAS NO PHYSICAL VALUE AND IT CANNOT BE TRANSACTED. ONLY OPTION IS TO DECLARE ACTUAL STOCK IN THE CLOSING STOC K AND IT RESULTS IN THE REDUCTION OF STOCK WHICH INDIRECTLY WRITING OFF OF THE VALUE OF STOCK. THEREFORE, THE VALUE INCLUDED IN THE OPENING STOCK SHOULD BE ELIMINATED TO ARRIVE AT THE REAL PROFIT OF THE ASSESSEE. HENCE, DISALLOWANCE MADE BY THE AO IS PROPE R. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE DISMISSED. 3.3 THE LD. AR SUBMITTED THAT THE OBSERVATION MADE BY THE HON'BLE ITAT ABOUT INFLATION OF EXPENDITURE IS NOT ARISING OUT OF THE ORDERS OF AO/CIT(A). THE STAND TAKEN BY AO WAS THAT STOCK WAS INFLATED AS OPENING STOCK, WHEREAS THE LD. CIT(A) HAS CONFIRMED THE ACTION OF AO BY STATIN G 'ADDITIONAL INCOME OFFERED DURING THE SURVEY CANNOT BE RE - CATEGORISED AS STOCK'. IT WAS THE CONTENTION OF ASSESSEE THAT THE ADDITION TO STOCK HAS HAPPENED IN A Y 2009 - 10 AND NOT IN AY 2010 - 11 AND THE PROFIT DECLARED FOR THIS YEAR IS ACTUAL AND THERE WAS NO DECREASE OF ANY STOCK OR PROFIT. 4 M.A. NOS. 27 TO 29 /HYD/1 9 VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. 3.4 FURTHER, HE SUBMITTED THAT THE CONCEPT OF OPENING/ CLOSING STOCK AS 'EXPENDITURE' IS NEW. GENERALLY OPENING STOCKS AND CLOSING STOCKS ARE DEBITS AND CREDITS TO P&L ACCOUNT. IT IS GENERALLY UNDERSTOOD IN ACCOUNTING PARLANCE THAT ALL DEBITS ARE NOT EXPENDITURES AND ALL CREDITS ARE NOT INCOMES/PROFITS. ONLY COST OF GOODS SOLD, BEING A TRADING FIRM, IS AN EXPENDITURE. THUS, THE ITAT HAS ERRONEOUSLY CONSIDERED THE OPENING STOCK AS EXPENDITURE. THE FACT THAT CORRESPONDI NG STOCK WAS INCLUDED IN CLOSING STOCK HAS MISSED THE ATTENTION OF THE BENCH AND THERE IS NO IMPACT ON ACTUAL PROFITABILITY IN THIS YEAR. APPELLANT SUBMITS THAT THE ITAT HAS TAKEN A NEW GROUND WHILE CONFIRMING THE ORDER AND ASSESSEE SUBMISSIONS ARE NOT CON SIDERED AT ALL. THE ISSUE OF INFLATION OF EXPENDITURE BEING A NEW ISSUE AND HAS NOT BEEN CONFRONTED TO ASSESSEE, THUS VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. 3. 5 LD. AR SUBMITTED THAT THE AUTHORISED REPRESENTATIVE OF THE APPELLANT DURING THE COURS E OF THE HEARING HAS BROUGHT OUT THE FACTS RELATING TO THE ADOPTION OF CLOSING STOCK OF 2009 - 10 AS OPENING STOCK OF 2010 - 11 AND THAT IF THERE WAS ANY ERROR OR MISTAKE IT FELL IN THE ASSESSMENT YEAR 2009 - 10 AND NOT IN THE ASSESSMENT YEAR 2010 - 11. THIS WAS A LSO NOTED AND ACCEPTED BY THE HON'BLE TRIBUNAL AT THE TIME OF HEARING. THUS, THERE IS A MISTAKE APPARENT FROM RECORD (AN AFFIDAVIT BY THE COUNSEL IS ENCLOSED). 3.6 IN VIEW OF THE A BOVE SUBMISSIONS, THE LD. AR SUBMITTED THAT THE IMPUGNED ORDER OF THE TRIBUNAL MAY BE RECALLED AND REHEARD IN THE INTEREST OF JUSTICE. 4. ON THE OTHER HAND, LD. DR SUBMITTED THAT THERE IS NO MISTAKE APPARENT ON RECORD AND HE AGREED THAT THE FINDINGS ARE RELEVANT FOR THE CASE IN HAND. 5 M.A. NOS. 27 TO 29 /HYD/1 9 VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. 5. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . THE ASSESSEE HAS COME UP ON MA FOR THE TWO ISSUES; A) GROUND ON REOPENING WAS ARGUED BY LD. AR AND BENCH HAS NOT ADJUDICATED. B) ITAT H AS ERRONEOUSLY TOOK UP NEW ISSUE WITHOUT GIVING AN OPPORTUNITY TO ASSESSEE WHILE ADJUDICATING THE ISSUE. 5.1 WITH REGARD TO FIRST ISSUE, WE CHECKED OUR RECORDS AND FOUND THAT LD. AR HAS ARGUED THE ISSUE BRIEFLY AND NOT MADE ELABORATE SUBMISSION, MAINLY FOC USS ED ON THE MERIT OF THE CASE. AFTER CONSIDERING THE AFFIDAVIT OF THE LD. AR, IN OUR VIEW, FOR THE SAKE OF NATURAL JUSTICE, ASSESSEE DESERVES ONE MORE OPPORTUNITY. THEREFORE, WE ARE INCLINED TO RE - FIX THIS ISSUE FOR REHEARING TO BOTH THE PARTIES FOR THE LIMITED PURPOSE OF SUBMISSIONS ON REOPENING OF THE ASSESSMENT. 5.2 WITH REGARD TO ISSUE ON MERIT, WE HAVE ALREADY ADJUDICATED THIS ISSUE, MAY BE IT WAS NOT UNDERSTOOD BY THE PARTIES, THIS ISSUE IS NOT NEW BUT CULMINATED OUT OF THE BOOKS OF ACCOUNT PREPA RED BY ASSESSEE. IN ORDER TO CLARIFY THE SAME, WE EXPLAIN THE SAME AS UNDER: ASSESSEE HAS ACTUAL STOCK ( SAY A) OF VALUE AND MAKES AN ADJUSTMENT (SAY B ) BY INFLATING THE STOCK. THEREFORE, THE CLOSING STOCK OF AY 2009 - 10 IS (A+B). THE SAME STOCK IS OPENING STOCK FOR AY 2010 - 11. IN THE AY 2010 - 11, ASSESSEE DECLARES THE ACTUAL CLOSING STOCK (SAY C). WHEN IT IS PRESENTED IN THE P&L A/C FORM, IT WILL BE : P&L A/C OPENING STOCK A+B SALES 100 ACTUAL EXPENDITURE 80 CLOSING STOCK C PROFIT 20 B CONSIDER THE ACTUAL STOCK OF OPENING & CLOSING I.E. A&C ARE SAME. THE INFLATED STOCK OF OPENING I.E. B IS AN ADDITIONAL 6 M.A. NOS. 27 TO 29 /HYD/1 9 VASU PHARMA DISTRIBUTORS AND OTHERS, HYD. EXPENDITURE A BS O R B ED IN THE AY 2010 - 11, WHICH WILL REDUCE THE ACTUAL PROFIT FOR THE AY 2010 - 11 AND ULTIMATELY REDUCING THE TAXABLE INCOME OF THE ASSESSEE FOR THE AY 2010 - 11. THEREFORE, WE HAVE EXPLAINED THE ISSUE OF MERIT IN OUR ORDER. 5.3 ACCORDINGLY, WE REFIX THE CASE FOR LIMITED PURPOSE OF ADJUDICATING ON REOPENING OF THE ASSESSMENT. THE REGISTRY IS DIRECTED TO FIX THE CASE FOR REHEARING IN DUE COURSE AND INFORM THE PARTIES ACCORDINGLY. 6 . IN THE RE SULT, ALL THE THRE E M A S ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST MAY , 201 9 SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 31 ST MAY , 201 9 KV C OPY TO: - 1) M/S VASU PHARMA DISTRIBUTORS, 2) VASU AGENCIES, AND 3) VENKATA SAI AGENCIES, C/O E. SAPTHARISHI & CO, CAS, 3 - 10 - 20/9/3, GOKHALENAGAR, RAMANTHAPUR, HYDERABAD 500 013. 4 ) AC IT, CIRCLE 4 (1) , HYDERABAD. 5 ) CIT(A) 1, HYDERABAD. 6 ) PR. CIT - 1 , HYD. 7 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 8 ) GUARD FILE