SMT. RITU AJMERA,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, JAIPUR

Briefly stated, the facts of the case are that the assessee is in business of trading of pharmaceutical items both on wholesale as well as retail basis. The assessee filed her return of income on 28.9.2012 declaring total income at Rs. 8,70,320/- and the Assessing officer completed the assessment u/s 143(3) r.w.s. 153B(b) of the Act vide order dated 13.3.2014 at a total income of Rs. 11,67,580/-.

During the course of survey u/s 133A conducted at the business premises of the assessee on 8.6.2011, stock was physically counted and valued by the survey team at Rs. 1,10,87,117/-, however, the survey team did not work out the stock as per books as on the date of survey. During the course of assessment proceedings, the assessee was asked to submit book stock as on 8.6.2011 and explain the difference between the stock found and book stock. The A/R of the assessee desired copies of stock inventories for verification which was provided to him. Vide reply dated 17.10.2013, the A/R submitted that book stock as on the date of survey was Rs. 19,97,54,11/-. For value of stock found and valued by the survey team, the A/R submitted that inventories were not properly valued and totalled. He pointed out various defects in the stock inventories prepared by the survey team. Specifically he pointed out that valuation was done on the basis of MRP instead of actual cost price, various items in the inventory left without any valuation and many items of high value were counted and valued on lump sum/estimate basis rack wise instead of actual counting and correct valuation. The A/R furnished the assessee’s own working of valuation of physical stock found at Rs 1,67,75,411 as against the book stock of Rs 1,99,71,757. The A/R was again asked to justify the difference in stock and why the short stock may not be treated as undisclosed sales and profit may be estimated accordingly.

The A/R of the assessee replied, vide letter dated 25.11.2013, that there was no shortage of stock. In fact, stock taking was grossly defective as the inventory was taken on estimation without properly counting all the items, valuation was made on the basis of MRP which is more than the real cost price and the difference ranges from 10% to 70% depending on item to item. The calculation/valuation of stock was made in letter dated 17.10.2013 on the basis of 25% difference and if this difference is taken at 15% there would be only a nominal difference in the stock. The A/R thus requested that no addition is justified on this issue.

The claim of the A/R was considered by the Assessing officer but not found convincing in its entirety. As per Assessing officer, it is correct that valuation was got done on the basis of MRP and also various items were counted on the basis of estimation of items rack wise, but all these defects must have been pointed out by the assessee at the time of survey itself. More over, the A/R of the assessee himself has valued the stock inventory as per his convenience in his letter dated 17.10.2013 and if the difference is there, it was required to be explained with specific instances but he has failed to do so. Under such circumstances, the claim/argument of the A/R was not accepted and gross profit on short stock of Rs 34 Lacs is estimated at current GP rate of 6.39% and an addition of Rs 217,260 was made in hands of the assessee.

On appeal, the ld CIT(A) has upheld the findings of the Assessing officer stating that the valuation of stock was done by the assessee herself in presence of two independent witnesses.

During the course of hearing, the ld. AR reiterated the submissions made before the lower authorities and our reference was drawn to the submission dated 17.10.2013 filed during the course of assessment proceedings, wherein it was stated as under:-

Per contra, the ld. DR relied on the findings of the lower authorities. It was submitted that the assessee has been provided adequate opportunity by the Assessing officer to explain the difference in stock and where as per the assessee’s own working, the short stock of Rs 34 lacs has been determined by the Assessing officer and on which gross profit rate has been applied, there is no infirmity in the order of the Assessing officer which has rightly been confirmed by the ld CIT(A).

We have heard the rival contentions and perused the material available on record. The survey team has valued the physical stock at Rs 1,10,87,117 at the time of survey which was challenged by the assessee during the assessment proceedings. Basis the review of the stock inventory list prepared at the time of survey, the assessee determined the value of inventory at Rs. 2,23,67,214/-(on MRP basis) and taking average difference between the MRP and the cost @ 25%, determined the value of the inventory at Rs 1,67,75,411. Further, the assessee herself determined the stock as per books of accounts as on the date of survey at Rs 1,99,71,757. The Assessing officer, after considering the explanation and submission of the assessee, accepted the value of physical stock at the time of survey at Rs 1,67,75,411 and the stock as per books of accounts as on the date of survey at Rs 1,99,71,757. In other words, the Assessing officer accepted the working and the explanation of the assessee (and has not gone by the valuation carried out by the survey team) and basis the same, where he has held that physical stock is less than the book stock by Rs 34 lacs, which should actually be Rs 31,96,346 (Rs 1,99,71,757 less Rs 1,67,75,411), we donot see any infirmity in the order of the Assessing officer. The argument of the ld AR that instead of 25%, where 15% average variation is taken, there would not have been any difference cannot be accepted for the reason that the assessee was duly provided the opportunity by the Assessing officer to explain the difference and thereafter, even before the ld CIT(A) and before us, no such working is submitted to support the 15% average variation. The physical stock being less than the book stock effectively means out of book sales to the extent of Rs 31,96,346 and applying gross profit so declared by the assessee @ 6.39%, the addition comes to Rs 204,246 (as against Rs 217,260 determined by the Assessing officer) which is hereby confirmed.