PRINCIPAL COMMISSIONER vs. M/S.SARAVANA SELVARATHANAM

TCA/297/2017HC Madras06 December 2019Bench: Hon`ble Dr Justice VINEET KOTHARI4 pages

AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The dismissal was based on a Circular Instruction issued by the Central Board of Direct Taxes (CBDT) vide Circular No. 17/2019 dated August 8, 2019. This circular stipulates that appeals shall not be filed or pursued by the Department before the High Court if the tax effect does not exceed Rs. 1,00,00,000/- (Rupees One Crore). In the present case, the tax effect was stated to be less than this monetary limit. Therefore, the appeal was dismissed as withdrawn. The substantial questions of law were kept open for determination in appropriate cases. No costs were awarded.

What were the facts?

The Principal Commissioner of Income Tax (PCIT), Chennai, appealed against an order of the Income Tax Appellate Tribunal (ITAT), Chennai, dated August 5, 2016, concerning Assessment Year 2012-2013. The appeal was filed by the Revenue against M/s. Saravana Selvarathnam Retail Pvt. Ltd. The core of the dispute involved the tax treatment of stock shortages. The ITAT's order, which the Revenue challenged, had determined that only the gross profit on the sale of the missing stock should be added to the assessee's income, not the entire value of the stock. The appeal was listed for hearing before the High Court of Judicature at Madras.

What were the issues?

1. Whether, in cases of stock shortage, the entire value of the stock found short should be added to income, or only the gross profit on the presumed undisclosed sale, considering the presumption of undisclosed sales not recorded in the books of accounts? (Question of law) 2. Whether the Tribunal erred in law by holding that only the gross profit on the sale of the missing stock of silver and diamond should be added to income, even though the cost of purchase of these items was claimed as expenditure in the assessee's books? (Question of law) Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The Revenue argued that in cases of stock shortage, there is a presumption of undisclosed sales, and the entire value of the missing stock should be added to income. They further contended that the ITAT erred in limiting the addition to only the gross profit, especially when the cost of the missing items had been claimed as expenditure.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

Judgt. dt. 6.12.19 in T.C.A.297/17 PCIT v. M/s.Saravana Selvarathanam 1/4 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 6.12.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARI AND THE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case (Appeal) No.297 of 2017 Principal Commissioner of Income Tax 1, No.108, Mahatma Gandhi Road, Chennai 600 034. Appellant Vs. M/s.Saravana Selvarathnam Retail Pvt. Ltd., No.14, Ranganathan Street, T.Nagar, Chennai 600 017. PAN: AAK CS 2680 M Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, 'B' Bench, Chennai, dated 5.8.2016 made in ITA No.2235/Mds/2015. For Appellant : Mr.T.R.Senthilkumar Senior Standing Counsel For Respondent : Mr.R.Sivaraman J U D G M E N T (Delivered by DR.VINEET KOTHARI,J) This Tax Case Appeal has been filed by the Revenue, calling in question the correctness of the order passed by the Income Tax Appellate Tribunal, 'B' Bench, Chennai, dated 5.8.2016 made in ITA No.2235/Mds/2015, for the Assessment Year 2012-2013, by raising http://www.judis.nic.in Judgt. dt. 6.12.19 in T.C.A.297/17 PCIT v. M/s.Saravana Selvarathanam 2/4 the following substantial questions of law: "(i) In case of shortage of stock, when there is a presumption of undisclosed sale not shown in the books of accounts, whether the entire value of the stock found short is to be added to the income or only the gross profit in respect of the undisclosed sale? ii) Whether the Tribunal erred in law in holding that in case of shortage of stock, only the gross profit on the sale of the stock of silver and diamond found short was to be added to the income even if the cost of purchase of such silver and diamond items had admittedly been claimed as expenditure in the books of the assessee?" 2. When the matter is taken up for hearing, learned Senior Standing Counsel brought to our notice the Circular instruction issued by the Central Board of Direct Taxes vide Circular No.17/2019 dated 8th August 2019, wherein, it is stipulated that appeals shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). 3. In the instant case, the tax effect is said to be less than the monetary limit imposed and therefore, the Appeal filed by the Revenue http://www.judis.nic.in Judgt. dt. 6.12.19 in T.C.A.297/17 PCIT v. M/s.Saravana Selvarathanam 3/4 is dismissed, as withdrawn, keeping open the substantial questions of law for determination in appropriate cases. No costs. (V.K.,J.) (R.S.K.,J.) 6.12.2019 Index : Yes/No Internet : Yes/No ssk. To 1. Principal Commissioner of Income Tax 1, No.108, Mahatma Gandhi Road, Chennai 600 034. 2. Income Tax Appellate Tribunal, 'B' Bench, Chennai. 3. The Assistant Commissioner of Income Tax, Central Circle IV(2), Chennai. http://www.judis.nic.in Judgt. dt. 6.12.19 in T.C.A.297/17 PCIT v. M/s.Saravana Selvarathanam 4/4 DR.VINEET KOTHARI, J. and R.SURESH KUMAR, J. ssk. T.C.(A) No.297 of 2017 6.12.2019. http://www.judis.nic.in

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