COMMISSIONER OF INCOME TAX, DELHI-VIII vs. PROMILA GROVER

IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 292/2013 . COMMISSIONER OF INCOME TAX, DELHI-VIII..... Appellant . Through Mr. Abhishek Maratha, Sr. Standing Counsel with Ms. Anshul Sharma, Advocate. . versus . . . PROMILA GROVER ..... Respondent . Through Mr. Nageshwar Rao with Mr. Shailesh Kumar, Advocates. . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE SANJEEV SACHDEVA . O R D E R . 17.07.2013 . . . 1. Revenue has preferred this appeal which relates to Assessment Year 2003-04, impugning the order dated 27.07.2012 of the Tribunal on the ground of perversity. It is submitted that the Assessing Officer had rightly made addition of Rs.1.25 crores, on the basis of statement of the assessee at the time of survey that she was not in a position to reconcile the stock physically found with the stock mentioned in the Stock Register/Books of Account. No other issue is argued before us. . 2. The only question therefore is whether the decision of the Tribunal is perverse. At this stage, we note that the Commissioner of Income Tax (Appeals) had partly allowed the appeal of the assessee and had deleted addition in respect of supplies made by thirteen traders, who had appeared before the Assessing Officer. Thus two cross-appeals were filed by the appellant and the respondent/assessee. . 3. The respondent/assessee was subjected to the survey operations under Section 133A of the Income Tax Act, 1961 on 14.02.2003 in the office-cum-factory premises at 363, Okhla, New Delhi and also at her residence at B-9/13, Vasant Vihar, New Delhi. At the time of survey, the respondent/assessee had agreed to surrender Rs.1.25 crores as she was unable to reconcile the figures relating to the stock i.e. raw materials and stock found at the time of inventory with entries in the books. It would be important to refer to question No.14 and the answer given by the assessee to the said question at the time of survey. The same reads as under:- . ?Q.14 The closing stock as per the inventory prepared by the Survey team in the cost price quoted by you comes to value of Rs.61,89,397/- of raw material and the stock of Rs.70,24,390/- in the guise of semi finished goods and good of Rs.29,65,000/- in the guise of semi finished goods but the trading account drawn by you as per your books of accounts as on date shows a closing stock of Rs.30,88,777/-. After the benefit of G.P. on finished goods as shown by you in the proceeding year, the value of finished goods remains at Rs.23,75,000/-. Thus, the total value of closing stock as per the physical inventories comes to Rs.1,55,88,787/- whereas the value of stock as per the trading account drawn by you as per your books comes to Rs.30,88,777/-. Hence there exists a difference of Rs.1,25,00,010/-. Please explain the difference? . . . Ans. Yes I agree that there exists a difference in the stock of Rs.1,25,00,010/-. Though the difference is bound to exist in a business . of this kind. However, keeping in view the magnitude of difference, I offer as this as my additional income for the current financial year and I offer a cheque of Rs.39,37,500/- towards the advance tax on this additional income declared subject to the condition no penalty and prosecution proceedings be launched against me. . Cheque No. Amount Bank name . 160503 Rs.39,37,500/- Corporation Bank, GK-II, New Delhi.? . . . 3 After the survey, the respondent/assessee had written letter dated 20.02.2003, which was received in the Office of the Commissioner of Income Tax, Delhi - VIII on 27.02.2003 stating that the entries in the Books of Accounts were correct and proper and she was forced into making and admitting the discrepancy. She had protested against the survey in her residential premises, which was not a part of the office premises but this was ignored. The letter gives details of the entire manufacturing process and had stated that bills were raised after the stock were received, checked and approved. She gave details of the beading expenses and stitching expenses for which bills were received subsequently. In the letter, she had stated as under:- . - M/s Inter ? continental Merchandise purchases silk fabric in bulk. . - The said fabric is issued to various beaders who append ?Moti?, ?Sitara? and other ?Beads? on the fabric as per the designs supplied by us. . - On beading in accordance with the designs, the said fabric is cut into pieces and shipped back to us. . - On receipt of these beaded pieces, a challan for the number of pieces so received is issued. . - Thereafter, these cut-pieces, after thorough inspection, are issued to fabricators alongwith the lining material for stitching dresses therefrom. The said issue is also recorded in the form of challans as a receipt of issue to fabricators. . - The complete stitched dresses when received in the factory are once again recorded in the form of challans, being a receipt for the number of dresses so received from the fabricators. . - These dresses are checked in the factory by quality control inspectors for variations in stitching/defects, style/size variation, oil spots loose threads, finish and the measurement of the dresses amongst various other checks conducted by us to ensure that the dress so manufactured, is as per the specification. In case of any variation/defects, the said piece is returned to the fabricator for rectification of the defect. All these transactions for movement of dresses to and from the fabricators, are recorded by way of Gate Pass/challan. . - The finished dresses are than required either in the factory or are once again issued out to repair contractors on challans. The same systems of issue and receipt by way of challans is followed. . - In the final stage, when the dress is ready in accordance with the specification of the importer, the goods are shipped out of the factory. . - The beaders raise their bills based on the final receiving given to them which in turn is based on goods shipped. Fabricators bills generally on a bi-monthly basis. . - From the above, you would be able to appreciate the various stages in the process of manufacture and the accounting methodology followed by us. Unfortunately, the officials conducting the survey chose to ignore the various records/documentary proof provided by us during the course of the survey, in support of the accounting system as detailed above. Rather, they insisted that there was shortfall/excess in the stock of material at the office/factory premises and prepared a trading account which does not reflect the correct financial/stock position. The trading account prepared at that time does not take into account all the purchase and expense bills which were not received pending final checking of the goods although physically the goods were received on challans. . I was made to pay a sum of Rs.39,37,500,00 as tax on the basis of the difference in value of physical stock and that of the stocks as per last year GP Ratio prepared at that moment by the revenue authorities. . It is common knowledge that there is always a time lag between the receipt of bills from suppliers and the goods so received, as well as its record in the books of accounts. . The following are the expenses for goods in Work-in-progress/shipped for which bills were not received should have been part of the trading account. . . . Particulars . Annexure . Pcs. . Amount (Rs.) . i) Goods in Factory after beading prior to stitching . A . 8222 . 50,67,900.00 . ii) Goods with fabrications for stitching. . B . 4356 . 26,44,225.00 . iii) Stitched goods in factory for finishing . C . 3673 . 20,31,690.00 . iv) Goods shipped between 1/2/03 to 14/02/03 (Invoice No.026 to 033 and 035, 036) . D . 5281 . 35,09,960.00 . . . B. STITCHING EXPENSES . All goods stitched and received but not yet billed. . E . 11687 . 12,65,700,00 . . . II. Besides the above goods, accessories like poly bags, zips, cartons, etc. are also received on challans but where bills were yet to be received are to the value of Rs.2,83,107.00 (Annex. F) details of each of the challans is available. . . . III. Bills which were still in the process of checking and not yet entered and were not in the trading account were of the value of Rs.7,62,658.00 (Annex. F)?. . . . 4. During the course of the assessment proceedings, the respondent/assessee had filed affidavits/confirmation in respect of 17 out of 20 suppliers. With regard to three suppliers, the details were furnished but affidavit or confirmation were not filed. The Assessing Officer issued summons to the said suppliers and 13 of them had appeared before him and their statements were recorded on 28.03.2006. The assessment order was passed on the same date i.e. 28.03.2006 recording that the said suppliers in their statements could not furnish details etc. The CIT (Appeals), on the other hand, has given contra findings. He has stated that remand report was called for alongwith copy of the statements made by the said suppliers. He has mentioned that 13 beaders had stated that after completing the job work alongwith challan, they had supplied the goods to the respondent and the bills were raised by them . later, after receiving the confirmation that their work was in order. They had filed copy of the Income Tax Returns for the Assessment Year 2003-04 alongwith balance sheet and PandL account. In some cases (where applicable), the tax audit were also filed. The C.I.T. (Appeals) had called and asked for copy of the statement of Mr. Yogendra Mishra, the Production Manager of the respondent as he had deposed on identical lines at the time of survey. Copy of the statement of Mr. Yogendra Mishra was not supplied by the Assessing Offer on the ground that it was not available at the moment. . 5. Keeping in view the said facts and after referring to the contention of the parties, the Tribunal has accepted the plea of the respondent. Findings recorded by the Tribunal are factual and cannot be treated as perverse. The Tribunal has noted that the respondent had furnished the confirmation of 17 suppliers. 13 parties had also appeared before the Assessing Officer confirming that they had subsequently raised the bills. With regard to three parties, there was no material to show as to what happen or whether the notices were served to them or not. . 6. The Tribunal has mentioned the contention of the respondent/assessee that her residential premises was subjected to survey and the said operations had lasted for 16 or 17 hours. Similar allegation was made by the respondent in her letter dated 20.02.2013, wherein she has mentioned that during the course of survey, the officers had sought statement from the respondent?s old and ailing mother aged 78 years and the officer remained in the house for 17 hours. The contention of the respondent/assessee was that her statement at the time of survey was recorded under force and coercion and, therefore, she had agreed to surrender an amount of Rs.1.25 crores. In these circumstances, it was relevant and important to refer to and consider the defence and explanation given by the respondent/assessee on the discrepancy. After examining the explanation and evidence, the Tribunal has decided the issue in favour of the respondent/assessee. . 7. We do not find any merit in the present appeal and the same is dismissed. . . . SANJIV KHANNA, J . . . . . SANJEEV SACHDEVA, J . JULY 17, 2013/st . . . . . $ 4 .